Reasons For a High Rate On a Bad Credit Auto Loan

It is a popular fact that the dealings of the lending industry are majorly based on the credit score of the applicant. If the credit score is high, then the chances of getting approved for a loan are easy and that too at a good and easy rate. However, if the credit score is low, then the applicant might have to go for a bad credit auto loan. The about bad credit auto loan facilities is that these are charged at a rate higher than that of the conventional loans which means that it is going to be more difficult to pay them back. There are number of reasons why lenders charge a high interest from applicants of a bad credit auto loan.

The first reason is that charging a high interest allows them to make their money as soon as possible. The interest amount, when charged so high, is huge which allows most of the lenders to earn back their money when more than half the loan term is completed. In these cases, the lender might reduce the interest rate because he/she has already recovered what he/she has invested and is just ensuring that the profit is made on the bad credit auto loan.

Another reason is the high risk involved for the lenders. As the clients of bad credit auto loan facilities have shown a history of poor credit payments, they want more incentive for their risk and trust and charging a high interest rate or getting a good down payment is the only way, according to them, to do that. Some dealers and lenders are also seen to charge outrageous interest rate on bad credit auto loan because they want to earn more money of someone else’s misery. They do not care if the installments are high, they just want to earn more money on the loan.


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