Do High Risk Auto Loans Always Carry High Rates?

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January 27, 2012

High risk auto loans do not always have to carry a high interest rate with them, as long as you know what steps you can take to lower the risk and lower your interest rate accordingly. There are a number of different reasons that your auto loan may be categorized as being one of many different types of high risk auto loans. If you have a poor history of loan repayment or if your credit is low or poor, you may only find options for high risk auto loans.

High Risk Auto Loans

The first thing to understand is high risk auto loans are categorized by the lender based on whether or not they think they are going to be paid back for their auto loan. The lender is not trying to pass judgment on you specifically, but rather they are trying to protect themselves because many borrowers do fail to repay their debt obligations for various reasons. These high risk auto loans are auto loans that carry higher interest rates to make up for the risk inherently involved in offering them.

These high risk auto loans are for people that have poor credit, bad credit ratings, a poor history of repayment or some other characteristic that makes them risky to lend to. These high risk auto loans are given out to people based specifically on their credit situation. But if you are being told your only options are high risk auto loans, you should know that there are some things that you can do.


One way that you can avoid high risk auto loans is to work with a cosigner. The purpose of a cosigner is to raise the effective credit rating on the application by applying with someone that has a better credit rating than you. This will impact the risk inherent in your application in a good way, giving you a better chance of getting the loan you want with a much lower interest rate. If you know someone with a higher credit rating, consider asking them for cosigning assistance. Keep in mind that they will be held liable for your loan if you fail to make the necessary payments.

Down Payments

Another way that you can bypass the risk associated with high risk auto loans is to put a down payment on the car that you are looking to purchase. By putting down a down payment, you are lessening the cost of the auto loan, and showing the lender or car dealership that you are making a good faith effort to prove creditworthiness. If you can prove to the lender or the dealership that you are not a risky proposition when it comes to lending, you may be able to get a lower interest rate even if you are only qualifying for high risk auto loans.

Keep these things in mind when high risk auto loans seem to be your only options, and you may be able to turn things around in your favor.

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