Subprime auto loans are a type of auto loans where people with low credit score are granted loans to purchase cars, trucks, SUVs, etc for themselves. These are often referred to as bad credit auto loans. There is no specific cut-off mentioned for a qualified sub-prime borrower, however a person with a credit score range of 620-640 (or below) can avail this loan.

It must be noted that subprime auto loans charge a higher rate of interest than other prime loans and also charges a prepayment penalty if the borrower opts to pay off the debt early. This high rate is due to the risk taken by the lenders in giving their money to people with low credit score. The subprime auto loans go to borrowers who have no other option for purchasing an automobile and hence they agree to pay high payments, penalties and other fees associated with this type of loan.

“It was during 2001-2004 when banks and financial institutions had lots of money to lend. Subprime auto loans became a huge business opportunity to earn high interest amounts. Let us discuss some key facts due to which some people are out of the range of prime loans:

• Two or more loan payments paid past 30 days due in the last 12 months, or one or more loan payments paid past 90 days due the last 36 months;
• Judgment, foreclosure, repossession, or non-payment of a loan in the past;
• Bankruptcy in the last 5 years.
• Relatively high default probability as evidenced by the credit score.
• Accuracy of the credit line data obtained by the underwriter.

Approximately 25% of U.S population falls under the sub-prime borrowers’ category. This has enhanced the sub-prime loan industry as well as the loan modification industry”, informs Jeffrey Taylor, Director of Sales at Auto Relief Group.

“When we purchase a car through auto loans, we do not realize that we are paying for the depreciated amount too. A loan modification process will help you pay reduced amount with an option of term extension too. Bad credit auto loans are certainly not where you want to be by choice.