Does a High Risk Loan Automatically Equal High Rates?

High risk auto loans do not always equate to high interest rates. In fact, if you know how to figure your loan you can lower your risk and lower your interest at the same time.Your auto loan might be categorized as high risk because of a poor repayment history or poor credit rating.

High risk auto loans are not determined by judging your past actions but rather by forecasting how likely it is the financial institution will be paid back. A high risk auto loan has a higher interest rate because the financial institution is wary of getting their money back. Higher interest ensures a big part of the money is paid back, as the bulk of initial payments are by and large purely interest. The principle is paid down at a much slower rate.

High risk auto loans are normally the only type of lending available to people with poor credit, bad credit ratings or a poor history of repaying loans. This type of history is considered a high risk for lending, but high risk loans are not the only lending options available.

The easiest way to make yourself more attractive to lenders is to secure a cosigner. A cosigner with good credit makes you a lower risk to the financial institution because it makes someone with good credit culpable for your debt as well as you. If you do not repay your loan, the lender has the legal right to pursue your cosigner. This additional liability decreases the risk for the lender and increases the likelihood they will lend to you at a better rate.

Another easy way to avoid a high risk auto loan is to increase your down payments. The larger your down payment the more of a vested interest you have in the purchase. This shows the lender your commitment to paying for the item you are buying. If you are already on the hook for half the purchase price of the vehicle the lender assumes you will be more likely to pay the remaining bit off.

A high risk auto loan does not need to be the end of the story for buyers. Take control of your financial situation and learn to find the best deal for you before you sign anything.

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