As with any kind of loan deal, guaranteed auto loans present both risks and benefits to the buyer. But what exactly is a guaranteed auto loan? Essentially, a guaranteed auto loan is a way for individuals with a poor or no credit score to purchase a vehicle on finance. The 'guaranteed' part means that the individual is guaranteed to get the loan, whatever their financial situation. For most guaranteed auto loans a deposit is required, but it is not as large as regular auto loan down payments. Again, this is a way to help those with poor credit or low income to be able to afford a car on finance. Let's take a look at some of the risks and benefits of guaranteed car loans, and what they can offer the individual.
There are plenty of risks surrounding guaranteed auto loans, specifically the fact that although they offer quick loans, they could end up costing customers significantly more than the original price of the vehicle if they bought it outright or on a more traditional loan option. The overall cost of the vehicle ends up so high for two main reasons: the interest rate and the loan term. As you're borrowing with no or very little down payment, and with no credit score or fixed income, the payments will need to be spread across as long as possible, which of course increases the amount of interest you will pay on the loan. In the long term, this can increase the overall amount you will pay significantly. In addition, due to the precarious nature of the loan, the late fees can be significantly higher than traditional loan options.
The benefits of guaranteed auto loans are fairly obvious. If you have a poor or bad credit rating, or no consistent, demonstrable income then they are a good, and sometimes the only, way to purchase a car on finance. You are guaranteed the loan, whatever you financial situation, income or credit score. These loans can also improve your credit rating over time if you keep up your loan payments. This can then lead to an improved financial situation and the ability to borrow on better loan terms.
Whichever way you look at it, guaranteed auto loans are risky - but they can also be a lifeline for people with poor credit, low incomes or no deposit to purchase a vehicle. The ins and outs of different deals will affect its level of risk, and you should be aware that you could end up paying back a lot more than the cost of the vehicle as the interest rate tends to be higher than traditional loan options. If you're thinking about taking out a guaranteed auto loan to finance your car, then make sure you are prepared first. Find out how much you can afford and what you can get for your money - this will only help you and your finances in the long term.