Subprime Auto Loan

AAA

DEFINITION of 'Subprime Auto Loan'

A type of auto loan approved for people with substandard credit scores or limited credit histories. There is no official cutoff score for prime versus subprime, but it should be noted that these loans carry higher interest rates than equivalent prime loans, and may also come with prepayment penalties if the borrower chooses to pay off the loan early.

INVESTOPEDIA EXPLAINS 'Subprime Auto Loan'

Subprime auto loans became big business following the monetary expansion of 2001-2004, along with subprime mortgages and other subprime lending. Financial institutions were so flush with money that they sought out the higher returns that could be had from charging higher interest rates to subprime borrowers.

On the plus side, subprime borrowers may have no other avenue for purchasing an automobile, so they are often willing to pay the higher fees and rates associated with these types of loans.

RELATED TERMS
  1. Lien

    The legal right of a creditor to sell the collateral property ...
  2. Auto Sales

    The major producers of domestic automobiles report sales monthly. ...
  3. Car Title Loan

    A short-term loan in which the borrower's car title is used as ...
  4. Recession

    A significant decline in activity across the economy, lasting ...
  5. Subprime Credit

    General term for borrowings of subprime debt, or loans made to ...
  6. Risk

    The chance that an investment's actual return will be different ...
Related Articles
  1. Budgeting

    Free Car Payment Insurance: What's The Catch?

    Many dealers are offering payment protection plans on new cars. Are they right for you?
  2. Personal Finance

    Top 10 Ways To Get Top Dollar For Your Car

    Find out what steps you can take to reduce the depreciation of your vehicle.
  3. Home & Auto

    Used Car Shopping: How To Avoid A Lemon

    Being prepared before buying will save you thousands in the long run.
  4. Options & Futures

    Top Tips For Cheaper, Better Car Insurance

    Accident, theft, vandalism - make sure your coverage will protect you when you need it most.
  5. Personal Finance

    How Will The Subprime Mess Impact You?

    The subprime collapse could mean doom and gloom for housing, equities and the overall economy.
  6. Investing Basics

    Subprime Lending: Helping Hand Or Underhanded?

    These loans can spell disaster for borrowers, but that doesn't mean they should be condemned.
  7. Mutual Funds & ETFs

    Who Is To Blame For The Subprime Crisis?

    From lenders to buyers to hedge funds, it appears everyone has blood on their hands.
  8. Personal Finance

    The Fuel That Fed The Subprime Meltdown

    Take a look at the factors that caused this market to flare up and burn out.
  9. Insurance

    The True Cost Of Owning A Car

    Driving is often the most convenient way to get around, but it'll cost you.
  10. Options & Futures

    Analyzing Auto Stocks

    Find out what to consider before taking a ride with stocks from this industry.

You May Also Like

Hot Definitions
  1. Multiplier Effect

    The expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends ...
  2. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  3. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  4. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  5. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  6. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
Trading Center