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. Recession

    A significant decline in activity across the economy, lasting ...
  2. Risk

    The chance that an investment's actual return will be different ...
  3. Blue Book

    A guidebook that compiles and quotes prices for new and used ...
  4. Prime

    A classification of borrowers, rates or holdings in the lending ...
  5. Subprime Lender

    A type of lender that specializes in lending to borrowers with ...
  6. Prepayment Penalty

    A clause in a mortgage contract that says if the mortgage is ...
Related Articles
  1. Free Car Payment Insurance: What's The ...
    Budgeting

    Free Car Payment Insurance: What's The ...

  2. Top 10 Ways To Get Top Dollar For Your ...
    Personal Finance

    Top 10 Ways To Get Top Dollar For Your ...

  3. Used Car Shopping: How To Avoid A Lemon
    Home & Auto

    Used Car Shopping: How To Avoid A Lemon

  4. Top Tips For Cheaper, Better Car Insurance
    Options & Futures

    Top Tips For Cheaper, Better Car Insurance

comments powered by Disqus
Hot Definitions
  1. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  2. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  3. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  4. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  5. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  6. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
Trading Center