Understand How Bad Credit Auto Financing Lenders Think : And Get A Loan In 7 Days!
Many people regard getting a bad credit auto loan as something of a game of luck
, or something like a puzzle that they do not understand. Yet once you really get how a lender thinks, it becomes much less of a mystery : And much easier to get a loan.A Lender's #1 Concern: Risk
A lender's #1 concern is risk. How risky is the proposition? Will they get paid back the money that they loan out? Or is it possible that they will just lend out the money and not get a penny back?
Everything a lender does goes towards calculating risk, reducing risk and offsetting the risks that are there.
What Bad Credit Means to a Lender
A bad credit to a lender means one of two things.
If you have no credit, that tells the lender that you have no track record of paying people their money back. This does not mean that you are high risk, but it just means that he does not know for sure that you will return the money.
If you have poor credit, that means you have defaulted on payments on the past. To a lender, this is much, much higher risk than someone with no credit. In other words, you have already proven that you will not pay money back, so why should he give you the money?
What Does it Mean to "Offset Risk?"
Offsetting risks means taking risks anyway, because the payout over a long period of time statistically means he will be profitable.
For example, if he were making five high risk loans, each one offering double his money, if two out of five default, he would still make six times his money because the other 3 more than paid for the two that defaulted.
His risk of betting on the 2 worked out, because the 3 had offset his risk.
Interest rates work in much the same way. Sure, the lender might be taking a risk by lending you money if you have poor credit. But if your interest rate is high, then the payout from the interest rate will offset his risk.
Of course, it depends on how bad your credit is and how much interest rate he is charging you.
Choosing a Specialist Lender
Most banks are pretty conservative lenders. The same applies to dealerships. Dealerships don not actually give out loans, they provide loans to consumers and "pass" them to the banks. The banks are still the people actually putting out the money.
On the other hand, there are specialized lenders who work exclusively with bad credit individuals. These lenders make it their business to know exactly what interest rate to charge that allows them to offset risks, while still providing a favorable deal to customers.
If you are looking for bad credit auto financing, working with a specialized lender may be your best bet.
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