Guaranteed Auto Loans: Pros and Cons

• Posted on Autos.com Editor
• in Auto Loans
• on October 7, 2013

Guaranteed auto loans are fast, convenient car loan options for people looking to establish or improve their credit. Everyone is approved regardless of credit if they have a significant down payment and an income. However, there are disadvantages associated with these types of loans. It is important for the buyer to weigh the pros and cons of guaranteed auto loans before committing to a loan.

Pros

Guaranteed auto loans are just that; guaranteed. The primary advantage of guaranteed auto loans is that they are designed to assist people who are unable to qualify for a traditional loan for one of the following reasons: the person has poor credit, un-established credit, or insufficient income. People in these categories have fewer car loan options than people with good or fair credit.

Guaranteed auto loans are fast. Car loan approval for guaranteed auto loans is usually within 48 hours from the time an application is submitted.

Guaranteed auto loans are convenient. Most guaranteed auto loan lenders are online. As a result, the process of researching and purchasing car loan options is simplified. Consumers are able to easily compare and contrast car loan lenders to find the best terms and interest rates.
Cons

Although guaranteed auto loans offer customers an opportunity to establish or rebuild their credit, unfortunately, guaranteed may ultimately cost consumers thousands of dollars.

One disadvantage to having a guaranteed auto loan is the down payments structure; they are at least 20% of the purchase price of a loan. Since the average price of a car is between 15% and 20%, a consumer would have to make a down payment between $3,500 and $4,000.

Another disadvantage of guaranteed auto loans is the length of the payment. People with good credit can finance their vehicles up to 72 months making monthly payments lower. Typical loans are financed for either 48 months or 60 months (four or five years). Guaranteed loans are financed up to 36 months, or three years. By stretching loan payments over six years, monthly payments are reduced by at least $100.00.

Guaranteed auto loans primary disadvantage is the exceptionally high interest rates charged to the consumer. Because guaranteed loans are tailored to fit the needs of people with credit or financial difficulties, these customers cannot negotiate with the lenders. In general, guaranteed auto loan rates are between 14% and 20%, at least ten percentage points higher than prime rates. This translates into higher monthly payments, thus costing substantially more money to finance.

The final shortcoming of guaranteed auto loans is the penalties for late payments. Traditional auto loan lenders commonly charge between $10.00 and $20.00 for late fees. Guaranteed may charge $50.00 or more for late fees.

Guaranteed auto loans conveniently offer consumers with poor credit a chance to improve their credit and eventually own a car. In exchange, consumers with these loans ultimately pay more than consumers with good credit.