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Are Guaranteed Auto Loans Possible?

Yes, guaranteed auto loans are possible and they do exist in the market. Guaranteed auto loans have become popular internationally since their inception in the U.K. These loans are mainly designed to appeal to borrowers with bad credit, or those who are more likely to be denied a loan because of credit issues. A guaranteed auto loan somehow assures or “guarantees”—thus the name—the borrower that he or she can get approved for a car loan regardless of his or her credit.

In most cases, lenders would no longer bother to look at your credit report if you’re seeking guaranteed financing. What they would need to see though is some proofs of stable income among other requirements. In that case, you need to provide copies of your pay stubs for at least the past 6 months. The proof of income is quite important as this is where lenders would see how you are as a payer.


Is your income enough to sustain car payments? Are you most likely to stay in your current job at least until the loan is paid off? These are just some pointers that you also need to look at before applying for a car loan.

But before you get too excited about guaranteed auto loans that seem to give you a light of hope, consider the following aspects of the agreement first.

Higher Interest Rate
Guaranteed auto loans are highly risky for lenders, so it’s reasonable for them to charge borrowers with nonprime credit higher interest rates. However, these rates can get unacceptably high. Be aware that as a borrower with bad credit, you are a favorite of rip-off artists and abusive lenders. Before you even step into a lending office, make sure you know the interest rate you will most likely get based on your credit. You can do this by pulling out a copy of your credit report beforehand and taking note of your credit score. You can also research about the current interest rates in most lending institutions available.

Extended Loan Term
Guaranteed auto loans are seldom short. Lenders would usually require you to make payments for at least 60 months or 5 years. That may sound a good deal as the monthly payments are lower than in a shorter term. However, experts discourage borrowers in general from going for attractive monthly payments without taking the total interest expense into consideration.

Longer loan terms may seem cost-efficient at first but they will cause you to pay more interest. (You can clearly see this with the help of an auto loan calculator.) Aside from that, there is also the risk of turning upside down in your loan where your remaining balance is greater than your car’s market value.

Down Payment
If taking out a guaranteed auto loan is the only way for you to finance a car, make sure you can make at least 20% down payment. This may mean a lot of cash but it will greatly help to minimize the impact of a high interest rate on your payments and savings. If you find it hard to shell out such amount upfront, you can add the trade-in of your current vehicle, if you have any, to how much cash you have in hand. You can also save up for this ahead of time. In any event, make it a point to put some money down upon purchase of the vehicle to avoid paying excessively and heavily for your car.

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