Can I Finance a Car With Bad Credit A Gentle Inquiry

Can I finance a car with bad credit, a whisper of hope in the quiet despair of financial shadows, beckons us into a realm where possibility dances with prudence. This journey, though paved with challenges, is not an uncharted wilderness but a landscape illuminated by understanding and strategic navigation, offering a path forward for those who seek the open road despite a tarnished past.

Embarking on the quest to secure vehicle financing with a less-than-perfect credit history is a testament to resilience, a quiet resolve to reclaim mobility and independence. It is a process that requires a keen understanding of how lenders perceive risk, a dismantling of common myths that cloud judgment, and a clear-eyed assessment of one’s own financial standing. This exploration delves into the heart of that possibility, offering a guiding hand through the complexities that often accompany such endeavors.

Understanding the Possibility of Financing with Imperfect Credit

Indeed, the path to owning a vehicle need not be barred by a less-than-perfect credit history. While it may present a few more hurdles, securing financing for a car with bad credit is a tangible possibility, much like finding a rare spice in the markets of Banda Neira. Lenders, while cautious, are not entirely unforgiving. They understand that circumstances can lead to credit challenges, and many are willing to work with individuals who demonstrate a genuine commitment to responsible repayment.The primary factors lenders scrutinize when evaluating applications from those with less-than-ideal credit revolve around mitigating their risk.

They seek assurance that the loan will be repaid, even if past performance suggests otherwise. This often translates to a more detailed examination of your current financial standing and your ability to manage new debt.There are common misconceptions that can deter individuals from even exploring their options. Many believe that bad credit automatically equates to an outright denial, or that the only available options involve exorbitant interest rates that make the car unattainable.

The reality is far more nuanced, with various avenues and strategies available to improve your chances and secure more favorable terms.

Feasibility of Obtaining Vehicle Financing with Credit Challenges

The general feasibility of obtaining vehicle financing with imperfect credit is indeed present. While a pristine credit score opens doors to the most competitive rates and terms, individuals with credit challenges can still access loans. The key lies in understanding the lender’s perspective and presenting a strong case for your ability to repay. This might involve demonstrating a stable income, a manageable debt-to-income ratio, and a willingness to consider different types of financing options, such as those offered by specialized subprime lenders or credit unions.

These institutions are often more flexible in their evaluation criteria, focusing on a holistic view of your financial situation rather than solely on your credit score.

Primary Factors Lenders Consider for Less-Than-Ideal Credit Applications

Lenders evaluate applications from individuals with less-than-ideal credit through a lens of risk assessment, seeking to understand your current financial capacity and commitment to repayment. Several key factors are typically considered:

• Income Stability and Employment History: A consistent and verifiable income stream is paramount. Lenders want to see that you have a reliable source of funds to cover monthly payments. A stable employment history, ideally with the same employer for a significant period, further reinforces this.
• Debt-to-Income Ratio (DTI): This ratio compares your total monthly debt payments to your gross monthly income. A lower DTI indicates that you have more disposable income available to manage a car loan, making you a less risky borrower.
• Down Payment Amount: A larger down payment significantly reduces the loan amount and, consequently, the lender’s risk. It also demonstrates your financial commitment to the purchase.
• Vehicle Age and Value: Lenders may be more inclined to finance newer, more reliable vehicles. The collateral’s value plays a role, as it provides a fallback for the lender if you default on the loan.
• Co-signer or Guarantor: A co-signer with good credit can significantly improve your chances of approval and may even help you secure better interest rates. Their creditworthiness acts as a guarantee for the lender.

Common Misconceptions About Car Loans for Those with Credit Difficulties

Many individuals harbor misconceptions about car loans when their credit history is less than perfect, which can lead to unnecessary apprehension or avoidance of the process. It is important to dispel these myths to empower individuals to explore their options effectively.

• Absolute Denial is Inevitable: A common belief is that bad credit automatically means an automatic rejection for a car loan. This is not true. While it may be more challenging, numerous lenders specialize in subprime auto loans and are equipped to work with individuals who have credit challenges.
• Interest Rates Will Be Prohibitively High: While interest rates are typically higher for borrowers with bad credit compared to those with excellent credit, they are not always “exorbitant” to the point of being unmanageable. The rates vary widely depending on the lender, the loan term, and the specific credit situation. Shopping around and negotiating can lead to more reasonable rates than initially feared.
• Only Very Old or Unreliable Cars are Available: It is often assumed that only older, high-mileage vehicles are financed for those with bad credit. While the loan amount might be limited by the vehicle’s value and age, it does not necessarily restrict you to the least desirable options. Many dealerships offer financing for a range of vehicles, and your ability to secure a loan for a specific car depends on its overall market value and your financial profile.

• No Room for Negotiation: Some believe that once a loan offer is made to someone with bad credit, there is no room for negotiation. This is a misconception. Even with a less-than-perfect credit score, it is still possible to negotiate terms, especially regarding interest rates, loan duration, and fees. Demonstrating preparedness and understanding of the market can empower you in negotiations.

Exploring Financing Options and Lenders

When faced with the prospect of financing a vehicle while navigating the complexities of imperfect credit, understanding the landscape of available lenders is paramount. Each type of institution offers a distinct approach, with varying degrees of flexibility and specific offerings tailored to individuals who may not qualify for traditional prime lending. This section delves into these differences, shedding light on the pathways available to secure automotive financing.The journey to vehicle ownership with less-than-perfect credit requires a strategic approach to identifying the right financial partner.

Not all lenders operate with the same criteria, and some are specifically equipped to assist those with credit challenges. Exploring these options allows for a more informed decision, potentially leading to a loan that aligns with your financial situation and aspirations.

Types of Lenders for Subprime Auto Financing

Navigating the world of auto loans with credit challenges means encountering a diverse array of financial institutions, each with its own strengths and weaknesses. Understanding these differences is crucial for finding the most suitable and advantageous financing.

• Traditional Banks: While banks are often the first port of call for many consumers, securing auto loans with bad credit from them can be challenging. They typically adhere to stricter lending criteria, prioritizing applicants with higher credit scores and stable financial histories. Approval, if granted, might come with less favorable terms compared to specialized lenders.
• Credit Unions: Similar to traditional banks, credit unions are member-owned institutions that often offer competitive rates and more personalized service. However, their lending policies can also be conservative, and while they may be more willing to work with members on a case-by-case basis, bad credit can still be a significant hurdle.
• Online Lenders: The digital age has brought forth a new breed of lenders who operate primarily online. Many of these institutions specialize in subprime auto loans, utilizing advanced algorithms and data analysis to assess risk. They often offer a streamlined application process, quick decisions, and can cater to a wider range of credit profiles. However, interest rates can be higher than those offered by traditional institutions.

• Buy-Here-Pay-Here (BHPH) Dealerships: These dealerships act as both the seller and the lender, offering in-house financing. This model can be particularly appealing for individuals with very poor credit or no credit history, as they often approve loans regardless of external credit scores. However, BHPH loans typically come with significantly higher interest rates, shorter repayment terms, and may require larger down payments. The vehicles offered may also be older or have higher mileage.

Loan Terms and Conditions in Subprime Financing

When exploring financing options with imperfect credit, prospective borrowers will encounter a range of loan terms and conditions that differ from those offered to individuals with excellent credit. Understanding these potential variations is key to evaluating the overall cost and feasibility of a loan.The specifics of a subprime auto loan can vary considerably depending on the lender and the borrower’s credit profile.

It is essential to scrutinize these details to ensure the loan is manageable and does not impose an undue financial burden.Interest rates for subprime auto loans are generally higher than those for prime loans, reflecting the increased risk perceived by the lender. These rates can range from 10% to as high as 30% or even more in some cases. For instance, a borrower with a credit score in the low 500s might be offered an interest rate of 18%, whereas someone with a score above 700 might secure a rate closer to 5%.Repayment periods can also vary.

While standard auto loans often extend to 60 or 72 months, subprime loans might be shorter, typically ranging from 36 to 48 months. This shorter term, combined with a higher interest rate, results in higher monthly payments.Consider a hypothetical scenario: A $15,000 car loan with a 15% interest rate over 48 months would result in a monthly payment of approximately $435.

In contrast, a similar loan with a 7% interest rate over the same period would have a monthly payment of around $350. This illustrates the significant impact of interest rates on monthly affordability.

Advantages and Disadvantages of Specialized Subprime Auto Loan Providers

Specialized subprime auto loan providers are financial institutions that focus on lending to individuals with less-than-perfect credit histories. While they offer a crucial avenue for obtaining vehicle financing when traditional options are unavailable, it is vital to weigh their benefits against their drawbacks.These lenders play a significant role in the automotive financing market by catering to a segment of the population that might otherwise be excluded.

However, their services come with specific implications that borrowers must carefully consider.

Advantages:

• Increased Accessibility: The primary advantage is their willingness to lend to individuals with poor credit scores, bankruptcies, or limited credit history. This opens doors to vehicle ownership for many who would be denied by traditional lenders.
• Faster Approval Process: Many subprime lenders have streamlined online application systems and can provide pre-approvals quickly, sometimes within minutes or hours.
• Focus on Other Factors: Beyond credit scores, these lenders may also consider factors such as income stability, employment history, and down payment amount when evaluating an application.

Disadvantages:

• Higher Interest Rates: This is the most significant drawback. Subprime loans carry considerably higher Annual Percentage Rates (APRs) to compensate for the increased risk the lender assumes. This means the total cost of the vehicle will be substantially higher over the life of the loan.
• Shorter Loan Terms: To mitigate risk, subprime loans may have shorter repayment periods, leading to higher monthly payments that can strain a borrower’s budget.
• Stricter Terms and Conditions: Borrowers might face requirements for larger down payments, limitations on vehicle age or mileage, or stricter penalties for late payments.
• Potential for Predatory Practices: While not all subprime lenders engage in such behavior, some may offer terms that are intentionally difficult to meet, leading to repossession and further damage to credit. It is crucial to research and choose reputable providers.

The cost of borrowing is directly proportional to the perceived risk. For subprime borrowers, this translates to higher interest rates, a critical factor in the total financial outlay for a vehicle.

Strategies to Improve Your Chances of Approval

Embarking on the journey to finance a vehicle with less-than-perfect credit may seem like navigating a labyrinth, but fear not, for there are indeed pathways to strengthen your position and illuminate the way toward approval. By proactively tending to your financial landscape, you can present a more compelling narrative to prospective lenders, demonstrating your commitment and capability to manage a loan responsibly.

Navigating car financing with poor credit can be challenging, but options exist. Understanding the landscape of debt collection, including who does Midland Credit Management collect for , might offer insights into the broader credit environment. Ultimately, focusing on rebuilding your credit is key to securing favorable terms for your next vehicle purchase.

This section delves into the essential strategies that can significantly enhance your likelihood of securing the automotive financing you seek.Presenting your financial situation favorably is akin to preparing a well-crafted proposal; it requires clarity, honesty, and a focus on your strengths. Lenders scrutinize applications not just for past missteps but also for present stability and future potential. Understanding their perspective and tailoring your application accordingly is paramount.

Furthermore, the concept of a co-signer or guarantor is a powerful tool in this endeavor, offering an additional layer of assurance that can bridge the gap for those with credit challenges.

Proactive Steps to Strengthen Your Loan Application

Before you even submit a single application, a series of diligent preparations can dramatically shift the odds in your favor. Think of these as laying a solid foundation upon which your loan request will stand. By addressing potential red flags and highlighting your financial stability, you present yourself as a lower-risk borrower.

• Review and Rectify Your Credit Reports: Obtain copies of your credit reports from the major bureaus (Equifax, Experian, TransUnion). Scrutinize them for any inaccuracies, such as incorrect personal information, accounts that do not belong to you, or erroneous late payment notations. Dispute any errors promptly, as a cleaner report can lead to a higher credit score.
• Reduce Existing Debt: High credit utilization ratios can negatively impact your score. Focus on paying down balances on your credit cards and other revolving lines of credit. Aim to keep your utilization below 30%, and ideally below 10%, on each card. This demonstrates responsible debt management.
• Demonstrate Stable Income and Employment: Lenders want to see a consistent history of earning. Ensure your employment is stable and that you can provide recent pay stubs and tax returns to verify your income. A longer tenure at your current job is generally viewed favorably.
• Save for a Larger Down Payment: A substantial down payment reduces the amount you need to finance, thereby lowering the lender’s risk. It also signals your financial commitment to the purchase and your ability to save.
• Improve Your Credit Score: While time is a factor in credit score improvement, making consistent on-time payments, reducing debt, and avoiding new credit applications in the immediate period before applying can have a positive effect.

Presenting Your Financial Situation Favorably

When engaging with lenders, the manner in which you present your financial narrative is as important as the numbers themselves. Transparency and a clear explanation of any past difficulties can foster trust and understanding.

• Be Honest and Transparent: Do not attempt to hide past credit issues. Instead, be prepared to explain them concisely and truthfully. Focus on what you have learned and how you have improved your financial habits since then.
• Prepare a Detailed Budget: Show lenders that you have a clear understanding of your income and expenses. A well-organized budget demonstrates financial discipline and the ability to allocate funds for loan payments.
• Gather All Necessary Documentation: Have readily available all required documents, including proof of income (pay stubs, tax returns), proof of address, identification, and bank statements. This expedites the application process and conveys preparedness.
• Highlight Positive Financial Behaviors: If you have recently improved your credit habits, such as consistently paying bills on time or reducing debt, make sure to emphasize these positive actions.

The Significance of a Co-signer or Guarantor

In situations where your credit history presents a significant hurdle, the involvement of a co-signer or guarantor can be a transformative element in securing loan approval. These individuals lend their creditworthiness to your application, effectively vouching for your ability to repay the loan.

A co-signer is someone who agrees to share responsibility for the loan. If you are unable to make payments, the co-signer becomes legally obligated to do so, and their credit score will be affected by your payment history.

The impact of a co-signer is profound. Their stronger credit score can help you qualify for better interest rates and loan terms than you might otherwise receive. It significantly reduces the lender’s perceived risk, making them more inclined to approve your application. However, it is crucial for both parties to understand the gravity of this commitment. The co-signer’s credit is on the line, and a default on your part can have severe repercussions for them.

Therefore, choosing a co-signer requires careful consideration and open communication.

Understanding Loan Terms and Avoiding Pitfalls: Can I Finance A Car With Bad Credit

Navigating the complexities of auto loan agreements is paramount, especially when your credit history is less than perfect. Understanding the nuances of the terms and conditions will empower you to make informed decisions and steer clear of arrangements that could lead to financial strain. This section will illuminate common red flags and unfavorable terms, clarify the implications of elevated interest rates and fees, and Artikel responsible payment management strategies.

Identifying Red Flags and Unfavorable Terms

When reviewing an auto loan contract, a discerning eye for certain clauses and conditions is crucial to prevent unforeseen financial burdens. Lenders may present terms that, while seemingly standard, can disproportionately impact borrowers with imperfect credit. Recognizing these elements before signing is the first line of defense against predatory practices.

• Excessive Fees: Be wary of loans with a multitude of origination fees, processing fees, or administrative charges that inflate the total cost of the vehicle significantly. Some lenders might bundle these fees, making them harder to spot.
• Prepayment Penalties: While not as common in all regions, some loans may include penalties for paying off the loan early. This can hinder your ability to save money by refinancing or making extra payments.
• Balloon Payments: A balloon payment is a large lump sum due at the end of the loan term. If you haven’t planned for this, it can create a significant financial crisis, forcing you to refinance or sell the vehicle.
• Short Loan Terms with High Payments: While a shorter term means paying interest for less time, if the monthly payments become unmanageable due to a higher interest rate, it can lead to default.
• Vague Language or Omissions: Any ambiguity in the contract regarding interest calculation, payment allocation, or default clauses should be a cause for concern.

Implications of Higher Interest Rates and Fees

For individuals with less-than-ideal credit scores, lenders perceive a higher risk. To compensate for this perceived risk, they typically offer loans with elevated interest rates and often include additional fees. This means the total amount you repay over the life of the loan will be considerably more than what a borrower with excellent credit would pay for the same vehicle.For instance, imagine two individuals purchasing a $20,000 car with a 60-month loan.

• Borrower A (Good Credit): 6% APR. Total interest paid would be approximately $3,
  150. Total repayment: $23,150.
• Borrower B (Bad Credit): 15% APR. Total interest paid would be approximately $8,
  700. Total repayment: $28,700.

In this scenario, Borrower B pays over $5,500 more in interest due to the higher interest rate. Furthermore, origination fees, which might be a percentage of the loan amount, will also be higher for borrowers with less favorable credit, adding to the overall cost.

Strategies for Responsible Loan Payment Management

Successfully managing your auto loan payments is critical not only for avoiding repossession but also for rebuilding and strengthening your credit history. Proactive and consistent payment behavior demonstrates reliability to lenders and credit bureaus, paving the way for better financial opportunities in the future.

• Automate Your Payments: Set up automatic payments from your bank account to ensure you never miss a due date. This is a simple yet highly effective method to avoid late fees and negative marks on your credit report.
• Budget for Your Loan: Create a detailed monthly budget that clearly allocates funds for your car payment. Factor in not just the principal and interest but also potential costs like insurance and maintenance.
• Pay More Than the Minimum When Possible: If your budget allows, paying an extra amount towards the principal each month can significantly reduce the total interest paid over the life of the loan and shorten the repayment period. Even small extra payments can make a substantial difference.
• Communicate with Your Lender: If you anticipate difficulty making a payment, contact your lender
  -before* the due date. They may be able to offer temporary solutions like deferment or a modified payment plan, which can be less damaging to your credit than missing payments.
• Review Your Statements Regularly: Keep track of your payment history and ensure all payments are being applied correctly. This vigilance can help catch any billing errors early on.

By diligently adhering to these strategies, you can effectively manage your auto loan, minimize financial stress, and make positive strides in your credit journey.

Preparing for the Vehicle Purchase

Embarking on the journey to acquire a vehicle when navigating the complexities of imperfect credit requires a thoughtful and strategic approach. This phase is not merely about selecting a car that catches your eye; it’s about harmonizing your desires with your financial realities, ensuring that the vehicle you choose is not only a joy to own but also a sustainable addition to your life.

A well-prepared buyer, armed with knowledge and a clear plan, can significantly smooth the path from selection to ownership, even with a less-than-perfect credit history.The act of purchasing a vehicle with financing in mind is a delicate dance between aspiration and affordability. It necessitates a keen understanding of how your credit standing influences your options and, more importantly, how to make choices that align with your approved loan parameters.

This preparation phase is crucial for avoiding the disappointment of an unsuitable vehicle or, worse, a loan that strains your finances beyond comfort.

Vehicle Selection Checklist Aligned with Financing

Selecting a vehicle when financing is a significant factor demands a checklist that prioritizes practicality and affordability over sheer desire. This ensures that the car you fall in love with is also one that your approved loan can comfortably accommodate, preventing future financial strain.

• Budgetary Framework: Establish a firm maximum vehicle price that aligns with your pre-approved loan amount or the amount you are comfortable borrowing. Do not exceed this limit, as it will likely lead to loan rejection or unaffordable monthly payments.
• Fuel Efficiency: Consider vehicles known for their excellent gas mileage. This directly impacts your ongoing operational costs, reducing the overall burden of car ownership and freeing up funds for loan repayment.
• Reliability and Maintenance Costs: Research the long-term reliability ratings and average maintenance costs for models you are considering. A vehicle with a reputation for frequent and expensive repairs can quickly become a financial black hole, negating any initial savings. Look for vehicles with readily available and affordable parts.
• Insurance Premiums: Obtain insurance quotes for the specific makes and models you are interested in. Insurance costs can vary dramatically based on the vehicle’s age, type, safety features, and even its perceived desirability by thieves. A sports car, for instance, will almost invariably cost more to insure than a practical sedan.
• Resale Value: While not the primary concern, a vehicle with a good resale value can be beneficial in the long run, should you decide to upgrade or sell it later. This provides a degree of financial flexibility.
• Size and Utility: Assess your actual needs for passenger and cargo space. Opting for a larger vehicle than necessary can increase purchase price, fuel consumption, and insurance premiums.

Negotiating Vehicle Price with Financing in Mind, Can i finance a car with bad credit

When financing is a part of the equation, negotiating the car’s price requires a nuanced approach. The goal is to secure the lowest possible vehicle price before discussing the financing details, ensuring that your loan amount is based on the actual value of the car, not an inflated figure.

Before you even step onto the dealership lot with financing in mind, it is paramount to have secured pre-approval from a lender. This grants you a powerful negotiating position, as you are no longer solely reliant on the dealership’s financing options. You arrive with a clear understanding of your borrowing capacity and interest rate, allowing you to focus solely on the price of the vehicle itself.

Treat the car’s price and the financing as two separate transactions, and negotiate the former first.

When discussing the price, always refer to the “out-the-door” price, which includes all taxes, fees, and the vehicle’s sticker price. This prevents surprises and ensures that the agreed-upon figure is comprehensive. Remember that the dealership makes money on both the sale of the car and the financing. By separating these, you can negotiate a better deal on the car itself.

“The purchase price of the vehicle is the foundation upon which your loan is built. A lower foundation means a more manageable loan.”

Dealers may try to steer the conversation towards monthly payments. Resist this. Focus on the total purchase price. If a dealer offers a lower monthly payment by extending the loan term, understand that you will pay significantly more in interest over the life of the loan. Always bring the conversation back to the total price of the vehicle.

Understanding Total Cost of Ownership

The monthly loan payment is but one facet of the financial commitment to a vehicle. A comprehensive understanding of the total cost of ownership is essential to ensure that your chosen vehicle remains affordable throughout its lifespan, especially when managing a car loan with imperfect credit.

Beyond the principal and interest of your car loan, several other expenses contribute to the overall financial outlay. Neglecting these can lead to unforeseen financial burdens that could jeopardize your ability to meet your loan obligations. It is prudent to budget for these additional costs upfront.

Consider the following components of total cost of ownership:

• Loan Payments: The sum of your principal and interest payments over the life of the loan. This is often the largest single expense.
• Insurance Premiums: As previously mentioned, this is a mandatory cost that can fluctuate based on your driving record, the vehicle’s profile, and your chosen coverage.
• Fuel Costs: This is an ongoing expense directly related to how much you drive and the vehicle’s fuel efficiency. For a realistic estimate, consider your average daily commute and any anticipated long trips.
• Routine Maintenance: This includes oil changes, tire rotations, brake pad replacements, and other scheduled servicing recommended by the manufacturer. Researching the typical maintenance schedule and costs for your specific make and model is crucial.
• Unforeseen Repairs: Even the most reliable vehicles can experience unexpected breakdowns. Setting aside a contingency fund for potential repairs is a wise financial strategy. Older vehicles or those with a history of mechanical issues may require a larger reserve.
• Registration and Taxes: Annual registration fees and any applicable local or state taxes are recurring costs that must be factored into your budget.

To illustrate the impact of total cost of ownership, consider two similar vehicles. Vehicle A has a slightly higher purchase price and loan payment but excellent fuel efficiency and low maintenance costs. Vehicle B has a lower purchase price and initial loan payment but poor fuel economy and a higher likelihood of needing expensive repairs. Over several years, Vehicle A could prove to be significantly more economical due to its lower ongoing operational expenses, even with a higher initial loan amount.

“The true cost of a vehicle is not just its sticker price, but the sum of all expenses incurred from the moment of purchase until it is no longer in your possession.”

Ending Remarks

Thus, the path to financing a car with imperfect credit, while often a somber affair, is ultimately one of empowerment and careful planning. It is a journey that demands introspection, a willingness to explore all avenues, and a commitment to responsible stewardship of newfound financial footing. By embracing the strategies and understanding the pitfalls, one can indeed drive away, not just in a car, but with a renewed sense of control and a brighter outlook on the road ahead.

FAQ Section

What are the typical interest rates for car loans with bad credit?

Interest rates for car loans with bad credit are generally higher than those offered to individuals with good credit scores, reflecting the increased risk perceived by lenders. These rates can vary significantly but may range from the mid-teens to upwards of 25% or more.

How long does it typically take to get approved for a car loan with bad credit?

The approval timeline can be longer for those with bad credit, often taking anywhere from a few days to a week or more. This extended period is due to the more thorough review lenders conduct to assess risk and verify information.

Can I improve my credit score before applying for a car loan?

Yes, improving your credit score before applying can significantly increase your chances of approval and secure better loan terms. This involves paying bills on time, reducing outstanding debt, and checking your credit report for errors.

What is a “buy-here-pay-here” dealership and how does it work for bad credit?

Buy-here-pay-here dealerships finance vehicles directly through their own lot, often approving buyers with bad credit who might be rejected elsewhere. Payments are made directly to the dealership, and they may report payment history to credit bureaus, potentially helping to rebuild credit.

Are there any specific types of vehicles that are easier to finance with bad credit?

Generally, financing for less expensive and older vehicles is more accessible with bad credit. Lenders perceive lower risk with these vehicles as the loan amount is smaller and the collateral value is less susceptible to depreciation.