But the problem arises for the lenders when the borrower is defaulter in paying the loans. This is where it gets difficult and tricky. The lender first targets the asset-backed securities and thus ceases the car. But the borrower is still stuck indebted and has to repay the loan but now he cannot use his car to the office to work! Adding to this most cars depreciate their values as they are driven for long time. So even if the car is sold it doesn’t compensate the repayment cost. And as a result some lenders take the borrowers to the court and sue them for their default in repayment. In return this adds to the misery of the borrowers.

For this sickening reason, to ensure that more borrowers can pay off their loans, lenders are offering the subprime auto loans with long repayment periods. This allows the borrowers flexibility in paying lower monthly payments. But this also adds a burden of longer monthly repayment period. And for the long loan, the less the car is worth by the end of it.

In nutshell, subprime loans have two sides of the coin. The positive side is that it can carry out high- risk loan lending to the borrowers and they can be benefited from the loan. And the negative aspect is that it can cause greater troubles to the lender even though they can be secured by asset.