Subprime Auto Loans Easy Availability Lacking Regulation
Subprime Auto Loans Easy Availability
UPDATE: Delinquencies of 60 days or more have increased by 27 percent in the 3d Quarter of 2014 Equifax reports. The largest increase is among sub prime borrowers as might be expected. Mississippi, South Carolina and Alabama are the worst offenders. North Dakota with its booming economy is the best. Expect regulatory scrutiny to tighten in the near future.
UPDATE: In the first three months of 2014 Repossessions have increased by 78 percent to 388,000 cars! New technology enables dealers to remotely disable ignitions when a payment is missed for ease in repossessing the vehicle. A “starter interrupt” device enables the lender to GPS track and remotely disable vehicles..About 25 percent of subprime (credit score under 640) auto lenders require buyers to agree to this condition. Usually it won’t be used before 30 days late and a phone call. Backers claim that the use of this enables them to make loans they otherwise would not be able to make. Borrowers do consent to this but shutdowns can occur in dangerous neighborhoods or even when seeking shelter from spousal abuse.
You’ve seen the ads and heard the pitchmen letting you know subprime auto loans easy availability to all. Bankruptcies? No problem. Foreclosures? No problem. Low credit score? Jobless? No down payment? No problem. How do they do it?
Car Dealers Have Political Clout
Congressmen and other politicians have many car dealers as their constituents. As a result car loans have slipped under the radar of such regulatory controls as the Dodd- Frank Bill‘s creation of the Consumer Financial Protection Bureau and the CARD Act which regulates credit card lending. The car dealership lobby in reality rivals that of Wall Street, the NRA or any other group we usually associate with great political power. Car dealers are everywhere and their numbers alone give them all the political power they need to retain subprime auto loans easy availability. Subprime auto loans easy availability would be deemed too financially risky for other industries.
Having an installment loan in your credit mix is critical in getting an auto loan. No repossessions in your past and timely payments of past auto loans are factored into your auto credit score. Higher end car dealers will sometimes have policies against giving loans to people with no installment loan history even if their FICO score is otherwise satisfactory. FICO auto credit score will be differently weighted than other FICO scores.
Inflated Prices, High Interest Come with Subprime Auto Loans Easy Availability
Most people who purchase used cars from bottom tier dealerships do so because they have no other recourse. Desperate for a car for work and other family transportation needs they have to take what they can get. Surely no one who walks into one of these dealerships is so naive that they don’t know that the price they are about to pay is far and above the fair market value of that little beauty sitting in the lot. This is in addition to the ridiculously high interest rate they are about to sign up for. The dealer can afford to take a chance on the desperate consumer because subprime auto loans easy availability comes with the power of repossession. This is a power the dealer is not afraid to use. A car is much easier to repossess than a house but the car also comes with a lower resale value compared to the outstanding balance. Credit card issuers have no such repossession power. Credit card debt is now declining as fast as auto borrowing is growing.
Dealers are marking up the already high interest Even More
Some auto dealers put their own mark up on to the already high interest rates charged by the banks. Desperate buyers just take it because they have no choice. This added money making incentive makes unscrupulous dealers push buyers into car loans they can’t afford. 27% of subprime auto buyers now have credit scores under 500.
Subprime Auto Loans Easy Availability Lenders Like Newer Cars
Lenders prefer newer cars for people who are risky borrowers. A 5 year loan for $10,000.00 on a 12 year old car is easy to walk away from if a major repair problem comes up. If the loan were for $15,000.00 on a 2 year old car there is much less chance of a major repair problem coming up that is not worth fixing. Also if it turns out that the lender has made a poor decision and must repossess the vehicle there will be enough value remaining to recoup at least most of the money.