Next up: subprime auto loans

[spdrun]

Interesting article in the NY Times this AM. Glad I haven’t ever paid more than a few grand (cash) for a car and that I have the mechanical skills to keep an older used car running…

http://dealbook.nytimes.com/2014/07/19/in-a-subprime-bubble-for-used-cars-unfit-borrowers-pay-sky-high-rates

[scaredyclassic]

i was aware of this phenomenon from some poorer acquaintances…it’s almost liek a strange form of car rental…

it is amazing how desperation and lack of financial savvy combine to keep people poor. not sure what options there are in some situations, but for many, it’s just insane to buy cars on these terms…

[joec]

It sounds like these people already had very bad credit and wouldn’t get any loan anyways…that being the case, is there a way they can take advantage of their situation and just keep getting car loans at whatever rate and make no payment?

I suppose the wealthy financial industry has probably already thought about that and charge a hefty buy deposit I’m guessing.

Funny that the private equity firm is getting out now after doing this again and making millions…

Sucks to be poor in America with a gamed system keeping you down.

I don’t really feel too sad for these people though. If you don’t have money or assets, hopefully not all of your friends or parents or whoever won’t at least give bad financial advice…course, this is probably the norm since financial literacy in this country is pretty pathetic.

[spdrun]

Problem is that it inflates used car prices for the rest of us. Being able to buy a running used car for under $3000 is niiiiiiice, and I hope it stays that way.

[CA renter]

Once again, we can point the finger of blame at the Fed. If not for their manipulation of interest rates, investors wouldn’t be chasing after these types of investments in the numbers that we see here.

Pension funds are back at it again, too. 🙁

[spdrun]

Don’t know if that’s the case in this instance. I remember reading about operations (less organized) like this in the 90s — set up around bases and catering to military people, I believe. This isn’t anything new, though it may have become more prevalent.

[CA renter]

Yes, it’s always existed to some extent, but the big money (like pension funds, mutual funds, and private equity) being in it is newer. The size and scope is greater, and I believe that is very much a result of the Fed’s manipulations. When you have to earn 7-8% in a sub-1% world, there is no choice but to take on more risk.

[Coronita]

Lol…

If we restricted people’s ability to get loans based on a financial fitness test the same way we would try to restrict getting guns with a mental fitness test, …..

…most people probably wouldn’t qualify to get a loan… It would probably be easier for people to get a gun before getting a loan…

[FlyerInHi]

At one point, lenders thought that borrowers would pay their home loans first, no matter what. They would suffer many sacrifices before letting the house go.

Of course, we now know lenders were wrong. If there’s no equity, then there’s no point holding on the house.

After the crisis, lenders discovered that people kept on making their auto loans. You need transport no matter what.

The question about auto loans is what happens if the value of the collateral become substantially less then the loan balance? Will borrowers just turn in their old cars and walk?

[spdrun]

^^^

Repo rates are quite high, apparently, so borrowers DO “turn in their old cars and walk” all of the time.

[scaredyclassic]

isnt it kind of like a rent to own deal…or an expensive rental? if you look it at as justa stock of cars that people are presumably pitching ina bit to maintain and pass around…maybe it makes more sense..

[Coronita]

Well for most cars these days, the price is astronomically have for I would say most people who are driving them… So people are either leasing them or taking out a loan on them.

You really think most people driving a BMW 3 series optioned out at $55k are really paying for them with their own money?

most people “acquire” a car based on the payments they can make…

[spdrun]

There are a lot of people on this coast who seem to keep cars in the family for 10-20 years. Kind of like houses in San Diego according to bearishgurl…

Buy Volvo 940 in 1996, pay off loan, drive for 15 years, give to college student son, son gets job, give to younger daughter, etc, by which time it has covered 250,000 miles.

[FlyerInHi]

All I can afford is a Toyota Camry on a 5 year zero percent contract
I’m thinking about renting it out when not in use. There are websites for that.

I’m just worried about liability.

[Doofrat]

[quote=spdrun]^^^

Repo rates are quite high, apparently, so borrowers DO “turn in their old cars and walk” all of the time.[/quote]

Yeah, but at 25% interest on a 5 year loan, you’ve got all your money back at year 2.5, everything after that is just profit. I imagine there are also all sorts of fees and tricky stuff that probably shortens this recovery time a lot.

That said, I did some minor IT stuff for one of these places that services these loans way back in the 90s and the repos they did get back were pretty much worthless. They said the people tended to not do any care on the car at all and wouldn’t even let me consider buying a repo from them.

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