Less than 10 years ago, the subprime mortgage lending crisis sent the economy into a tailspin. Now, a new predatory lending practice has come to the forefront of financial and consumer concerns and has many of the same issues and risks as the mortgage crisis—used car loans at exorbitant rates to consumers with credit scores of 640 or below, also known as subprime auto loans.
There is a proliferation of used automobile dealerships advertising “No credit? Bad credit? No problem!” in an attempt to entice consumers who may not otherwise qualify for, and may not be able to afford, a used car loan. These dealerships target potential purchasers with credit scores of 640 and below. In exchange for offering credit to higher risk consumers, the banks financing these loans charge very high interest rates in comparison to those offered to potential purchasers with more favorable credit scores. Occasionally, dealerships fabricate work history or income to ensure that a consumer qualifies for a loan. In other circumstances, the dealerships and banks offer loans to consumers they should know do not have the ability to pay back. In many cases, providing these high interest loans simply sets up car purchasers for failure with monthly payments they are realistically unable to afford.
Owners of vehicles financed through subprime auto loans do their best to make their payments, but often, unfortunately, the high interest rate combined with the large monthly payments lead to an inability to pay. In some cases, after missed payments, the bank repossesses the vehicles. In other cases, even if the payment is a mere few days late, the bank utilizes remote starter interrupters that render the vehicles unable to start until the balance owed is paid. This leaves consumers with no way to transport themselves and their families, even in the event of an emergency, or to travel to and from work. Unfortunately, this often leads to even greater financial woes.