Risky Borrowers Are Falling Behind on Car Payments

[mahatmakanejeeves]

Source: The Wall Street Journal.

FINANCE

Risky Borrowers Are Falling Behind on Car Payments

More subprime borrowers are missing monthly payments on their cars and trucks, pointing to an uneven economic recovery

By AnnaMaria Andriotis and Ben Eisen | Photographs by Courtney Coles for The Wall Street Journal
April 5, 2021 5:30 am ET

A greater share of people with low credit scores has been falling behind on their car payments in recent months, a sign of stress among consumers whose finances have been hit hard by the pandemic.

Some 10.9% of subprime borrowers with outstanding auto loans or leases were more than 60 days past due in February, up from 10.7% in January and 8.7% a year prior, according to credit-reporting firm TransUnion. It marked the sixth consecutive month-over-month increase and the highest level in monthly data going back to January 2019.

More than 9% of subprime auto borrowers were more than 60 days past due in the fourth quarter, the highest quarterly figure in data going back to 2005.

The missed payments are increasing in what has otherwise been a period of relatively low consumer delinquencies, with stimulus payments, unemployment benefits and other measures keeping many borrowers afloat. The rising subprime delinquencies point to an uneven economic recovery and a deep divergence between those who can navigate the coronavirus downturn and those who can’t.

“We are seeing the separation between the consumers who are back on their feet and those who aren’t,” said Satyan Merchant, head of the auto-finance business at TransUnion.

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Read more: https://www.wsj.com/articles/risky-borrowers-are-falling-behind-on-car-payments-11617615001

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Hat tip, Jalopnik

https://jalopnik.com/subprime-auto-borrowers-are-falling-further-and-further-1846619016

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https://twitter.com/AAndriotis
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https://twitter.com/BenEisen
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[Sibelius Fan]

1. Why don't they just pay cash for their vehicle and save on interest charges?

Asked many concerned Rs.

[Moostache]

2. Susan Collins, showing EXTREME concern, asked "What's a car payment?" (n/t)

[MoonchildCA]

3. I'm sure a lot of this has to do with job loss.

However, a great many people go into a great amount of debt to purchase a new car. If someone has to take out a sub prime loan to purchase a car, hopefully they are taking out a small one on a very used car.

My husband and I often help our “down and out” friends find fairly dependable used cars for between 2k and 3k. Luckily, being in SoCal, the cars do last a bit longer here.

[OldCicero]

4. I suspect the timing of this bit of "news" from right-wing WSJ

Is just another small jab at the Biden/Harris administration.

Automotive finance delinquencies and repossessions have been a national industry since car loans have existed.

Hell, I worked for an outfit called Dial Finance in the late '60's early '70's and it was 80% of our business.

[Aristus]

6. When I worked for Wells Fargo twenty years ago (BTW, WORST job I ever had...)

they kept leaning on us to push customers toward sub-prime loans. I didn't understand why WF wanted to take on loan-loss risk like that, because I hadn't heard of derivatives back then, a concept I still don't fully understand.

God, working for WF was Hell on Earth...

[OldCicero]

8. The business is very profitable.

I'm sure you're aware that Dial was bought out by Wells Fargo and became Wells Fargo Finance.

That was after I left, never had the honor of working there.

[Aristus]

9. I didn't know that, but it doesn't surprise me.

WF is just a cesspool of sleaze.

[alphafemale]

5. Buying a New car is a foolish thing for most people.

Used cars will be very reliable for many years in most cases .

Especially if you pay attention to maintenance.

[sir pball]

7. Most subprime buyers are not in new vehicles.

Think the "Buy Here Pay Here" places. Those are where the majority of subprime auto lending goes on; poor or bad-credit folk who don't even have the $1500 to buy a replace-yearly beater car end up paying well above market for a (usually crappy, poorly repaired and painted-over) used vehicle, most often with long-term, 60-72 or even 84 months, high-interest loans.

It's a win-win for the dealer - if the buyer makes it through the loan, the dealer has made a tidy profit off the 15% interest rate over 6+ years; if the buyer defaults the lender has whatever money they did get, plus a repo's vehicle to sell again.

It's a level of shady second only to title/payday loan people, you feel like showering after you read up on it.

[Initech]

12. Used car dealers are the problem.

They don't really sell the car, they sell the loan. And almost all of these loans are shaky and shady at best. Many of them are just loan factories who spit out loans to anybody regardless of their credit status. They issue ridiculously high loans at ridiculously high interest rates and can repossess your car at any time for any reason. John Oliver did a piece on this a few years ago:

[ForgoTheConsequence]

10. I know a lot of guys with poor credit driving $70,000 pickups.

I guess they need it for their trips to Target and Walmart on the weekend. 84 months' worth of payments on something that will be worth nothing (here in the midwest where everything rusts to pieces) in 7 years.

[Claire Oh Nette]

13. Financial illiteracy, likely...

How much is the car?

How much can you afford?

How much is the car?

What were you looking to spend a month?

How much for this car?

What kind of monthly budget did yo have to work with?

I'll ask you one more time, then I'll take my business elsewhere. How much is this car?

How much are you looking to finance?

============

That's one of the actual conversations I had with a dealer on a year old, lease return, '94 Passat I bought myself in '95 for my 29th birthday. Loved that car. Didn't need their financing. Had a tough time ever getting a price. Did my research then, an dit's even easier now to determine a car's value. Plenty of people would have answered, "$250, $350 a month, and then gotten that payment, at 12% over seven years. That payment will likely wind up just above whatever amount the buyer was comfortable with, too.

Guessing a lot of folks with their $70,000 crew cab trucks are paying rent. No garage in which to put that fancy new truck. Backwards. A truck's a truck's a truck.

When I heard they were packaging sub prime auto loans and selling them as investments, I knew the whole market was a scam. Way more people have shitty car loans than had shitty home loans. Seems like the Investor class is just a fancy name for unethical cheats.

[captain queeg]

16. You nailed that. I hate tha line of questioning and will walk off after a couple rounds

Also I'll never give my car keys to one of these jackasses. For that matter, I don't do trade ins. I buy a new car every 7 or 8 years. Sell my old one on my own. Its always a frustrating experience, but a necessary evil, just like having a car. Always a negative investment.

[Miguelito Loveless]

11. Just to bring you up to speed on sub-primes

car loans as offered by the "Buy here, pay here crowd."


Back in the day, I worked as the IT guy for a company that wrote F&I software for these type of businesses (and some of the regular big dealers). When you go to one of these places to buy a car, the down payment on the car is going to be 80%-100% of what the dealer paid for the car. So, if the car has an $8,000 sticker price, and they want $1500 down, then they will finance the balance over x years at 24%+, then the dealer paid $1500-$1750 for the car.

If you default on the loan, they will repossess and you will lose all you put in the car, no matter how close you were to paying it off. They will then turn around, clean up the car, then put it back out on the lot for about the same price, with the same down payment requirement, maybe less. A "nice" car, can be sold multiple times this way.

If you are a ruthless, utterly heartless bastard, you can get VERY rich in this business.

[wolfie001]

14. 72 and 84 month payments plans......

.....being interfered with regular car maintenance. Downward spiral.

[cstanleytech]

15. One thing that could help is a program for those that owe under 20k on a car that essentially pays

off the loan in form of a tax credit to the loan holder.
Of course there would have to be some stipulations such as the person and or household must have suffered financial hardship due to the virus as well as the loan has to be more than 12 months old and it has to be the only car the household has had since then.