The Car Was Repossessed, but the Debt Remains There’s a bunch of debt ‘secured’ by auto loans that have been repackaged into suspect AAA-rated bonds the failure of which has as much exposure as the mortgage ‘crisis’ of 2007-8.
I just read the article
Business models that are built to prey upon people, such as some of those mentioned in the article, make me sick to my stomach
I realize everybody has to earn a living somehow
But there are more honorable ways to do so
I don’t understand how these sleazebags are able to sleep at night . . .
What if their kids ask them “Daddy, what do you for a living?”
What is the dad supposed to say . . . ?
The sanitized version “I help people buy used cars” or the truth “I take advantage of people of limited means”
I didn’t read the whole article but its pretty common knowledge that if a bank takes the car back and sells it, they can still try to collect the difference if the car doesn’t sell for the amount owed. They may or may not try to collect the difference. Of course if you deal with a sleeze ball loan shark with a high interest rate, yeah you could be paying for ever even if they didn’t take the car back. That’s why you don’t deal with them. Now don’t forget, if a mortgage or loan is forgiven, that is treated as income and is a taxable event.
There are 2 sides to every story…
Sleazeballs, yes, but if they aren’t offering loans to high risk buyers, these folks will not get a car, period. There is a reason Buy Here, Pay Here places exist. Same for the Payday Loan places. They “prey” on low income but “prey” can be described as “provide a service” too. Making them illegal just feeds the loan shark on the corner. THAT guy will do far worse than repossess your car!
The buyers also didn’t follow the suggestions we tell every used car purchaser that posts here - get it inspected first! And the second, do your homework on the actual value of the car and third, don’t buy to the limit of your ability, hold some back for service.
Yes, the people who take knowingly advantage of these buyers are slime. These same dealers are the ones who put immobilizers on cars to shut them down if the payments aren’t made. They did this because there are buyers that walk in, put little to no money down with no intention of ever paying back the loan. Much like taking the car to a mechanic and trying to weasel out on “full payment or no car”. THOSE folks are the sleazeballs on the other side of the transaction. They take advantage of the honest merchant.
Kudos to Mustangman!
There are indeed (at least) two sides to every story.
Preying on the poor isn’t a new phenomenon but the sleezy people who do so have found technologies and laws that virtually give them the right to steal with taxpayer funded courts and law enforcement ensuring the crooks win and the gullible poor lose. And the vast majority of the public is unaware and unconcerned about the situation.
Those AAA bonds that are backed by a bundle of these high rate car loans are just like the AAA bonds that were backed by ridiculous mortgages on houses, that collapsed in 2008. It happens because people get paid to make loans, not to make good loans, and bond sellers get paid to sell bonds, not to sell good bonds. Everyone creating this house of cards is anonymous, so no one ever really suffers any consequence for this massive swindle.
And, the buyer of these worthless, abusive bonds is ultimately you. Your retirement plan, your mutual fund, your 401k plan; they buy these things. Where else can a fund that promises only to invest in “investment grade” bonds get 3% to 5% returns in a world where the prime rate is 1%, mortgages for 30 years are 4%?
The sub prime auto lending has ballooned in recent years. It is similar to what happened with the home mortgage industry many years ago but with a couple big differences. Sub prime auto lending comes with HIGH interest rates. These loans are credit adjusted where you have terrible credit you pay more because the lender takes on more risk. The second big difference is they can simply repo a car. A house is a difficult process because.
If you borrowed the money you need to pay it back. It is really that simple. There are too many victims out there claiming that they were taken advantage of. These same victims are taking advantage of the lender. I don’t have any sympathy for these folks. You borrowed the money and you pay it back. That is the way life works. The people with terrible credit, should be thankful that someone out there is willing to take a huge risk and loan them money. You don’t get bad credit by paying your bills. You have to work hard to get and maintain good credit. You have to do nothing to have terrible credit.
A car is an expense and for many people a.necessity for.getting to work, where work may be a low paying job. My son is a teacher with a family. His salary isn’t great. He has an S-10 pickup truck and he had to have the head gasket replaced about a year ago. Now, the engine spun a bearing. He is also trying to finish his doctorate degree. Fortunately, he is like me and won’t borrow money. The S-10 pickup probably isn’t worth another engine. The cars in his price range that he has examined really don’t have a lot more service left in them. Now he bought the truck second hand, but did have a trusted mechanic check it out before he bought it. He did all the right things, but still has a problem. Now suppose he had.borrowed the money to buy the truck. He would be paying for a dead horse. I can see the problems of a person who has a low paying job that purchased a vehicle from a “Buy Here Pay Here” dealer the vehicle croaks and he still owes money.
If dealers could demand nothing more from delinquent buyers beyond return of the vehicle I would agree but currently dealers can polish a piece of trash and tell the desperate and trusting public that a car is in great condition. The laws currently give crooked car dealers a license to steal. Block sealers, stop leaks, smoke-stop, $3.00 brake pads and smooth talk turns auctioned junk into a gold mines. Every January the tote the note dealers pack their lots with auctioned beaters to cash in on EIC checks + $50/week for a year and the cars aren’t nearly worth the EIC check. If the car blows a head gasket in the first week the owner will be sued for the balance of the payments plus all manner of penalties, towing and legal fees.
Back in 1967, I was shopping for a second car. I saw a Corvair on what turned out to be a “Buy Here Pay Here” lot. I hadn’t driven the Corvair a block when I realized it was a piece of junk. When I took it back, the dealer wanted to talk weekly payments with me. When I told him I was a cash buyer, he wasn’t the least bit interested in talking to me. I figured out his racket pretty quickly.
The dealers are not forcing the public to buy their cars. There is ultimate responsibility with the buyer that signs the contract. The buyer chooses the car and the dealer. The dealer does not choose the customer that walks in the door. The buyer has a choice to inspect the car by a third party. If not given the choice, the buyer has the choice to walk out and go to the next place. The buyer has a choice to sign the contract and agree to the terms or they have a choice to go somewhere else.
I couldn’t agree with you more that there are some real sleaze ball dealers out there but people have a choice who to buy their car from at what amount, with agreed upon terms.
Your example of buying a car with a EIC check is not likely going to be a low mileage quality car. Cars break down and head gaskets blow. This is why people that bought them new have sold them. The original owners are afraid that the reliability is questionable and they would rather buy something more reliable.
For those who are facing repossession of a vehicle, I recommend voluntarily surrendering it to the bank that is holding the loan. They will work with you to sell it for as much as they can, and they will deduct that amount from what you owe. If you qualify, they will convert the rest of the debt into a low interest personal loan. I know someone who did this with an RV when she wasn’t able to sell it. Her credit rating took a hit, but it will pass into history soon enough.
If they did that, they would lose out every time due to depreciation cost. Depreciation costs are inherently borne by the car’s owner, not the bank or the dealership, and there is no way that will ever change.
I wouldn’t necessarily conclude that it’s the poor that have bad credit. Plenty of the unpoor have bad credit. A banker told me once that they look at ability to pay and character, but character was more important. Of course that was when banks made their own decisions. Point was that a person with good character will do everything they can to pay a loan back and a person with bad character will skip out regardless of their income. We should provide free education to everyone so that they can learn about these things. Oh wait, we already do.
No, we don’t. I didn’t learn any of these things in public school Economics class. Did you? “Be careful using credit” doesn’t really cover it.
No, the dealers aren’t forcing the public to buy the cars but the law is loaded to the benefit of the seller regardless how crooked they are and totally against the good interest of the buyer regardless how good their intentions. If car dealers and financing agencies had no recourse beyond repossessing the car there would be an immediate shift in the marketing paradigm.
Because the current ‘buyer beware’ situation has been the status quo for generations it is accepted by those who consider themselves too wise to be caught in such a rip off deal. That’s a shame. It was bad enough when the deals were cash and carry but these days a $4,000 beater can result in a $10,000 payback for a car that gets crushed before the gullible driver makes the third payment.
The shift would be that anyone with bad credit would get zero financing unless they can bring a substantial down payment. It is really that simple. No lender that is in business to make money would ever take the risk of loaning money to someone that doesn’t have a solid job and good credit.
Maybe like home mortgages, we should include so much paperwork and inspections that it will cost $2,000 in fees & escrow for the bank to lend $1,000 on a used car. These fees of course will need to be paid up in full upon closing.
What is your solution?
If that were to happen you would see rent to own vehicle places everywhere plus they would also have mandatory full coverage you could only buy from them at an outrageous price.
I have no problem with repossessing a car if the buyer stops paying you for it.
Where I do have a problem is when you base your business model on the assumption and indeed hope that the buyer will stop paying you for it.
There are plenty of dealerships out there who will sell a car, take the down payment, and then eagerly wait for the buyer to miss a payment (which they know he will because they’ve checked his credit, his income, and probably how much he’s paying for housing, and did the math). Once the buyer misses a payment, they go snatch the car and it’s back up for sale that afternoon, complete with another hefty down payment.
Do this enough and you can turn a Civic that should sell for $6,000 into 40 or 50 grand, and you still have the car at the end. That’s crossing the line into windfall profiting off of the gullible in my book.
You might as well screw over some little kid - it’s the same concept.