The subprime auto loan bubble

[Tom Joad]

This has been going on for quite a while, but apparently it's now escalating. The bottom line is, if you are poor and need a car to get to work, you're fucked. And unlike Europe, here in America, it's almost impossible to get to work without a car.

http://consumerist.com/2014/07/21/ba...ith-car-loans/

Subprime loans: they aren’t just for mortgages anymore. The next big bubble of ill-advised loans to borrowers who can’t pay is coming due. This time, it’s used car dealers reaping the interest and repossessing the cars.

The New York Times reports that subprime auto loans have risen over 130% in the five years since the big financial crisis hit in 2008. Over a quarter of all new auto loans issued in 2013 went to lower-credit borrowers.

The wave of questionable lending is being driven by exactly the same thing that drove the mortgage bubble, according to the NYT: Wall Street firms making a buck on trading packages of bundled loans. These complex bonds then increase the demand (from insurance companies, mutual funds, and financial companies, not from consumers) for more loans, triggering a big cycle.

The subprime loans, meanwhile, come with sky-high interest rates — up to 23%, reports the NYT. They add, “The loans were typically at least twice the size of the value of the used cars purchased, including dozens of battered vehicles with mechanical defects hidden from borrowers.”

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[Dondilion]

It breaks my heart to observe the trials of people who have to buy cars to go works which pay pittance.

[MrPots]

The cost of cars has gotten ridiculous as well. What with all the fancy gizmos and lights, lots of things to break down and very expensive to repair. Sucks for the low wage earner.

Used to be you had a light bulb and a simple one pc housing for a tail light, now you have a bank of LED lights in extremely complex 10pc housings.

[icenine]

I was surprised when I read this earlier this year:

http://articles.latimes.com/2013/jun...-tire-20130609

[JJIII]

Originally Posted by icenine

I was surprised when I read this earlier this year:

http://articles.latimes.com/2013/jun...-tire-20130609

From the link...

"The Rich Square, N.C., couple last September agreed to pay Rent-N-Roll $54.60 a month for 18 months in exchange for four basic Hankook tires. Over the life of the deal, that works out to $982, almost triple what the radials would have cost at Wal-Mart."

"I know you have to pay a lot more this way," said Florence Cherry, a 57-year-old nurse who drives the 15-year-old van when her husband, a Vietnam veteran, isn't using it to get to his job as a prison guard. "But we didn't really have a choice."

I think I see a problem here. Am I wrong?

[icenine]

Well who knows the fact that people are renting tires is scary enough.


Maybe he is a guard at a private prison....they might be low balling on wages as well as other things.

[JJIII]

Originally Posted by icenine

Well who knows the fact that people are renting tires is scary enough.


Maybe he is a guard at a private prison....they might be low balling on wages as well as other things.

The couple has enough to pay the outrageous price of renting tires but they didn't have enough to set back a little every month to buy the tires? There are no used tire stores in the area? There are no salvage yards in the area where they can cull good tires from wrecked cars?

[mpholland]

People these days don't learn to budget, or just budget for recurring expenses. They also don't learn how to live within their means. I am aware that there is a huge section of the population that can't, and I don't know where he works, but here, prison guards make a pretty decent wage.

[Dondilion]

Originally Posted by mpholland

People these days don't learn to budget, or just budget for recurring expenses. They also don't learn how to live within their means. I am aware that there is a huge section of the population that can't, and I don't know where he works, but here, prison guards make a pretty decent wage.

Yeah a nurse and a prison guard.

Lots a truth in your post. I have a close relative who is a nurse making over 100k a year and is forever crying. WTF.

However some of these loans are really crippling.
I think in New York (I am not certain) the evil salary loan is banned.

[nailer]

People are stupid. This is an example of less stupid people taking advantage of more stupid people.

Regarding the nurse and prison guard. Is she an RN? Probably not. If the guard works for a private sector prison (outsourcing) his pay and benefits are significantly less than a civil servant prison guard.