Bad credit auto loans

"mkbruin, Atlas VP" (mkbruin)
02/09/2018 at 16:19 • Filed to: None

So, necessary business model or scum of the earth?

In the blue shorts, he believes that high interest loans for individuals with ridiculously bad credit is preying upon those who need the most help. The rates are criminal, the collection practices are appalling.

In the red shorts, he believes that risk-based pricing is necessary to continue to provide funding for the 70% of customers that don’t default based on repeated default clients, and without risk based pricing nobody would consider lending to a population with a 30% default rate. If risk based pricing goes away, so does subprime lending... How will those individuals purchase transportation without a source of funding?

Where does Oppo stand?

DISCUSSION (41)

CarsofFortLangley - Oppo Forever > mkbruin, Atlas VP
02/09/2018 at 16:33

It’s tough as you pointed out, if you want to be a realist and approach this from an underwriting point of view, those with the lowest credit scores are the highest chance to default on a loan. The risk of the loan and the costs involved with loans that default kinda necessitate the higher rates.

It is only by charging those rates that any business could conceivably assist anyone with a bad credit.

At the end of the day, it is just like insurance. Those who live in areas with increased crime, property damage and other issues will pay a higher premium even though they are typically poorer.

It isn’t a solvable issue unless the government steps in to artificially adjust things.

I also don’t think it is a red/blue issue, it is just how life is. The politics come into it when we talk about subsidizing or legislating changes.

Spanfeller is a twat > mkbruin, Atlas VP
02/09/2018 at 16:34

When a private business provides a very widespread product like loans, its bound to be regulated to hell and back or its bound to abuse it’s standing.

Charging ultra high interest rates on poor people doesn’t make the rest get off the hook from paying interest, and considering these companies normally have insane profits rather than reduced prices, well.. I want them regulated.

However, it does mean that many more people would be denied credit, and I would personally agree to that specially after the 2008 recession.

Future next gen S2000 owner > CarsofFortLangley - Oppo Forever
02/09/2018 at 16:35

If they step in like they do with flood insurance, I’d rather them stay out.

bob and john > mkbruin, Atlas VP
02/09/2018 at 16:35

What carsoffortlangley wrote.

even if you reset everything, it WILL go back to what it is now by logical standards.

E90M3 > mkbruin, Atlas VP
02/09/2018 at 16:35

Necessary evil, but then they have also taken advantage of their position and inflated prices on the cars they sell, knowing that people with very poor credit have no other options.

farscythe - makin da cawfee! > mkbruin, Atlas VP
02/09/2018 at 16:38

being on team europe... im gonna go with howzabout buying a cheap used car and not getting yourself into debt for everything you own

(but im against high interest loans for individuals with bad cred rating as i see them as a self fulfilling prophecy... we’re gonna milk this guy whos defaulted before for all he’s worth before he has to default again)

(houses are a different story... but over here you just wont get a loan unless you have the income to pay for it)(course... even with the income to get the loan people still screw up royally(or get screwed by circumstance) and default at times)

Ash78, voting early and often > mkbruin, Atlas VP
02/09/2018 at 16:38

Do they provide a necessary service? Sure.

We have to look at them like pawn shops, liquor stores, or cash checking places — there are good ones and bad ones. Or title pawn, but those are all pretty bad.

If your life decisions lead you into the bad ones (today, the age of the internet, peer communication, and high consumer protections like Fair Lending and the CFPB), then I’m now in the camp that blames the consumer.

20 years ago, my opinion was almost entirely the opposite. You went to whatever shop was in your neighborhood and took whatever terms they’d give you.

Party-vi > mkbruin, Atlas VP
02/09/2018 at 16:39

I SHALL FLING MY UN-RESEARCHED OPINION OUT HERE TO SEE IF IT STICKS TO THE WALL

If the lender/dealer is explicit in their description of the loan, and disclosing the interest rate and basically provides the consumer with knowledge that this loan is at a very high interest rate because your credit is so bad we think you will default, so we need more money to justify doing business with you that’s fine, but there should be some oversight outside of each business (laws dammit) that establish guidelines or maximum interest rates and terms for the loans. Consumers use these places because no where else will give them a loan, and they are being taken advantage of because where else are you gonna go? You need this car to keep your job/get a better job and no one else will give you a loan, so I can set my own price and fuck you over .

Chariotoflove > mkbruin, Atlas VP
02/09/2018 at 16:40

Subprime lending should go away.

If your credit rating sucks, there is a reason, and you should have to live with that. Those who need to borrow can work on rehabilitating their credit rating and showing they are a good risk. Why does this society seem to think everyone is entitled to everything regardless of what they do?

fintail > mkbruin, Atlas VP
02/09/2018 at 16:40

Why not both? Necessary evil with what sometimes borders on usury. It should exist, but some practices should be subject to regulation.

The red/blue thing might be a tad shallow.

ZHP Sparky, the 5th > mkbruin, Atlas VP
02/09/2018 at 16:40

Are there markets that have insurance products for situations like these? Separate the lender from the person taking the risk of default. Loan goes out at the same (or a capped, reasonable) rate, but require that people with bad credit buy an insurance policy (premium dependent on how high their risk of default is).

Protects the lender but also prevents them from getting in to sketchy situations where they are giving out loans to people who really shouldn’t be getting one/knowingly expecting a default to be able to collect whatever payments they can and also reclaim the vehicle.

Nothing > mkbruin, Atlas VP
02/09/2018 at 16:44

Really, it’s both. Bad credit happens. Bad loans happen. I wouldn’t mind if a subprime loan had a capped principal. Subprime is awfully predatory, and it would be nice if people realized that if major banks won’t finance you, the slick lot on the corner definitely isn’t looking out for your best interests. Some people get baited into thinking it’s what they need to do to rebuild their credit.

And to some other commenters, it’s not just poor folks with bad credit.

Future next gen S2000 owner > mkbruin, Atlas VP
02/09/2018 at 16:49

I don’t think risk based rates should go away. There are costs involved with repossession. The issue I see the how high the risk based rates are. With current federal reserve interest rates at 1.5%, charging ten, 15, 20 times that seems excessive.

I believe sub primes rates should only exist for a certain segment of purchases. But I hate unreasonable government intervention, maybe it’s reasonable but why do people depend on the government to protect them. On something things that aren’t transparent, I get it but this seems well within the reach of the average person.

I really don’t have much sympathy for people that do things they know they shouldn’t. How many of those loans are for basic transportation? I can understand hard times and trying to squeak by with a 7,500 older vehicle. But is you make 35K and throw down on a C6 Z06, I don’t have any sympathy for you.

I guess this is like a lot of things. I don’t think hard and fast rules make the most sense. Lots of gray area. I can see both sides but I fall on the side of letting people pay for their mistakes. Nobody forced them to take on the loan.

Spanfeller is a twat > bob and john
02/09/2018 at 16:53

Or maybe don’t prey on the poor?

Look man, I remember going with my uncle to the Harley Davidson store in vegas and it took all of 20 minutes for a guy to try and sell me a motorcycle after I told him I had no ability to buy it, but he insisted thay they could solve it (probably with a very sketchy loan)

Someone more legal citizen-ish and a bit less cautious than I am could wind up with a loan that would wreck their life because someone sugar coated it.

Just don’t get shit you can’t afford.

Monkey B > mkbruin, Atlas VP
02/09/2018 at 17:02

perhaps if the loan had a payment of $200 monthly, instead of $300 for the same thing Joe good credit gets, maybe they could swing the payment. There’s a need for it, but the rates are sometimes criminal. Then you have insurance companies charging those with poor credit more. Insurance rates should be based strictly on your claims history and offenses such as a DUI or reckless driving and the like. Minor traffic infractions, including speeding, should have zero bearing on rates.

nermal > mkbruin, Atlas VP
02/09/2018 at 17:04

I think subprime auto loans are the intersection between dumb customers, greedy banks, and bad dealers.

Most of the lenders are going to require a down payment, sometimes several thousand $$$. If you can come up with $3k in cash, you can get a serviceable car for that without a loan. While driving your $3k car, make sure you pay all of your other bills on time, get your shit in order, and improve your situation until you can afford a nicer car.

The problem is that subprime borrowers that are willing to take a 20% interest loan to get a $15k vehicle now that they can barely afford, rather than driving a $3k one for a few months until they’re in a better situation. They want instant gratification. As long as the other two parts are in play (dealers and banks), they will continue to seek it. As long as the dealers and banks are still making money, they will continue to do business.

LongbowMkII > mkbruin, Atlas VP
02/09/2018 at 17:05

A tighter credit market would lower demand for used cars, which ought to lower prices.

DipodomysDeserti > mkbruin, Atlas VP
02/09/2018 at 17:07

I think the bigger issue is that despite being the most affluent nation to ever exist, we still have extremely piss poor public transportation in the majority of cities. Thus we have legal loansharking so that people can get to work. Pretty shameful. But hey, at least we have guns and nukes! Yeehaw!

bob and john > Spanfeller is a twat
02/09/2018 at 17:22

if you are poor then you dont have any buisness being in a motorcycle shop to begin with (realistically speaking)

while some loans are genuinly REALLY bad, there is a reason. people cant manage their money right and well, thats their fault.

WITH THAT SAID. I do think there needs to be some sort of gov loan for like 3-4K to get cheap cars for those who really cant afford it but do NEED a car to get better

His Stigness > Chariotoflove
02/09/2018 at 17:23

Exactly this. If you are unable to afford a newer car then you need to suck it up and get a really cheap used one. I have seen all too often people in newer cars paying insane interest rates. Why the hell would you do that??? I made mistakes as a kid, and I’m currently paying for them. I posted the other day I was looking to lease an e-Golf for myself. If I didn’t qualify for a lease special then I wouldn’t be getting one. I live within my means because living outside them just creates a vicious cycle that can rarely be escaped.

His Stigness > Party-vi
02/09/2018 at 17:26

You’re right that there is that fine line to balance between lenders securing against risk, and laws protecting against people being taken advantage of. I think it’s clear that if you made such choices as to put yourself in a situation where your only option is a predatory loan that you may not have the skills or the knowledge to know you’re being taken advantage of. And even people that, I’m sure there are savvy enough crooks who are able to convince even those that recognize their mistakes and are trying to correct them, but in the meantime, they need a car and can only get a subprime one.

Spanfeller is a twat > bob and john
02/09/2018 at 17:32

Yeah, its their fault as individuals, but as a society we need to realize that having some fall through the cracks of poverty impoverishes all of us.

Plus, yeah, there isn’t a good reason why someone poor should buy a motorcycle.. but those dealers mess with your mind, specially if you feel optimistic about yourself. To an extent, its like those spam bots on Tinder, some people might be so thirsty they can’t notice the imminent scam.

About a car program... what if, instead of financing individual transport to everyone, you give them safe, efficient, fast public transportation?
A car is, more than a means of transportation, a luxury; and cities can’t afford them in terms of pollution or space. I wish I didn’t need a car to safely and quickly move about my city and that the metro actually gave service to Santa Fe -.-

Monkey B > Spanfeller is a twat
02/09/2018 at 17:37

I went bankrupt after 08's meltdown (divorce/I’m self employed in the car business and rely on volume sales) Something like a year later, a month or so after my bankruptcy discharge, I went with a friend to a HD dealer to check out the XR1200 so I ended up riding as well...for no other reason than I was there, curious and he wanted my feedback. I said no at first since I didn’t have my gear, but the dealer lent me some to get me on it (boots too) probably hoping I’d like it enough to buy. So I do and tell the sales guy I didn’t love it (I hated it but was being nice for all involved) and that I couldn’t get financed anyway since he was being so persistent. So, knowing what would happen, I filled out the credit report to appease him....what could it do, hurt my credit?!

HD’s own financing arm approved me at no money down for a brand new $18k motorcycle with the freshest mark on my credit being a bankruptcy discharge. I didn’t even show proof of income and am self employed. I have zero idea what the terms were as I just wasn’t interested, but I was astonished how reckless it was...especially fresh off an economic meltdown.

Monkey B > Spanfeller is a twat
02/09/2018 at 17:37

bob and john > Spanfeller is a twat
02/09/2018 at 17:38

public transit is IN THEORY the answer.

the reality is, the one place that actually genuinly needs it (US) is SO far behind and SO spread out you cant reasonably build a public transport system. It would actually be cheaper to loan other 3-4k for a car and repave the roads that need it.

but the us is already so mismanaged that its not even funny anymore, just sad.

Tekamul > Party-vi
02/09/2018 at 17:39

This is very logical, but currently what is lacking is the clear communication to the consumer of what the terms are. Because a lot of people who Garner sub prime rates don’t understand long terms.

Spanfeller is a twat > bob and john
02/09/2018 at 17:55

But cars aren’t sustainable, not as a method of transportation for the vast majority of people. Lets focus instead on forming a solution for it, stopping urban sprawl comes to mind.

bob and john > Spanfeller is a twat
02/09/2018 at 17:57

cars arent sustainable...but laying down X miles of track for a train to service the reachs of texas and the like or buses through the mountians of tennesee and north carolina are?

Public transit works if there is the population density to justify it. europe has it. States and canada doesnt

WilliamsSW > mkbruin, Atlas VP
02/09/2018 at 18:06

It’s a necessary business model, and most of the people who do it are the scum of the earth. How’s that for vague?

In this country today, most people need a car to get them around. Not all, but most. That’s reality, whether we like it or not.

At the same time, lending is risk-based - that’s also reality. If I’m higher risk than you, I ought to pay more than you do.

But... It gets complicated, because:

- how do you assess risk?

- what ‘car’ do you really need?

In a perfect world, we would have companies putting high credit risk people into cheap, used, reliable cars with relatively short term financing. But we don’t - due to consumer desires for MOAR, and financiers desire to make more money.

Education would help, but it ain’t going away without government intervention - which is something very few people would support, in reality. If they did intervene, it would probably be something dumb like capping rates - with unintended consequences (ie no credit at all for these people).

ITA97, now with more Jag @ opposite-lock.com > mkbruin, Atlas VP
02/09/2018 at 18:24

I don’t think risk based rates are problem per se, but I also think there is a point at which it ceases to be a reasonable business practice and into legalized loan sharking that traps folks into a cycle in which there is only varying degrees of losing. Reasonable folks can disagree about where exactly that point is, but I think there is one. I’m okay with a point at which (maybe it’s 35% apr, or 50%, or I dunno...) we say do not pass go and you don’t get to give this person a loan. For that person, at some point there is a level of financial irresponsibility at which you are no longer entitled to own a car you can’t pay cash for. At some point, the bus, a cheap bike or the shoe leather express calls your name.

Neil drives a beetle and a fancy beetle > mkbruin, Atlas VP
02/09/2018 at 18:39

Everyone needs a car and not everyone is very loan worthy. It’s a tough problem. It’s really a place that needs not necessarily more regulation but more non profit or knowledgeable intervention. I don’t think most people who, for instance get underwater on a car, understand auto financing well enough to know how bad it is. Only problem is those who need help rarely seek it.

Alexander Broom > mkbruin, Atlas VP
02/09/2018 at 19:51

Not quite auto loans, but my first gas card with a 560 fico was like 29% interest. That is evil.

Spanfeller is a twat > bob and john
02/09/2018 at 20:40

But lets agree that having a 50 mile one way commute isnot natural and shouldn’t be supported onwards.

Neither method is very sustainable, I think Madrid gets away with most of it with the Cercanias trains (that run like regional trains that connect to the Madrid Metro and light rail network) but it has to be subsided.

Alike the solution in my grandparents village, a bus comes about twice a day along the town halls, but it too has to be subsided heavily.

Now... A government grant for cars seems like something that could be easily abused... Specially by the kind of dealers that already have those kinds of cars... Plus the rage from the city folk that would be basically subsiding smog and traffic into the city.

But I won’t pretend the US has the infrastructure to live without the car. I simply think that rather than encouraging this, it should be resolved more efficiently

bob and john > Spanfeller is a twat
02/09/2018 at 22:00

I work 41KM from home. it is on what I think is the longer side of commutes.

Spanfeller is a twat > bob and john
02/09/2018 at 22:02

I study... what is it? like ten? and it feels like an eternity.
Perhaps urbanization’s got me spoiled.

bob and john > Spanfeller is a twat
02/09/2018 at 22:09

i[’m pretty urban too.

it normally takes me anywhere 45-50 minutes to get to work

Spanfeller is a twat > bob and john
02/09/2018 at 22:11

It normally takes me 30 minutes (if I have to get there very early its more like 15min)

But then again, I do have a very short commute, and this is uncommon in Mexico. Very few cities have such density as the capital here (and even then its by areas)

My family in Monterrey would tell me “We think 30Km is a normal distance” Monterrey is surprisingly sprawled out.

bob and john > Spanfeller is a twat
02/09/2018 at 22:13

if I could actually be MOVING on my commute, id be fine with 100km...but I want to actually MOVE, not be looking at the backend of a prius with a greenpeace sticker on it crawling at 40KM/h

Spanfeller is a twat > bob and john
02/09/2018 at 22:17

I sometimes scare myself when on the f 800.

I always try to stay cool headed but you just want to overtake everyone, ya know?

it once took me 20 minutes to go from my university home during the Friday rush hour... its normally a 0:45-1:15 hour drive. I was genuinely scared of how much faster I was than the cars (which is the real defining characteristic of danger: speed differential)

bob and john > Spanfeller is a twat
02/09/2018 at 22:44

always leave at least 2 outs in totally different directions (either brakes and a left, a right and a left, ahead or brake..whatever)

Has served me well up until now. We shall see what the new season brings.

Spanfeller is a twat > bob and john
02/09/2018 at 22:54

That seems safe enough and reasonable.

What I should do is reduce my lanesplitting speed, in good flow I do keep an exit strategy in case of idiots drivers