Car repossessions have reached a figure not seen in over a decade. According to Fitch Ratings, the number of subprime auto borrowers who were at least 60 days past due on their car payments increased to 5.67 percent (5.67%) from 2.5 percent (2.5%), which was the figure reported in April 2021.
Numbers like these have not been seen since January 2009 when 5.05 percent (5.05%) of subprime car borrowers were at least 60 days late on their car payments during the peak of the Great Recession.
Purchasing a vehicle is oftentimes a necessary expenditure. A vehicle is needed to get to and from work or driving to school, but for many Americans, buying a car means taking on a large amount of debt. As they trade in their current vehicles for a newer model, many are resorting to taking the unpaid balance on the car loan and rolling it into a new debt. The result is the person will often have a vehicle that is worth much less than what is owed on it.
This negative equity and is also referred to as being underwater on the vehicle. It is reported that during the first nine months of 2019, approximately 33 percent of consumers who traded their vehicles in to buy new ones had negative equity. Five years ago, this percentage was 28 percent, and it was only at 19 percent ten years ago. The average debt owed on these cars as they were being traded in is around $5,000 while the average amount was $4,000 five years ago.
Having a car for most of us is a necessity, especially if someone wants to get a job and maintain employment. However, the purchase of a vehicle can be tricky for those struggling financially. For many car buyers, a subprime auto loan seems like the perfect solution. However, these types of loans are often more trouble than they are worth, and we caution consumers before using them to finance a vehicle purchase.
What Is a Subprime Car Loan?
A subprime auto loan is a loan aimed at borrowers who have lower credit scores to help them purchase a vehicle. They are offered by various lenders, including larger national banks, as well as smaller finance companies. Many subprime car loans are offered through online lenders, appealing to those who need quick financing.
Disadvantages of Subprime Car Loans
Many different downsides exist to using a subprime auto loan to purchase a vehicle, including the following:
Avoiding a Subprime Car Loan
Many different options exist for a borrower who has bad credit and who still needs to purchase a car. One common solution is to find a co-signer with good credit to help get the loan. Another option is to find a second-chance lending program to purchase a car. Many lenders offer these types of programs to their customers who have less than perfect credit. However, not all lenders offer these types of programs.
In the event a borrower has no choice but to accept a subprime car loan, it is recommended that he or she keep up with payments. After a year or so of regular and consistent payments, the borrower may be able to refinance the loan with a better interest rate and loan terms.
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If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.
The U.S. Supreme Court declined to expand a federal law protecting consumers against harassment and threats in debt collection attempts. The court unanimously upheld a lower court’s dismissal of a proposed consumer class action lawsuit against the auto-lender Santander Consumer USA Holdings Inc. over allegations it violated the Fair Debt Collection Practices Act.
The case came down to the definition of “creditor” and “debt collector” and whether a company that buys debt should be treated as a creditor, not subject to the the collections law. The law applies only to companies that collect debts on behalf of others and does not apply to businesses like Santander who purchases the distressed debt from other companies after it defaults, the Supreme Court ruled.
The ruling was the first written by the court’s newest justice, Donald Trump-appointee Neil Gorsuch, who wrote that any changes to the law should come from the U.S. Congress, not the court. The four Maryland residents who had defaulted on their car loans filed the proposed class action lawsuit in 2012 in federal court, accusing Santander of violations of the debt collection law including misrepresenting debt loads and bypassing the debtors’ lawyers.
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If you have any questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.
Related Resources:
https://www.reuters.com/article/us-usa-court-debt-idUSKBN1931NA
According to data released this week by the Federal Reserve Bank of New York a record 107 million Americans have auto loan debt. That accounts for approximately 43% of the adult population in the U.S.
Auto loans have been increasing rapidly. In early 2012, only 80 million Americans had car loans. But now more Americans have auto loans than home loans- and according to recent numbers, many are having trouble affording their monthly payments. There are currently 6 million people who are 90 days or more behind on their car payments.
After the financial crisis, so-called “sub-prime” auto loans were routinely given to borrowers with less than perfect credit. Low quality loans spiked to pre-crisis levels in 2015 and 2016, according to federal data.
Many of the consumers qualifying for these loans do not understand the terms and conditions. The interest rates can be astronomical- sometimes as high as 20% and penalties for default can be severe.
Santander Consumer USA Holdings Inc., which is counted among the biggest subprime auto-loan firms, verified income on just 8% of borrowers. Limited verification of loan applicants’ stated incomes and employment “creates more uncertainty around whether borrowers will be able to afford their monthly payments, which becomes particularly important if they have poor credit records and risky loan terms,” the analysts wrote.
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If you are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.
Related Resources: http://www.marketwatch.com/story/auto-lender-santander-checked-income-on-just-8-of-subprime-loans-bundled-into-bonds-2017-05-23
Banks are becoming more selective when it comes to approving loans for those with less than perfect credit. The data is surprising as many consumers seem to be benefiting from job growth and lower debt levels. However, 11.7% of banks have tightened their standards for auto loans in the first quarter, from 3.3% last year, according to the Federal Reserve and Deutsche Bank.
Credit card standards were strengthened by 8.3% of banks, compared to none in the fourth quarter. With the economy in its eighth year of recovery, lenders are extending their reach to those with cash flow pressures, borrowers at low – and middle class income levels to increase revenue.
The share of delinquent personal loans and credit card debt increased in the third quarter to 3.53% and 1.33% respectively, according to TransUnion and UBS. Out of those consumers surveyed, 18% said they expected to default on a loan payment in the next 12 months, up from 12% in December.
The number of subprime auto loans (those requiring a FICO score of 600 or lower) that were at least 90 days delinquent reached the highest level since 2010 in the third quarter at 6 million. The number of bad loans were by auto finance companies, not banks.
Two-thirds of the households who earn less than $40,000 say financial concerns have increased over the past six months for them. The latest numbers reflect the incomes of many low- to moderate-income working families are not keeping up with the costs of rising health insurance deductibles and monthly expenses.
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If you are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.
Subprime auto loans are back in a big way, and according to recent data have climbed to the highest level in a decade, with large increases in loans to borrowers with credit scores below 660. The number of subprime auto loans becoming delinquent has climbed to the highest level since 2010 in the third quarter and is following a pattern similar to the months leading up to the 2007-2009 recession, according to data from the Federal Reserve Bank of New York.
New auto loans to borrowers with credit scores below 660 have nearly tripled since the end of 2009. In 2016, approximately $50 billion of new auto loans per quarter have gone to those borrowers thus far. About $30 billion each quarter has gone to borrowers with credit scores below 620.
The increasing delinquency of subprime auto loans is concerning because it comes as the overall economy is on the mend and the employment rate is improving. The credit quality of other types of loans has improved.
Delinquency rates declined in the quarter for mortgages, student loans and credit cards. The number of individuals with a new foreclosure notation on their credit reports hit the lowest level in 18 years of data.
The increase in auto loans, particularly the subprime sector, has raised alarms among some regulators in Washington. The rate at which auto loans for borrowers with credit scores below 620 has climbed for 10 consecutive quarters, especially on loans made to those with the lowest or subprime credit scores.
Lenders know that subprime borrowers are more likely to default and become delinquent on their loans and charge them higher interest rates. The mistake during the financial crisis was that while the lenders expected higher defaults among subprime loans, they failed to anticipate just how high it would rise.
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If you are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.
