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Report: Beware When Financing Your Next Car

PHOTO: The subprime auto financing market has seen strong growth over the past couple of years. Photo credit: Deborah C. Smith
PHOTO: The subprime auto financing market has seen strong growth over the past couple of years. Photo credit: Deborah C. Smith
February 16, 2015

SIOUX FALLS, S.D. – Similarities have been found in auto lending that look an awful lot like what happened in the mortgage market prior to the meltdown.

Those trends are featured in a recent report from the Center for Responsible Lending.

The center's senior vice president, Chris Kukla, explains there are several issues at play – cars are more expensive and wages are stagnant.

Plus, he says dealers are rewarded for issuing loans at higher rates, despite the borrower’s qualifications - and the dealers can keep those details secret.

"You're already underwater by 40 percent to half the minute you drive off the lot,” Kukla points out. “But you've also got a depreciating asset. Most people, they're going to be underwater the entire time that they're in the loan."

Kukla contends the practices aren't only dangerous to family economic health, but they hurt car dealers as well, because consumers upside down in long-term loans aren't repeat customers.

The report found the value of subprime loans has grown quite suddenly, and there's been an uptick in car and truck repossessions.

Kukla says consumers may think they have protections, but the industry has been aggressive in averting regulation – especially at the state level.

"This is an area where there has been very little, if any, real consumer protections put in place, when you compare it to any other lending market," he stresses.

Those against regulations say stricter rules could make it tougher to help people with sub-par credit find auto loans with monthly payments that can work within their budgets.


Jerry Oster, Public News Service - SD