Bankruptcy and the Subprime Auto Loans

For those who have recently filed for bankruptcy, subprime auto loans is probable something they are familiar with.  Elizabeth Warren said once, “Auto loans are now the most troubled consumer financial product.”

What are subprime auto loans?

When you purchase a car, you get a loan from the company that makes the car ; buy a Honda, get a Honda loan. In order to get a loan from Honda, you need to have good credit.  Subprime auto loans is the solution to bad credit.  With these loans, you can have bad credit and still qualify for a loan to get the car you need to get to work.  These loans are unconventional, have high interest rates, and often have high and hidden service charges. Some companies offering these loans are: Credit Acceptance, Capital One, Santander, and Wells Fargo.

The number of these loans has steadily increased since the economic downturn.  Check out these graphs:



As you can see from the graph, there are increasing numbers of people with bad credit getting subprime auto loans and there is also an increasingly number of defaults.  Basically all these people who just got out of bankruptcy are now defaulting on car loans but since they just filed a bankruptcy, they can’t file another one for 8 years!

Another troubling fact, subprime auto loans are being packaged together and sold in the aftermarkets. Sounds a lot like what happened in the mortgage industry that tanked our economy doesn’t it?

Now, to be fair, the subprime auto loan share in the overall economy pales in comparison to the mortgage market. However, the failure of this industry could potentially have rippling effects. Anyone who lives on the West Coast knows that you have to have a car in order to get to work. If people keep defaulting on the car loans and they are repossessed, then people will have difficulty getting to work.   If they can’t work to make money, then they don’t have money to spend in the economy.

Need Help?

If you find yourself with a subprime auto loan, there are several various ways that bankruptcy could help you. If you are behind in your payments, bankruptcy can help you catch back up so that you can keep your car. There are also ways within bankruptcy that we can force the lender to be paid only the value of the loan. If the car has already been repossessed and the lender is harassing you for the balance left on the loan, bankruptcy may be able to help with that as well. Whatever your case may be, the more information you have the better position you can put yourself in.

Take a look and see what John Oliver said about the issue.

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