Breaking the Bank: Impending Auto Loan Crisis Not Good for Drivers
Dark clouds are building on the horizon for the automotive industry as it faces a loan crisis similar to the 2008 home mortgage collapse. According to data from Fitch Ratings, auto loan securitizations from 2015 were at an all time low with net losses clocking in at around 15 percent. Additionally, negative equity is at an all time high thanks to lower interest rates for expensive vehicles, longer loan terms, and decreased values of used vehicles.
What does this mean for vehicle owners? Those with low credit scores unable to buy or lease a car are often forced to take on subprime loans with high interests rates. Subprime lenders are able to garnish payments on borrower’s incomes even after a vehicle has been repossessed, essentially trapping a borrower in their debt. Unfortunately, all of the fees and interest rates tacked on these loans can be pricier than a new car. This cycle, which leads to used vehicles being turned over with so many fees that borrowers are stuck in a rut from the beginning, has pushed net losses into dark territory. Will these rates continue to worsen? Only time will tell. Read more about this impending auto industry crisis here.