Auto Lenders manipulate already vulnerable people into crushing amounts of debt. So-called buy here pay here near me dealers are the biggest offenders, these act as both the seller and bank, by offering their own financing programs. While this route may seem tempting at first, there are many cons to consider.
Although it is hard to find a car with a bad credit score, it is possible. Many people, unfortunately, turn to buy here pay here near me dealers, especially after being deceived by their marketing strategies. You may recognize them from their sleazy appearance off busy main streets with signs reading “no credit checks!” or “everyone is approved.” Unlike traditional dealers, they offer their own financing for cars on the lot. In the industry, these are known as “subprime” loans, given to “subprime” borrowers. These are high-risk borrowers that are likely to default on their car payment with a credit score below 619.
The average interest rate for a buy here pay here loan is 19% and can be as high as 29%2. It’s truly expensive to be poor in America. Interestingly, as of 2016, 25% of all auto loans are of the high risk, subprime, category. The average default rate for these loans is about 1 in 3. Because the default rate is so high, many economists believe there is an auto loan bubble, similar to the housing bubble that was an important cause of the 2007–2009 recession in the United States.
As you may not know, the CFPB is hunting down these predatory lenders like Drive Time who was fined $8,000,000 for its predatory lending practices. Another great resource about the criminals that run these Buy Here Pay Here auto dealers was written by the LA Times. This article will open your eyes and keep you from making a horrible mistake.
Well, my curious friend, it’s because that way, they can get away with charging way more than the car is worth via interest. Let’s say you purchase a 2004 Toyota Camry from one of these buy here pay here near me dealers. I get it, you were seduced by the low monthly sticker price of $187.47 for 48 months. Your loan is likely to be sold to a third party bank (they will take responsibility for repossessing your car in case you default.) Because most buy here pay here near me dealers don’t have a lot of capital, it’s a way to gain cash flow quickly and wring their hands of any responsibility in the event you can’t make your payment.
Two of the biggest offenders are Westlake Bank and Santander Bank. They’re criminals. Remember that “low” monthly payment of $187.47? The total you will pay for the life of that loan: $8,999.The Kelley Blue Book value for that car is $4,273. That’s $4,726 in interest alone. If around the 2-year mark, for example, your car (that did not come with any warranty mind you) experiences engine problems, are you going to want to continue that car payment? Most likely not. Your car gets repo’d. You’re out $4,499, and a car, your job in jeopardy. A catastrophe. In other words, I can guarantee you will get overcharged for a crappy car, given a predatory loan, and will very likely end up defaulting and lose everything you’ve paid into the loan, and you better believe they will take the car back.
It’s important to note that even if you default on your payment, the lender will still make their money back in two key ways. They’ll send your loan to collections, which will severely, negatively affect your credit score. A repo will cause a 100 point drop or more and will stay on your credit report for 7 years – this is the only time this kind of loan reports to your credit. After which, they will repossess your car with very little care of any of your personal belongings, including your baby. Yes, you read that right; while researching for this article, I found at least 3 documented cases of cars getting repo’d with children in the backseat. After all that, they will sell your newly possessed car to another person who is none the wiser. They will repeat this process for the same vehicle over, and over again. The house always wins. If you didn’t think it could get worse, many of these lenders outfit these cars with a device that beeps over and over again when your monthly payment is due. This device also has the capability of locking the doors and making it impossible to start the engine.
Although buying a car with a bad credit score, or no credit score at all is hard, it is doable. It just takes a little research and making an informed decision. And although it may seem like the world is on your shoulders, some organizations exist to help.