Got A Pulse? Buy A Car: Sub Prime Riding High Again

Bertel Schmitt
by Bertel Schmitt

Easy credit is coming back: U.S. lenders extended to car buyers some of the easiest credit terms since the financial crisis in the first quarter, credit research company Experian told Reuters.

People with subprime credit scores receive loans again, interest rates are down and there is more time to repay.

Says Reuters:

“The relaxed terms make it easier for individuals to buy cars, which is good for car dealers, manufacturers and the economy. But more aggressive lending also increases the chances of another round of losses for banks if borrowers lose their jobs and cannot keep up their car payments.”

Bertel Schmitt
Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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  • APaGttH APaGttH on May 29, 2012

    Subprime never left TFS has been writing paper to 520 for almost two years now. Scion dealers publish the TFS rate sheet and update them daily on their websites: http://www.avondalescion.com/Finance-Rates.aspx Kind of eye opening. Toyota will gladly give you 100% financing at 20.70% for 60 months on the new Scion of your dreams with a FICO score of 520. Never mind the criminality of 20.70% interest. On the other hand if your FICO score is 720 and above, 3.25% for 60 months at 130% financing awaits. Wait 130%??? Why yes, now you can roll the sales tax and some TRD accessories into that purchase, or the balance on your upside down loan on your trade-in. If Toyota is doing this - I'm sure everyone is following. At least they are no longer writing paper for FICO scores below 520 (last month TFS was)

    • See 9 previous
    • Jmo Jmo on May 29, 2012

      @jmo "And when those mortgage rates were 16% to 18% you could get 6% and 7% return on simple savings" And inflation was 10.35% so at 7% you were losing 3.35% of your money each year. The year before inflation was 13.58% so you were losing 6.58% of your money if you were getting 7% on your simple savings.

  • Toad Toad on May 29, 2012

    20.7% interest is not criminal if you have a 520 credit score; if you have a score that low you have stiffed a bunch of creditors. You have to make an effort to have a score that low. If your score is 720 or over you basically pay everybody on time, all the time. Not surprisingly the consequences of the two behaviors yield very different results. The 520 score tells creditors that they have a pretty good chance of getting many payments late or not at all, and they are going to have to make lots of collection calls and perhaps repo the car; all those efforts plus the implied risk cost money. I would not lend money to somebody with that kind of score under any circumstances; if a lender is willing to do so the interest rate understandably reflects the high risk. If pay your bills on time and in full you get to pay very low interest rates when you borrow money. Pay your bills late or not at all and you will find very few people want to do business with you at all, and those who do will make it expensive or even dangerous.

    • See 5 previous
    • Landcrusher Landcrusher on May 29, 2012

      @Landcrusher I don't have to be psychic to know what you know, I read your post. IOW, you opened your mouth and proved your foolishness. Furthermore, when we trained F&I guys to use our system, they didn't have start off as F&I guys to finish as one. It did almost everything except the human element. Your perspective as an F&I guy is really warped. You also keep making the same mistake confusing the score with history (not psychic so I don't know if you are doing it on purpose as a debate tactic). You now add institutional bias and wiggle words like "tend". Lastly, I like how people who pay cash are now assumed to be crooks, and people who think the irresponsibly bad services used to pass judgement on people with a bias towards foolish compliance and reporting businesses simply hate accountability because they are irresponsible. Personally, I hold the services to a higher standard than the guy trying to negotiate a better loan rate with a hired gun. The services need integrity way beyond honesty, they know it, and they deny it. FICO hides behind a purposely wiggly mission statement. Yes, the reports are usually accurate, but that doesn't necessarily reflect in the score. Also, a single mistake often makes a big difference, and bad actors on the biz side are rarely ignored and never punished. The scores are also intended to be used in a few ways, some at odds with one another, and are also used for othissue intended things. The score has all the bad sides of profiling without the racism (though I suspect it has that as well). The whole thing is applying sociology like its psychology. Lastly, having worked with so many F&I guys and dealers, I also know sellers are liars. Back in the day, we knew the bad dealers because they would purposely use TRU reports because they contained the most errors which they could use to raise the rate and pocket the difference (many admitted it and we played along protecting our own jobs). So yes, the buyers and sellers are all going to play games and negotiate. Don't play football if you don't like contact.

  • Lw Lw on May 29, 2012

    The Reuters article could be more accurate. The resulting losses will be transferred to ATM users and if that fails, the US taxpayer. We've all learned that banks don't lose money. Profits are privatized and losses are socialized. Good business plan if you can get it!

    • SCE to AUX SCE to AUX on May 30, 2012

      What burns me about this is the bipolar behavior of the government on this subject: a) It is politically expedient to decry 'tight credit', begging banks to loosen credit for [certain] consumers 'to get this economy moving again'. b) It is politically expedient to pin high personal bankruptcy rates and 'predatory lending practices' on banks when derelict consumers default on their loans and/or have to pay high interest rates to get a loan. We can't have it both ways, but America is becoming a culture of All Winners, No Losers because personal responsibility is being transferred to the nanny state and, ultimately, the Taxpayer. It's no longer politically correct to tell someone they are not creditworthy.

  • Robert Schwartz Robert Schwartz on May 30, 2012

    I don't think there were many losses on car paper during the 2008 affair. And, given that used prices are very high, there won't be many losses on the latest version. GMAC did go down, but they did the old fashioned way with house mortgages.

    • DubTee1480 DubTee1480 on May 30, 2012

      I've seen news stories stating that people have been paying their car notes and credit card bills over their mortgages. I can kind of rationalize the car note and to a lesser extent the credit card bills (groceries and gas??). The foreclosure process can be longer and more lengthy than repossessing a car. I even had a car salesman tell me that if you were trading a car in on another one that their F&I guy was more likely to pay more attention to the car payment history than the rest (though undoubtedly the rest was weighed in too).

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