More Subprime Borrowers Falling Behind On Their Auto Loans...Sound Familiar

[Uccmal]

 

In Canada, you aren't getting a sub prime loan through any of the big 6, 7 banks or the top mortgage lenders.  They are simply way too tight. No doubt there are lower tier lenders out there that I wouldn't invest in to save my life.

 

That's not entirely accurate.

 

Scotia and TD are big players in the space.  They call it non-prime loans but it's definitely what anyone on this forum would call subprime.  Interest rates of 19% to 29% are not unheard of.

 

Here's an article about a couple who signed a 25% loan from TD and called a newspaper to complain: http://www.cbc.ca/news/canada/british-columbia/couple-feel-robbed-by-25-interest-td-car-loan-1.2483342

 

Here's a link to Scotia's Special Finance Program: http://www.scotiabank.com/ca/en/0,,4625,00.html

 

I've studied the space a little bit and from what I remember, both banks don't segregate subprime from prime auto loans in their financials so it's hard to figure out the exact exposure but they both definitely have sizeable subprime auto loan books.  I would guess that both banks have over a billion dollars each of receivables of subprime auto loans.

 

Thanks, I didn't really know that.  Having had dealings with TD and First National For mortgages and HELOCs I have had to provide everything: Pay stubs, Employer letters, Market Value Assessment,(they paid for this).  Now, they are providing me with 3% interest so I guess they want to be sure they are getting paid back.  20% interest on a loan suggest an extremely high expected default rate.  I would post the math here but prefer not looking like too much of an idiot. 

 

What interest rates are the subprime lenders in the US getting?

[sys]

17 year old Tacoma with 175k miles, $7k: http://pittsburgh.craigslist.org/cto/5730759423.html

 

it's at 6k now, which is actually a pretty good price.  i couldn't buy a comparable vehicle locally for that.

[DTEJD1997]

 

 

What interest rates are the subprime lenders in the US getting?

 

It depends on just how "subprime" you are.....better risks are at 7-8-9 percent...truly subprime are in the mid teens to low twenties.

 

Another trick that is played is that for TRULY subprime...they will pay inflated price of the vehicle and THEN an interest rate of 19%.

[DTEJD1997]

hey all:

 

One big difference between auto lending & student loans & subprime home lending is that it is EASILY feasible for somebody to "buckle down" & pay off a high interest loan on a car in a year or so.

 

Work extra hours...cut back on spending in other areas.  Make an extra $75-$100 a week, and you can put a huge dent in that loan in a year...

 

Try doing that on a 100k student loan OR a 200k house loan. 

 

People can get out from vehicle loans...not so much on student loans or house loans.

[LongHaul]

I am not sure about a bubble.  But there a lot of easy money for subprime auto borrowers.  A classic pattern of a credit boom is there, with lenders tripping over themselves to loan to subprime auto buyers. Extended loan terms are one sign to lower borrowers payments.  I have even read that in the out years the car will now sometimes be worth less than the loan principal because of this.

I have read about lower lease rates too.  Centuries low interest rates and low employment seem to be creating the perfect boom.

 

So how does all this play out when the easy money spigot it turned off to auto borrowers?

[adesigar]

 

John Oliver - Auto Lending

[DTEJD1997]

 

John Oliver - Auto Lending

 

Wow, that was painful to watch!  John Oliver is supposed to be a comedian?  More like a simpleton....

 

I guess I simply don't see his brand of humor or social commentary...

[eclecticvalue]

Who is your favorite comedian DTEJD1997? Who does social commentary similar to John Oliver.

[rawraw]

I personally don't understand the fear around subprime auto.  I know a fair amount about the industry and have a good friend who manages a subprime portfolio for a bank.  The risk to the business seems to be all the money flowing in searching for yield has brought down the interest rates.  But investors seem concerned not just about subprime auto but all auto in general and I just can't figure out why they care so much.  Perhaps it is a fear of growth slowing or near term profitability declining slightly.