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In A Subprime Bubble For Used Cars, Borrowers Pay Sky-High Rates

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http://dealbook.nytimes.com/2014/07/19/in-a-subprime-bubble-for-used-cars-unfit-borrowers-pay-sky-high-rates/?_php=true&_type=blogs&ref=business&_r=0

Rodney Durham stopped working in 1991, declared bankruptcy and lives on Social Security. Nonetheless, Wells Fargo lent him $15,197 to buy a used Mitsubishi sedan.

“I am not sure how I got the loan,” Mr. Durham, age 60, said.

Mr. Durham’s application said that he made $35,000 as a technician at Lourdes Hospital in Binghamton, N.Y., according to a copy of the loan document. But he says he told the dealer he hadn’t worked at the hospital for more than three decades. Now, after months of Wells Fargo pressing him over missed payments, the bank has repossessed his car.

This is the face of the new subprime boom. Mr. Durham is one of millions of Americans with shoddy credit who are easily obtaining auto loans from used-car dealers, including some who fabricate or ignore borrowers’ abilities to repay. The loans often come with terms that take advantage of the most desperate, least financially sophisticated customers. The surge in lending and the lack of caution resemble the frenzied subprime mortgage market before its implosion set off the 2008 financial crisis.

Auto loans to people with tarnished credit have risen more than 130 percent in the five years since the immediate aftermath of the financial crisis, with roughly one in four new auto loans last year going to borrowers considered subprime — people with credit scores at or below 640.

The explosive growth is being driven by some of the same dynamics that were at work in subprime mortgages. A wave of money is pouring into subprime autos, as the high rates and steady profits of the loans attract investors. Just as Wall Street stoked the boom in mortgages, some of the nation’s biggest banks and private equity firms are feeding the growth in subprime auto loans by investing in lenders and making money available for loans.

And, like subprime mortgages before the financial crisis, many subprime auto loans are bundled into complex bonds and sold as securities by banks to insurance companies, mutual funds and public pension funds — a process that creates ever-greater demand for loans.

Well it didn't stop you driving off with a car you can't afford!!!

Although frankly the dealer needs jailing for fraud if Rodders didn't do it.

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I been looking at replacing my 9 year old car with 4 year old one. Cars seem much more expensive than 4 and half years ago so I not going to bother currently

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I've been looking at van's for the occasioal mobile disco. The last one I bought was a 7 year old LDV convoy with about 65k on the clock (ex gpo) for around £3k.

Can't seem to get anything like it near that price now, it seems that older around here folk like to buy cans as 'day vans' ??

On the car side, I need to trade in my V6 vectra for a diesel vectra which will be a couple of grand.

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PPI refunds are pumping used car prices at all levels in the UK, however new car sales via PCPs have been similarly boosted and the industry is aware of a potential glut of PCP returns into an environment of declining PPI refunds in 2015/16, so there is reason to believe some significant softening could occur then. Technically a car bought via a PCP could be paid off at the end of the initial contract term but the deals have been set up in such a manner as to make that very unlikely, the preferred path is to generate a new sale in order to realise the bogus 'equity' at the end of the deal.

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Used cars are ridiculously cheap. I don't think it has ever been cheaper to buy a set of usable wheels - mainly because 8 year old cars are so much more reliable. Dealers are trying to keep the price of 3 year olds high, but that is a losing battle because older cars are so damn cheap.

One anecdote - I bought my first car in 1991, paid £1800 for it, it was rusty with holes in the floor, but mechanically OK. The equivalent of £1800 today is about three grand, which would buy you something very serviceable. If I was just looking for a reliable commuter, I wouldn't pay more than £2k.

Another anecdote, albeit a few years ago. A mate runs a garage and a few years ago needed another courtesy car as a client had smashed the old one. So he handed the mechanic £500 and sent him off to the auction. The mechanic phoned a few hours later requesting the transporter....he had bought three good cars and still had £50.

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I tend to agree with lot of what's been said on here.

my 9year Nissan is worth about £1000 according to the Mazda dealer which I was trying to buy a car off. yet his 2010 Mazda 3 low millage was worth about £8000.

No discount for cash and yes he really really wanted me to have loan . I even stated its cash or nothing but he ignored me.

hence I walked away.

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