Beware of “subprime” auto loans

More and more people with poor credit ratings are being enticed into bad deals on used cars.   If you really need a car, so-called “subprime” auto loans may sound like the answer; but the deals being made by unscrupulous used car dealers can be a disaster for you.

“The New York Times examined more than 100 bankruptcy court cases, dozens of civil lawsuits against lenders and hundreds of loan documents and found that subprime auto loans can come with interest rates that can exceed 23 percent. The loans were typically at least twice the size of the value of the used cars purchased, including dozens of battered vehicles with mechanical defects hidden from borrowers. Such loans can thrust already vulnerable borrowers further into debt, even propelling some into bankruptcy….”

So you pay more than twice what a car is worth and get an interest rate of 23% or more.   This is not a situation that’s likely to work in your favor.

The real kicker is that when the car is repossessed it will be sold at auction and you will still owe the balance due on the loan.   The only way out of that is to file bankruptcy

Don’t pay more for a car than it is worth.  Never sign a loan application that makes claims about your income that are not true.  And never agree to make payments you know you cannot afford.

Comments are closed.