Subprime Auto Loans – Loan Titan Says, “Nothing To Worry About.”

Posted: July 21, 2015 in Uncategorized

Subprime Auto Loan “Titan” Foolishly Proclaims There’s Nothing to Worry About

Michael Krieger | Jul 21, 2015

Some of you will read the title of this post and wonder why I chose to cover this in light of all the other things happening in the world. 

While the rapidly growing subprime auto market might seem unimportant on a relative basis, I think it’s very significant as a microcosm of the many failures within the U.S. economy since the financial crisis, during which oligarchs were bailed out and the rest of the nation was left hung out to dry.

I best summarized how disturbing current trends in the U.S. economy are in the post, Land of the Debt Serf – How “Auto Title Loan” Companies are Ruthlessly Preying on America’s Growing Underclass. 

With regard to trend toward debt serfdom, I noted:

Think about how troubling this is for a second. 

In the run-up to the last crisis, Americans borrowed on their home equity and used the proceeds to remodel kitchens, etc. 

Now these same Americans are so completely broke, the only asset they can borrow against is their cars, and they are desperately using the money to purchase groceries, pay cable bills, etc. 

Thank you Ben Bernanke.

Even worse, more than 10% of these debt serfs end up losing their cars. 

What will they end up borrowing against after the next crisis, their organs?

This brings up the key concern with regard to subprime auto loans. 

Americans are being forced to extend the duration of loans because they simply can’t afford the payments otherwise. 

This isn’t beneficial in any real sense to the debt slaves who are lured into taking out these loans. 

However, it is very beneficial to the financial oligarch status quo, which needs to create more and more debt every single year just to keep their fraudulent financial system alive. 

As I alluded to in that prior piece, after the next crisis, Americans will be so broke they’ll be shut out of even subprime auto loans. 

You’ll see the emergence of seven year subprime loans to purchase groceries at Walmart.

Now, from Bloomberg:

The man who created one of the biggest U.S. subprime lenders says there’s nothing dangerous about borrowers being given longer car loans.

When Thomas Dundon helped start the lender that’s become Santander Consumer USA Holdings Inc. in the 1990s, subprime borrowers typically were offered four-year car loans, he said Monday in an interview. 

Now, the standard is six years, he said, partly because wages haven’t kept up with vehicle prices.

Using longer terms to lower payments makes sense when the alternative for consumers and lenders is “a shorter term with an older, cheaper, less-reliable piece of transportation,” he said, after being replaced as the lender’s top executive this month when Banco Santander SA bought out his minority stake. 

Stretching out how long it takes buyers to pay off loans is helping to make cars affordable at rising prices and stoking sales. 

As volume of subprime auto debt rebounds after collapsing during the credit crunch in the wake of the 2008 financial crisis, the wisdom of lending over ever-expanding periods is being questioned.

The average loan term for new vehicles reached a record 67 months in the first quarter, with the figure for subprime new-car debt approaching 72 months, according to Experian Automotivedata. 

For used cars, the average reached a record of 62 months, with the length for the least reliable consumers exceeding 56 months, the data show.

“There’s a lot of people in the world that are in different situations and the fact that this industry has become very efficient and helps people keep their costs down to get something that a lot of us take for granted, I think that’s a good thing,” he said. 

“Unfortunately it seems to be painted as something bad, and I’m not sure why.”

Because asking the opinion of the “titan” who made so much money creating these loans makes so much sense.

Meanwhile, I strongly suggest watching the actual interview at Bloomberg. 

What you’ll see is neither Mr. Dundon nor the anchors seem to care about what all this says about the U.S. consumer, or should I say U.S. debtor. 

All they’re concerned about is whether or not investors buying the stuff will be made whole as they were during the financial crisis as millions of Americans lost their homes. 

Truly disgusting.


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