“It’s 4 A.M., do you know where your car is?” No, I’m not talking about the movie, “Repo Man.” Apparently, repossessions are up – way up. According to a recent article on MSN Money, car lenders have been extending riskier loans over the past few years. Now, it’s coming back to bite them in a big way.
In a survey for the National Automotive Finance Association, BenchMark Consulting International said monthly repossessions by subprime lenders increased 15% last year.
According to the article:
Cracks are showing everywhere:
BenchMark found a marked rise in long loan terms, which lead to greater negative equity. For subprime lenders, who service consumers with low FICO credit scores at higher interest rates, more than 80% of new-car loans were for 61 to 72 months, up from 67% in 2005. Among prime lenders, 61% of new-auto loans were for at least 60 months, with 17% of those exceeding 72 months, nearly double the 9% in 2005. “With longer negative-equity situations, there’s a greater chance the customer’s going to walk away,” said Walter Cunningham, the president of BenchMark. For the first time in several years, prime lenders increased the number of loans extended to risky consumers. Those with FICO scores below 600 moved from 4% to 8% for used vehicles and 2% to 6% for new vehicles, BenchMark reported. “They’re moving downscale, and they’re also lending money to the higher-risk players,” Cunningham said. Subprime lenders also reached down the credit scale, with 54% of deals made to buyers considered a high or superhigh risk, those with FICO scores under 549, up from 34% in 2005. “All of these are kind of pointing to higher delinquencies and higher charge-offs,” Cunningham said. More new cars are being repossessed. According to Manheim, the average mileage of subprime repossessions sold at auction dropped from 80,164 in January 2006 to 75,099 a year later, while the average price rose from $6,359 to $7,066.
So if you’re behind on your automobile loan, take heart – you’re not alone. Read the article and take a look at some of the industry’s dirty little secrets.
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