Today, it is easier than ever before to get a used car loan. A press release from The Nation Wide Lending Network and Complete Auto Loans shows just how easy: “the only requirement is that the applicant make at least $350 per week.” That’s it. With nothing more than a paystub in hand, you can get approved for a car loan in as little as 60 seconds, online. “Can” is not even the right word here. The ad promotes a 100 percent approval rate.
If you’ve been paying attention to the financial media over the past few years, then you’ve probably seen the red flags here already. It’s an apples-to-oranges comparison, but this type of lending screams of the kind of corner-cutting sub-prime nonsense that fueled the financial crisis. According to a New York Times report, auto loan lending to people with credit scores of 640 or less has surged 130 percent in the last five years, and about one in four auto loans are expected to be subprime. “Buy Here Pay Here” dealerships have mushroomed in every corner of the country and the business model is thriving.
The focus clients for these dealerships are people who will never quality for conventional loans, be it due to their poor credit scores or questionable ability to repay. According to the New York Times report, the interest rates on these loans often exceed 23 percent, and the loans are sometimes greater than the value of the car itself. The New York Times also found that many of these loans had incorrect information about the borrowers financial status, something that makes for an easy case of default.