Good Luck Getting Out Of That Subprime Auto Loan When Used Car Prices Crash

Tyler Durden's picture

We've written frequently in recent months about the coming subprime auto crisis which will very likely be prompted by a wave of off-lease vehicles that will flood the market with used inventory over the coming years.  In fact, Morgan Stanley recently predicted that the surge in used inventory could result in as much as a 50% crash in used car prices over the next couple of years which would, in turn, put further pressure on the new car market which has already resorted to record incentive spending to maintain volumes.

Here are just a couple of our most recent notes on the topic:

Of course, while pretty much anyone has been able to purchase that brand new BMW of their dreams over the past 5 years...courtesy of a surge in subprime lending volumes....


...getting out of those loans once used car prices crash and millions of Americans are left with massive negative equity balances won't be quite so easy...just ask Yvette Harris who is still making payments on her 1997 Mitsubishi nearly a decade after her car was repossessed.  Per the New York Times:

More than a decade after Yvette Harris’s 1997 Mitsubishi was repossessed, she is still paying off her car loan.


She has no choice. Her auto lender took her to court and won the right to seize a portion of her income to cover her debt. The lender has so far been able to garnish $4,133 from her paychecks — a drain that at one point forced Ms. Harris, a single mother who lives in the Bronx, to go on public assistance to support her two sons.


“How am I still paying for a car I don’t have?” she asked.


For millions of Americans like Ms. Harris who have shaky credit and had to turn to subprime auto loans with high interest rates and hefty fees to buy a car, there is no getting out.


Many of these auto loans, it turns out, have a habit of haunting people long after their cars have been repossessed.

And while the aggregate subprime auto credit balances are no where near the trillions in debt that was extended to subprime mortgage borrowers leading up to the great recession, for many low-income Americans the fallout could actually be worse because they can't simply walk away.

With mortgages, people could turn in the keys to their house and walk away. But with auto debt, there is increasingly no exit. Repossession, rather than being the end, is just the beginning.


“Low-income earners are shackled to this debt,” said Shanna Tallarico, a consumer lawyer with the New York Legal Assistance Group.

Meanwhile, with low-income borrowers unable to afford a lawyer in many cases, defendants often skip court dates and don't even realize they're still on the hook for payments until debt collectors start to garnish their wages.

"Essentially, the dealers are not selling cars. They are selling bad loans,” said Adam Taub, a lawyer in Detroit who has defended consumers in hundreds of these cases.


Many lawyers assisting poor borrowers like Ms. Robinson say they learn about the lawsuits only after a judge has issued a decision in favor of the lender.


Most borrowers can’t afford lawyers and don’t show up to court to challenge the lawsuits. That means the collectors win many cases, transforming the debts into judgments they can use to garnish wages.

Of course, if used car prices tank leaving millions of people with negative equity balances and defaults from auto loans they could never afford in the first know what that means for new car prices...


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svayambhu108's picture

Crash... more like cancer... thank the fed for that..

Stuck on Zero's picture

I'm still fifteen years from paying off my Pontiac Aztec.  Anyone want to second my loan?

Jim Sampson's picture

Wait...  people think when you get rid of a car the loan goes too?  smh  WOW!

NidStyles's picture

Actually if you do it the right way it does. It's called voluntary surrender. It's telling who doesn't have the agency to do it the proper way when a debt becomes too burdensome that they are paying off a defaulted loaned... The trick is to call them and let them know that your financial situation has changed. You give them the collateral and they kidney punch your credit and absolve the loan.

They are in the business of equitable exchanges, not ruining lives... If you try to fuck them though, they will ruin your life.

How is it that no one seems to know this?

not dead yet's picture

If these people get their car repo'd that means they have lots of debts. Instead of bitching and whining declare bankruptcy and get the debt cleared out. The bank stupid enough to give a loan to someone too stupid to figure out they can't afford it eats the loss not the taxpayer if said dumbass goes on welfare because the payments broke them. Not every bank is willing to cancel out your loan even when you get on your knees and beg them especially if they're connected to Kushner.

Enough with the people who claim these idiots were victims and were forced to buy a house, car, condo, or whatever. It means your dumber than the dumb asses who signed on the line. Plenty of people who bought houses they couldn't afford did so because they thought they could sell for a profit before the repo man came calling. Plenty more get a car with no intention of making the payments and drive till it's repo'd and then find another sucker to sell them a car or find a sucker to cosign. Rinse and repeat.

Cognitive Dissonance's picture

"Instead of bitching and whining declare bankruptcy and get the debt cleared out."

Bankruptcy is no longer just that easy. If you have an income even slightly above the basic needs, the judge will keep some of the debt on the books. They don't just clear it all away and give you a 'fresh' start.

Déjà view's picture

Bronx...years ago most sensible debtors paid their bills...walked or took public transportation...
WTF why this deadbeat on gov't assistance require a car...

JamesBond's picture

same reason maxine waters says they need a house


847328_3527's picture

Auto loans are much tougher to get out of then home loans. the Fed bailed out mortgages holders (bankers, essentially) so banks did not get too aggressive to collect.


The peeples holding auto loans will easily break both your legs to get their money. as an aside, one of the most lucrative businesses to get into is the car/truck towing business. My friend is easily ten times wealthier then me and that's what he does. He landed a contract with the city also to tow away cars illegally parked, etc and that contract alone thrusted him into the multi-million dollar wealth category.


That's why kids need to think hard whether college is the right thing for them. There's LOTS of other opportunites out there but most do require one thing many kids don't have---a tough work ethic.

cornflakesdisease's picture

+ they can shut the car down remotely until you pay up.

Mr. Universe's picture

Yes the tow world is a tough business and the highways are not a safe place to work. However those who rise to the top of this world are carion scum doing evil for their masters and taking their cut.

MalteseFalcon's picture

More than a decade after Yvette Harris’s 1997 Mitsubishi was repossessed, she is still paying off her car loan.

 She has no choice. Her auto lender took her to court and won the right to seize a portion of her income to cover her debt. The lender has so far been able to garnish $4,133 from her paychecks — a drain that at one point forced Ms. Harris, a single mother who lives in the Bronx, to go on public assistance to support her two sons.

“How am I still paying for a car I don’t have?” she asked.

Where to start?

Subprime auto loan for a car Yvette couldn't afford.

Single parent.

Two sons. (and their future is?)

Very likely no education.

Who is advising these people?

divingengineer's picture

Plus, I'd bet she tried to fuck them, so they turned it right back on her.

Semi-employed White Guy's picture

Maxine Waters. Chuckie Schumer. Nancy Pelosi. George Soros. Bernie Sanders.  Barry Hussein.

NidStyles's picture

No it isn't.

Voluntary Surrender.

JamesBond's picture

fuck my typing skills this morning



Offthebeach's picture

55 years after LBJ's Great Society, whyz Ize bee stli payen?

shovelhead's picture

Chuy will fix it for you.

Leave the keys and Chuy will do the rest.

AllOfGood's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do...

turnoffthewater's picture

"Bankruptcy is no longer just that easy."
True, everyone gets in line to get their piece of flesh. The line starts way back there?

secretargentman's picture

The great debt reset is coming. Jubilee. 

divingengineer's picture

For bankers, not for us.
Your payment will still be due on the first of the month.
Or they'll send a SWAT team to kill you in front of your family.

SeattleBruce's picture

Except, counterparties.  Which are sometimes nation states.

a Smudge by any other name's picture

You think the salesmen disclose any of that? These dealers are preying upon the weak and ignorant. They just say YES YOU CAN! and dangle the keys. Why walk home when you can drive home in this new car!

SeattleBruce's picture

"YES YOU CAN"  Where have we heard that before?

I'm sure these folks are reading the fine print, too!

froze25's picture

People don't know  this because 1, public schools (directed by DOEd) Don't teach people things that actually apply to the world they will be living in. 2, Pop culture has create a image of its cool to be a dumb shit "gangsta" that is ignorant and uninterested in learning. 

Hungman's picture

This is actually 100% incorrect. A vol or invol repo makes no difference at all. Either way your credit is destroyed and you owe the remaining balance. In a lot of cases if the balance is high enough they will also obtain a judgment against you...and depending on the state they will garnish your wages.

signed - someone who has worked in subprime auto for over 10 years.

NidStyles's picture

Is it AWD and does it still have a functional tent with it?

Could just go live in it and mortgage it....

larrythelogger's picture

Bitchin car. I won't pay a penny more than 30 grand for your second.

Cognitive Dissonance's picture

Breakin' bad by committee.

hannah's picture

aaah...the pontiac aztec. the prototype looked so cool at the trade show but when it was actually made had tiny little wheels and all the cool features were gone....

Semi-employed White Guy's picture

I'm sure some scum bag lender will re-finance to a twenty year term.

SeattleBruce's picture

And then repackage and rehypothecate those as AAA bonds.  What could possibly go wrong?

E5's picture

if they will take my gremlin as collateral 

Paul Kersey's picture

Car wholesalers I know are having a tough time finding well cared for used black Chevy Tahoes and GMC Yucons.  With cheap gas, folks seem to be hanging on to those vehicles, expecially if they are painted black, white or silver.  However, no one seems to want to hang on to a Kia.

takeaction's picture

If you have to borrow to buy a don't get it....SLAVE.

E5's picture

Two months ago I bought a car with my son where the budget was 50/50 I pay half as a thank you for not being such a pr/ck of a son and by the way congratulations on graduation, Penn State, scholarship, and now let me help you get out drive don't walk, I love you present.... so he had an $8000 budget and we hit craigslist to find the best car the money would buy.  We picked up a $7500 2008 audi a8L in excellent condition.  We put new Y tires on it and did a road trip from Missouri to Florida to Minnisota to Missouri to Florida and back to Missouri.  Total the car now has gone 10,000 miles and runs like a champ.  Cruises at 100 like a dream. I have never had such a luxury vehicle and still don't as it isn't mine.  But being driven by my son in the limo back of that thing has spoiled the wife.  Now she wants one with the executive comfort package and a driver. (which we have lined up for a measly 26,000 a year and he is there to watch the farm and take care of odds and ends.  So I am back on craigslist ...cant wait for this crash to take out the 2012 to 2014 models.  'merica F*@k YA!

slimycorporatedickhead's picture

I laugh when I see people trying to "sell" there cars stating "hey who wants to take over my financing?" why the fuck would anyone take over your shitty financing? Oh so let me get this straight,  so you get the car for the first two years when its brand spanking new, and then I pay the full remaining balance for 6 years to pay off the rest of it.. god.. people are underwater on these things the second they walk into the dealership

wisehiney's picture

Here we go again.

Force lending to deadbeat minorities.

Then force lenders to forgive debt.

Then force taxpayers to take the hit.

NoDebt's picture

The "circle of life".


lasvegaspersona's picture

Whoa there...deadbeats are NOT a minority...look around you pal...

venturen's picture

Shouldn't it be 

Force deadbeat minority to be lent to Taxpayer... I  have some projects need doing!

E5's picture

If taxpayers were paying for it then there would have been an armed revolt by now.  The fed is printing it and everyone's children are getting hit with the devaluation.

montresor's picture

Let some kid drive the car for uber and pay you enough to cover the loan until some dipshit buys the car.. if ever..