Subprime Car Loans Are Seeing a Wave of Defaults
Rising inflation without rising wages means that many low-income Americans are unable to make payments on high-interest subprime car loans.
Written by Allison Stone
Reviewed by Kathleen Flear
It looks like the pandemic wasn’t all bad for people’s pocketbooks. Stimulus payments and child tax credits meant that many people actually added to their savings or were able to pay down debt.
Unfortunately for many, this brief period of financial respite was short-lived. The pandemic relief eventually dried up, but the ongoing impact of the pandemic did not. In an effort to jumpstart the economy, banks were also lending more. Sadly, these circumstances culminated in such a way that
subprime lending
took off. What’s a subprime car loan?
A subprime auto loan is a loan intended for a borrower with a low credit score or little to no credit history. Your personal qualification for a loan will depend on a variety of factors, but generally, any credit score between the range of 500 and 600 is classified as
subprime credit
. Other reasons why you may be considered a subprime borrower include low income, missed payments, delinquent accounts, high credit card payments, or prior loan defaults.
Subprime borrowers are considered at a higher risk of missing payments or defaulting, so lenders tend to charge high-interest rates on the repayment of a loan.
While these loans may seem like a great opportunity for a buyer who would otherwise be unable to afford a new car, they can easily turn sour for their target audience: people with little or no financial security, who are struggling to make ends meet.
Even if someone has been steadily employed since first taking out their loan, wages are not rising at the same pace as inflation.
Subprime loans have been criticized for their predatory nature, and with good reason. According to
Jalopnik
, loan arrangements are structured such that the lender makes a profit regardless of whether or not the borrower completes the repayment in full. Lenders will even factor the eventuality of repossession
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There’s no shame in going through financially hard times, and in many instances of loan default or missed payments, borrowers have done nothing wrong.
Unfortunately, the practice of subprime lending isn’t going away any time soon. Having knowledge of predatory loan practices is a great way to protect yourself from falling into a financial crisis.
If you’re struggling to make car loan repayments, another possible solution is to example all of your monthly payments to find places where you can save and reallocate money across the board.
If you think you could be overpaying on your
car insurance
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