Just prior to the 2008 financial crash, a client discussed with me how alarmed he was about all the sub-prime auto loans being written by certain banking institutions at that time. As alarmist as our conversation was, it was nothing compared with what actually happened later in 2008 when the auto industry (and the rest of the economy) collapsed.
That collapse is still in process. It never really ended. Aftershocks and new quakes have been making their way around the globe ever since. And once again, it appears, we are on the eve of another major calamity in the sub-prime auto market. A potential pre-cursor of something much larger to come.
An article this week on ZeroHedge discussed a gentleman who said he is considering filing bankruptcy – it’s presented as a harbinger of things to come for subprime auto lending.
It’s about a father who bought a car for his son as graduation gift for just over $11,000 with a downpayment of $1750. The kicker was the 29% interest rate for four years.
The son had stopped making insurance payments (which should be the real moral of this story) and then wrecked the car. The finance company ultimately sued the father who had co-signed for over $15,000 which included principal, accrued interest at 29%, plus legal fees.
They started garnishing the father’s wages and have thus far taken just over $22,000. The father assumed the debt was almost paid – but thank’s to magic of compound interest at 29% he still owes nearly $13,000.
Lot’s of people are in this predicament.
According to the ZeroHedge article: in the St. Louis area alone, where this situation occurred, since 2010, three auto finance companies have filed more than 15,300 lawsuits against borrowers in local courts. The vast majority of those cases resulted in a judgement against the defendant, after which the lender often sought to garnish wages from the borrower.
Multiply this kind of activity across the country and you can see there is an epidemic of financial undercurrents that has never been fully acknowledged (or explored) since the 2008 financial crisis.
Many who suffered in silent despair in 2008 and 2009 have been caught in what amounts to a massive undercurrent of financial waterboarding that never seems to end. This is just one more example.
There will be some who will scoff and say how wreckless it is for anyone to take out a car loan at 29% interest. Yes, it’s a really bad idea. But the fact is some people have no other option. No other access. If you think you don’t know any of these people, I would beg to differ. Because most likely you do. You just may not recognize the situation, or them.
During the next leg down in the economy, there could be even more people that fall into this kind of category. And no matter how well you are prepared now, it is critical to remain aware of changing circumstances to avoid any sudden and unexpected changes in your personal demographics.