So when you get a car loan and buy a car, the bank can dictate where and how you can drive and service it? I am not able rightly to apprehend the kind of confusion of ideas that could provoke such a sentiment.
The carrier lends you the money, you agree to pay it back, that's as far as their involvement goes. This is standard practice in Europe. You get a phone for cheap, you agree to pay monthly installments, you can throw the phone off a cliff or install BeOS on it, for all the carrier cares.
If a bank is making loans at rates that do not cover defaults they should go out of business because they are crappy at their job.
If I take my car to a mechanic am I expected to know as much about my car as the mechanic? Do I tear down and redo/inspect any work they do to my car? If I go to a mechanic and ask them if it's okay to do something dangerous to my car and they go ahead and do it, I'd say the mechanic is way more on the hook morally than the idiot driver.
Similarly if I go and ask for a 1,000,000 USD mortgage when I'm only making $20,000 USD a year and have no savings or investments and the bank gives it me... You're saying both me and bank are on equal moral footing? You would then have to ask what incentive the bank had to give me the money. Either they are greedy and wanted to charge a super high rate or they intended to pass the buck and sell the loan which can be fraud if they lie about my credit worthiness to the next buyer of the loan.
I agree with you in theory, except that the artificially high prices and higher interest means that the people most at-risk for default are then made MORE RISKY. I understand that a bank has to be careful with high risk loans, but this is effectively like tying a ball and chain to an olympic runner, and then sending them to prison when they lose the race.
And frankly, all of that is forgivable; what is not is when the dealers then use these remote GPS devices to disable the vehicles, with NO GODDAMN IDEA what the vehicle is currently doing: Sure, they could tell if it was on the highway but would they actually care? And what if the person is working a night job, as many in poverty do? How do they get home?
Or what about the case awhile back of the woman who's baby was in the damn car when it was towed?
I get it, it's a business risk, but these things are DESIGNED, purposely, to fuck people out of their money and do tons of damage besides that. Exactly how much is a bank allowed to ruin someones life over a CAR LOAN?
Crap like this is why we need a Consumers Bill of Rights.
As far as I can see, simply that the same company helps them get the loan is the same one that pays them to drive. And also that they probably buy new cars and are upside down on the loan as soon as they drive off the lot.
This is a problem in the US with cars as well. People focus on the monthly payment they can handle, and financing department extends loan term and plays other games to make it work, despite ballooning overall cost
Let's say a car costs $50,000 and Joe wants to finance it (because he either doesn't have $50,000 or just doesn't want to spend $50,000 right now), so he gets a $50,000 loan to buy it. Let's also say the loan will mature in 10 years, also obviously the loan has interest but we don't need a specific number for this conversation.
The minimum payment per month will be set such that Joe will pay off the loan in 10 years, and Joe presumably can afford the loan's minimum monthly payments since he accepted it to buy that new car.
If Joe wants to pay off the loan sooner and he can afford it, he can just pay more than the minimum due during a given month.
So Joe gets a loan from a bank (oftentimes middleman'd by the dealership), the bank pays the dealer in full, Joe gets his car, the bank becomes the lienholder on the car until the loan is paid off.
> an unsecured line of credit is going to have a higher interest rate than loan backed by the collateral of the car.
That depends on who you are and what you have, from the bank's POV. If they are actively bugging you to take out this kind of loan, then they probably don't have an issue regarding collateral.
A car is not particularly good collateral; it depreciates rapidly, subject to being damaged and stolen.
I’m fairly convinced a lot of places give loans with horrific interest rates hoping person defaults. They repo the car. Resell it. The person usually has only mostly paid interest and still owes most of the original price of the car plus fees.
It’s a contract. You agree to the terms or you borrow the money from somewhere else.
The thing this article casually omits throughout, aside from the opening, is that these are sub-prime borrowers. They have a history of poor credit. They probably are not putting much money down. They have a history of being late on payments. In order to get the lending terms THEY find favorable, they agreed to install an interrupt device.
I just purchased a car without one and got a great rate because I spent years... YEARS! Fixing and improving my credit history.
These people want the same terms without the work or change in behavior.
Ah, lucky you. I read your comment on my phone and came to my desktop to type comfortably my rant.
Have you ever tried to cancel a loan?
The following story may or not apply to you. It happened in a small country called Spain:
Some time ago I bought a car. They offer you a very nice discount if you, instead of paying upfront, finance the purchase. Why? I asked the seller, it makes no sense. He gave me a list of more or less valid reasons, leaving the most important out: the draconian interest rate, which I inmediatly noticed. Noticing also the lack of integrity I decided to play along and took the loan with the intent of cancelling it ASAP. To summarize: it took something like 10 calls and saying on the last one that I was going to send a certified mail and forbidding my bank to pay a single €. I paid the loan and saved several thousand euros, even after paying "cancellation costs".
The whole enterprise has changed my view about regulation. It was regulation that gave me the right to cancel the loan against their will, and capped the cancellation costs, which I find it amazing they are even allowed, to compensate "for lost earnings". After the 2008 crisis a lot of regulation has been put in place affecting the banks. It's incredible they are allowing still this kind of scam to buy a car.
There's a lot to add to this article in my opinion:
Many lenders refinance loans because lenders also need to finance their activities and refinancing through securitization is a profitable way to do so, that goes for student loans, business loans, private loans, car loans, ...
Mortgages are no exception, what is different about the US compared to Europe is that the capital market to buy packages of loans is more developed because unlike the EU, the US is a unified financial and legal system under federal governance.
What happens in a mortgage is not that much different than a car loan, you use some cash and borrowed money to pay for the car and the lender expects you to repay that money (and interest) in fixed installments. Should you fail to pay the loan then the car is repossessed.
The lender will want to make sure that your monthly salary is enough to cover the payments and that the car is valuable enough to recover the principle of the loan should something happen.
Incidentally, this is why banks don't like to give entrepreneurs mortgages because entrepreneurs don't have stable income (usually).
The moment you borrow that money, it becomes a liability for you but it becomes an asset for the bank/originator; after all you are going to pay the originator cash for 25 years.
Now in the US, your originator can sell this asset onwards to a loan aggregator (Fannie Mae; Freddie Mac) to realize profits today rather than hold the mortgage forever but obviously the loan aggregator has some standards it wants you to adhere too. (note: the EU doesn't have these types of loan aggregators due to the lack of synchronization between their national financial markets)
In theory the originator can make more profit by holding the mortgage, but since his money is locked up for 30 years in the mortgage; many of them don't have enough cash on hand to just lend the money and wait 30 years for it to come back so it can be lended out again.
The loan aggregators on the other hand buy mortgages from all originators and can put them together into a package that is safe and diversified enough so that the repayment performance is predictable enough (ignoring pre-2007 when rating agencies succumbed to customers' pressure to rate pretty much anything as safe and caused the huge financial meltdown when borrowers started to predictably default) and sell it onward to pension and sovereign wealth funds.
These aggregators, or GSEs as patio11 calls them, are private companies but by now they are government owned because they all collapsed in the financial crisis and since they underwrite pretty much every mortgage in the US, they had to be saved as otherwise the mortgage originators would also become illiquid and then you can only buy a house in cash (which would have pretty much destroyed the entire housing market in 2008).
The 60 basispoints though, is the fee for packaging the loans. It's not an insurance like patio11 says.
Operational work like support, collections, negotiations about late payment and administrative work ("Servicing") is outsourced is just because no loan aggregator wants to deal with that and a pension fund DEFINITELY doesn't want to deal with that and like any outsourced service that is well-understood, they prefer to pay as little as possible for this part. This creates natural market pressure for consolidation.
Does anyone else think it's slightly shady to be advising drivers take on loans for vehicles in one hand, while working on making those vehicle loans a bad investment by investing in competing technology in the other?
I don't understand how it is legal / allowable for a bank just to call in a loan (unless the call option is explicitly documented and paid for by the originator / issuer).
If a loan is being serviced then it shouldn't be possible for a bank just to randomly demand repayment, jack up the interest rate, or otherwise change the terms of the loan. That seems grossly unfair.
If this is the standard in the UK, then I think we need legislation.
The poster was talking about "human error". If you are out of a car because your lender messed up (perhaps intentionally to pocket the late fee) you are in trouble, because everyone needs a vehicle to get to work on time. And of course you have as much recourse against your lender as the people at the receiving end of the Hertz case. Didn't Peter Thiel say you need a seven-figure sum to make the legal system work for you?
"You can buy this TV on credit, but you're only allowed to watch the news on it".
"I'll loan you money to buy an oven, but you're only allowed to roast chicken in it".
For any other product it seems ridiculous, and rightly so.
The car obviously has some kind of tracking device in it for them to be able to tell where it is, and that it has even violated this clause, so they can't be afraid that she'll drive off into the sunset, never to be heard from again.
Aside from the Kafka factor, it also limits her to job opportunities found only in those counties, which would make it harder for her to improve her situation than if she had free movement.
> These people want the same terms without the work or change in behavior.
Nobody's arguing that a subprime borrower should receive the same interest rate as someone with a good credit history, but limiting the use of the vehicle is an entirely different scenario, and one I'm struggling to think of any justification for.
The carrier lends you the money, you agree to pay it back, that's as far as their involvement goes. This is standard practice in Europe. You get a phone for cheap, you agree to pay monthly installments, you can throw the phone off a cliff or install BeOS on it, for all the carrier cares.
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