The pandemic, if anything, has seen the divide between the rich and the poor grow ever wider, and not just the super rich, with the car lending world as good a lens as any. Subprime borrowers — or those with the worst credit histories — are falling further and further behind, according to a new report.
Subprime borrowers tend to get the highest interest rates on car loans, because they have credit scores that are bad, which, on paper, makes sense, because the lender is assuming more risk, but in the real world sets up a lot of poor people to fail. That’s especially in a pandemic economy where lots of working-class jobs — like bartending — simply don’t exist.
From The Wall Street Journal:
Some 10.9% of subprime borrowers with outstanding auto loans or leases were more than 60 days past due in February, up from 10.7% in January and 8.7% a year prior, according to credit-reporting firm TransUnion. It marked the sixth consecutive month-over-month increase and the highest level in monthly data going back to January 2019.
More than 9% of subprime auto borrowers were more than 60 days past due in the fourth quarter, the highest quarterly figure in data going back to 2005.
What happens after you fall way behind on your car loan is usually repossession, or the lender taking back the collateral, but that is also not always the end of the story either. The WSJ story has a few tales of woe, but none as enraging as this one:
Nick Goodwin was in the process of starting trucking school when the pandemic hit and didn’t qualify for unemployment benefits. But with his girlfriend out of work, he called his auto lender to ask for help. The lender, Westlake Services LLC, said he didn’t qualify for relief because he wasn’t behind on his payments.
Mr. Goodwin started missing the monthly payment, a roughly $560 bill on a Dodge Ram, in May. “Things started getting difficult,” he said. “Neither of us [were] working; I’m doing side work to try to scrape by to take care of our kids.”
Westlake gave him several extensions that prevented the truck from getting repossessed. But when those ended, Mr. Goodwin still couldn’t pay his monthly bill, and the truck was repoed in October. Mr. Goodwin said a family friend gave him about $900 to get it back. Afterward, he received more monthly extensions because he couldn’t pay the bill.
A Westlake official said the company “endeavors to keep all lines of communication open for our customers and provide as much help as feasible to those suffering immediate hardships.”
Mr. Goodwin said he and his girlfriend recently found work and are making payments. But they can’t use the truck because it was damaged during the repossession and needs a new transmission, he said.
I’m assuming that Mr. Goodwin is not still making payments on a Dodge Ram, but rather a Ram, because Dodge Ram hasn’t existed in over a decade, but, holy shit, if someone repossessed my car and borked the transmission in the process (presumably during the tow) and then returned it to me that way, I would be so goddamn mad. Hopefully, Mr. Goodwin is in touch with a good attorney.
And the easy reaction here is always to shame people for taking on loans they ultimately can’t afford, but I hope the last year has led some people to reconsider that opinion, given the economic calamity. Because, if you’ve ever been in a dire situation, you know that you’re down to your final options.