Automotive Lenders Feeling Economic Pressure
AUTOMOTIVE lenders are starting to feel the pinch of the economy, inflation, employment, and also these high car payments. One of the major lenders, Automotive Credit Corp, is basically going out of business. They are pausing all originations indefinitely, effective immediately. This was August 7th, a couple days ago.
Understanding Automotive Financing Fundamentals
AUTOMOTIVE financing has been around for almost a hundred years and it’s designed to allow consumers to purchase a vehicle that they don’t have the cash saved up for. The problem with it is if the lending guidelines do not match the expected payment capabilities, the loans are going to go bad. They’re going to be delinquent loans. They’re going to be charged off loans, non-performing loans.
The Challenge of Balancing Lending Guidelines
LENDERS have to balance being aggressive with their guidelines, but also being conservative so they don’t get caught short when people can’t make their payments. So if you have, as you do now, 20% of all consumers have car loan payments over $1,000, that means one out of five people have a car loan with a loan monthly payment of $1,000 or more. That’s incredible.
Economic Pressures Affecting Payment Capabilities
LENDERS are starting to realize that there’s pressure from the economy on people being able to make these payments. Some of it has to do with inflation of other expenses that go up to take more of the money away. Some of it has to do with employment being difficult. Some of it has to do with a reduction in workforce because of AI. And these automotive lenders are now panicking like, well, how are we going to get out of this?
The Negative Equity Problem
IF you have a car loan, which is excessive, you have a payment you can’t afford or have a car that you don’t have the ability to use anymore, the problem is you probably have what’s called negative equity. You owe more than the car is worth. If that’s the case, difficult to sell, right? Because if you owe 30,000 on a car and it’s only worth 20, where’s that other 10,000 going to come from? Well, that’s where a car short sale comes in.
Hidden Add-Ons in Car Loans
EXTRA fees that were added onto your loan that you didn’t clearly acknowledge. You may not be aware that there could be three or four or $5,000 worth of add-ons tacked onto your loan which were not part of the original car price. There are things there are protection plans and packages and GAP and all these other add-ons that they do in the finance office.
Removing Add-Ons from Your Loan
THOSE normally can be removed from your loan. You have to go through a process. They don’t make it easy. You have to do paperwork and identification and that kind of thing. But if you remove those, let’s say it’s three or $4,000. Now your loan isn’t $30,000 anymore. Now maybe it’s 36.
Understanding Car Valuation Tactics
AT the same time, the value that you’ve been getting for your car from the dealer is a wholesale value. They’re saying, “Your car is only worth 20. Here’s the book value.” And they’re going to walk around the car, point out every chip, every ding, every thing wrong with it, and they’re going to convince you that it’s only worth 20.
Alternative Resale Markets
HOWEVER, there are resale markets that you can get more money. Now, that’s not a retail market. Retail is the end user that buys the car that they drive it off into the sunset. A resale market is a market of brokers and networks that take these cars and they resell them, but they’re not the same as a dealer, right? They can pay you more money.
Reducing Negative Equity Through Better Pricing
SO maybe the resale market instead of 20 might be 22 or 23. Well, now if you take 23,000 against 26, now you’re only $3,000 out of equity, negative equity. That might be easier to digest. Maybe you can roll that into the next vehicle. Maybe you have that saved up. In many cases, you could refinance that or get the lender to take payments on that.
Lenders’ Awareness of Market Conditions
THE lenders know this is coming. That’s why this finance company is basically shutting down because they know that they can’t do more loans because they’re going to be in rough shape down the road. So, if you have a car loan which is excessively high, you owe a lot of money on it, your payments are high, take a look at the link below, carshortsale.com. It’ll give you some ideas and there’s a free guide, a free instructions on how to do all this, which you can use to escape the payment on your vehicle, not have to worry about being buried in your car and having all that negative equity affect your budget.
