Auto Loan Bubble?

In 2008 home foreclosures rose an astounding 81%, starting one of the worst economic downturns in recent memory. Although there were many factors contributing to this fallout, two big components were: 1. lenders overextending themselves on subprime mortgages; 2. Buying and reselling of debt, while piecing it out. Today mortgage lenders are more conservative on whom they lend to and how much. The people handing out car loans may not have paid attention to this lesson. A story reported on NPR’s Planet Money showed that auto loan lenders are approving buyers with poor credit history for expensive new cars. The story was taken up again by NPR’s All Things Considered, where they detailed a buyer who was pressured into buying a car that he couldn’t afford at 18% interest. Companies like Westlake Financial provide some of these higher interest loans, but also larger companies like GM and Chrysler have also been approving buyers like there is no tomorrow (which if you recall GM & Chrysler were a part of the Auto bailout) . Subprime auto loans have slowly been slowly gaining media attention. In addition to Planet Money and All Things Considered, Here and Now as well as Bloomberg have been talking about them. All of the stories are quick to point out that auto loans are not the same as mortgages, arguing that buyers have to get to and from work so it is a good investment. This may be true, but is very similar to the argument that investors made when subprime mortgages were on top. Although I do not think that it is time scream that the sky is falling, I do think that government oversight and regulation on subprime lending needs to happen so that a repeat of 2008 won’t happen. If you want to read more click here, here, here, or here.

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