Good Luck Getting Out Of That Subprime Auto Loan When Used Car Prices Crash

We've written frequently in recent months about the coming subprime auto crisis which will very likely be prompted by a wave of off-lease vehicles that will flood the market with used inventory over the coming years.  In fact, Morgan Stanley recently predicted that the surge in used inventory could result in as much as a 50% crash in used car prices over the next couple of years which would, in turn, put further pressure on the new car market which has already resorted to record incentive spending to maintain volumes.


Here are just a couple of our most recent notes on the topic:



Of course, while pretty much anyone has been able to purchase that brand new BMW of their dreams over the past 5 years...courtesy of a surge in subprime lending volumes....



 


...getting out of those loans once used car prices crash and millions of Americans are left with massive negative equity balances won't be quite so easy...just ask Yvette Harris who is still making payments on her 1997 Mitsubishi nearly a decade after her car was repossessed.  Per the New York Times:









More than a decade after Yvette Harris’s 1997 Mitsubishi was repossessed, she is still paying off her car loan.


 


She has no choice. Her auto lender took her to court and won the right to seize a portion of her income to cover her debt. The lender has so far been able to garnish $4,133 from her paychecks — a drain that at one point forced Ms. Harris, a single mother who lives in the Bronx, to go on public assistance to support her two sons.


 


“How am I still paying for a car I don’t have?” she asked.


 


For millions of Americans like Ms. Harris who have shaky credit and had to turn to subprime auto loans with high interest rates and hefty fees to buy a car, there is no getting out.


 


Many of these auto loans, it turns out, have a habit of haunting people long after their cars have been repossessed.



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