Auto dealers are making more loans to buyers with poor credit records. The lenders who make the loans resell them into securities’ markets. It is the same way mortgages were sold before the housing market fell apart.
There is another reason why more loans are being made. It is all about the new technology. In the past, “repo men” used to hunt down the borrowers who fell behind on their loan payments. They had to find the auto, and then they had to hook it up to the tow truck.
That is now changing. When buyers with poor credit buy a car, something new happens. The auto dealer, working with the lender, installs a device in the car. When the buyer falls behind on his payments, he may find his car will not start.
That is because a collection agent can electronically disable the car. And the agent can do it from his smart phone while sitting on the porch.
You may be at a store, or getting ready to drive to work, or picking up the kids and the car won’t start. It will not start until you have made a deal for a payment to the collection agency. About 35 percent of loans to credit-risky buyers come with the devices installed. That number is going up.
People are working on ways to disable the device. Device makers are working on ways to stop them. Most people realize they have no choice but to pay if they want to use their car.
There are stories about cars not starting when the owners are one day behind in payment. Or stopping in the middle of the road.
Collection agencies say they wait thirty days and cannot disable a car while it is in motion. No matter what, it is becoming easier for lenders to make borrowers pay up.
Source: The New York Times September 24, 2014