Threat of repossession accompanies subprime auto loans

Buying a car is usually an exciting time in any Mississippian's life. Still, if one's finances aren't in shape beforehand, or if a buyer encounters tough financial circumstances, they and their car could be in danger of repossession.

During the worst years of the recession, it became relatively difficult to get approved for a mortgage or auto loan. Lenders were tightening their belts just like everyone else, and in the wake of the subprime mortgage crisis, other types of loans also became harder to get for many. In recent years, the difficulties may have eased somewhat, especially with regard to loans for used cars.

According to recent media reports, car loans going to those with "subprime" credit scores accounted for nearly one-fourth of all auto loans made last year. Interestingly, in the half-decade following the financial crisis, auto loans going to those with scarred credit scores have risen over 130 percent. Those whose credit scores are 640 of lower are generally considered to be subprime.

The New York Times performed an investigation of auto loans' relationships to subprime buyers, and found that many of the interest rates on used car loans have topped 23 percent. Many of the loans reviewed during the investigation were for vehicles whose values were half the size of the actual loan.

Court records, along with interviews with individuals and lawyers, reveal the consequences of such lending, such as financial pressure and potential bankruptcy. Another consequence of obtaining a car loan that is too big for one's financial capacity is the threat of repossession. If a driver has a high enough number of missed payments, their car may be seized by an agent and taken back by the lender.

What some loan recipients may not realize is that repossession can be halted through bankruptcy. There are a number of ways in which bankruptcy might be an appropriate option for someone facing repossession. It is important to understand the legal options available to a car owner. Seeking advice could help them understand how bankruptcy could help them as well as other options, allowing them to be aware of the long-term pros and cons of each.

Source: CNBC, "Subprime woes are back: This time in used cars," Jessica Silver-Greenberg and Michael Corkery, July 19, 2014

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