For most people, reliable transportation is the key to survival. Without a way to get to work, there is no income to pay for food, rent or mortgage payments, and the other essentials. But few people have the cash to buy a car outright. And with poor credit or poor planning. the quest for a car can become a trap in itself. But there may be a way out…
Remember the subprime mortgage fiasco? Anyone who was breathing and had some income could buy a home with little or no money down. Now the same thing is happening with car loans. But these loans often come with very high interest. Those who have not done a budget to know how much they can afford can get trapped.
Even worse are the “title loans”. Just as many states have outlawed “payday loans” with high interest and never-ending payments, shrewd subprime lenders and the investors that back them have come up with a new twist: lending money at high interest backed up by the title to your car. They have accurately concluded that most people will do anything to avoid losing a car that is essential to working and living.
The trap this creates was recently illuminated by a New York Times article, “Rise in Loans Linked to Cars is Hurting Poor” http://dealbook.nytimes.com/2014/12/25/dipping-into-auto-equity-devastates-many-borrowers/?_r=0. Sky high interest rates. Working people trapped by the never-ending cycle of payments. Loans advertised as “easy cash” that are anything but. Loan balances that far exceed the value of the car.
Those who, out of need or desperation, are considering these types of loans should read this article. With a bit of luck and some planning, these types of loans should be avoided whenever possible.
For those who are trapped in these types of non-purchase money car title loan arrangements and who otherwise qualify, a bankruptcy under Chapter 13 may provide relief, including reduction in loan balances or interest rates, (“cramdown”) or the alternative of buying back the car at market value through payments over as much as 60 months.