Bottom dweller lenders are foaming at the mouth to make even more highly dicey auto loans to those with abysmal or non-existent credit scores. These toxic loans are then sliced, diced, securitized by investment banks and sold to greedyheads lusting for high yields. This is precisely the same derangement that led to the housing crash, when junk mortgages were used in junk bond securities.
Back then, the bond rating agencies cheerfully ok’ed most any kind of slop because they were making money from it too. Now Fair Isaac of FICO fame is helping this doomed process by inventing new credit scores for those who don’t have no credit records or whose credit records have been mauled by bankruptcy or collection agencies. Not to worry, Fair Isaac plans to give as many as 53 million former deadbeats sparkly new credit ratings so they can pay 24% interest for a car they probably can’t afford. Such a deal.
Check the securitized slop in the image. FICO 544. Expected loss 26.5%+, APR nearly 24%, with no doubt steep fees and penalties for late payments.
But wait! Auto title loans are even sleazier and despicable than subprime auto loans and often have balloon payments that either get the borrower deeper into debt or they lose the car.
The loans are advertised as one-month or fixed-fee loans, but Pew found they’re anything but. The average borrower took out a $1,000 loan, and wound up paying $1,200 in fees through the next year.
A typical borrower, Pew found, makes $30,000 a year or less and struggles to pay household bills at least half the time.