Auto Loans and Consumer Bankruptcy

Are Certain Car Loans Hurting Consumers?
By now we’ve all heard about predatory lending when it comes to the housing market.  Indeed, many Chicago homeowners have suffered financially and emotionally due to predatory lending practices.  But do similarly deceptive practices take place in the auto lending industry?  According to a recent article in the New York Times, “the practice of roping people into loans that damage them financially is all too common.”  In other words, consumers agree to “ruinously priced loans they could never hope to repay,” and as a result, many end up declaring personal bankruptcy.
Predatory lending in the auto loan industry isn’t a new practice.  For years “unscrupulous auto dealers” have been convincing consumers to take on loans that they can’t afford to repay.  However, it looks like the problem has worsened in recent months and years.  What’s different now?  Several major banks in the U.S. “began buying up car loans to package them in securities sold to pension funds, insurance companies, and others.”  In short, big banks entered the picture.  And as those banks have been working to buy up auto loans, some of them have “formed alliances with unscrupulous dealers.”  In fact, one of those car dealers was charged with defrauding a couple dozen automobile buyers and later was indicted for grand larceny.
Auto Loans and Mortgages: Leading Illinois Consumers to Bankruptcy
While bankruptcy can be a favorable option for some Oak Park residents facing substantial debt, commentators worry that auto lending practices are beginning to look more like the mortgage loans that negatively affected consumers across the country over the past five years.
How are unprincipled auto lenders similar to those in the mortgage industry?  According to the article, car dealers often can offload loans that are likely to fail onto banks.  And many of those dealers took advantage of borrowers who didn’t fully understand the terms of the loan.  For instance, unscrupulous auto dealers have been accused of some of the following practices:
·      Falsifying the borrower’s income;
·      Writing loans with extremely high interest rates;
·      Writing loans with hidden fees; and
·      Using a “yo-yo” tactic, which is a situation where the borrower leaves the dealership with her new car under the belief that the deal’s done, and then she gets a call days or weeks later from the dealership informing her that she’ll have to return the car or accept worse loan terms.
When car dealers create loans under these conditions, they’re able to make a quick profit to the detriment of the borrower.  In particular, the yo-yo tactic allows dealers to prey on borrowers who need their cars to make it to work or to regularly scheduled medical appointments.  The borrowers essentially have “no choice and end up signing on the dotted line,” accepting higher interest rates than they can afford.
And in many cases, unknowing borrowers have their vehicles repossessed, and they end up filing for bankruptcy.  While bankruptcy may be a good decision for you, it’s important to speak with an experienced Chicago bankruptcy attorney about your case.  You have rights as a consumer, and we can discuss your options with you today.
See Related Blog Posts:
What Do Consumers Need to Know About Filing for Bankruptcy?

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