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Just how problematic are subprime auto loans?

One of the many consequences of the recent recession was that lenders became far more reluctant to extend other types of credit outside of just home loans. Interestingly enough, however, there was at least one anomaly: auto loans. Indeed, this type of credit proved readily available during these turbulent economic times, a trend that has continued to the present day with total auto debt in the U.S. now sitting at over $1.1 trillion.

While this might not seem that noteworthy to those who have purchased or leased a vehicle via a loan from a bank or the dealer, and are able to make regular payments, it's a much different story for the millions who have had to turn to subprime auto loans.

What are subprime auto loans?   

Subprime auto loans are extended to individuals with less than stellar credit who are unable to secure a traditional loan, and are typically in dire need of a vehicle to get to and from work, school or the doctor. They are characterized by extremely high interest rates -- sometimes as high as 24 percent -- and steep fees.

Indeed, when these high interest rates and steep fees are finally tallied, a consumer can actually end up paying more for a used car in poor condition than a new car would have ultimately cost.

What's so problematic about subprime auto loans?    

People might think that those who default on their subprime auto loan will simply see their vehicles repossessed and resold, such that the matter is effectively closed and the borrower is left without transportation and a slightly worse credit score.

The reality, however, is that subprime lenders will not only repossess and resell vehicles, but also go to court to collect the remaining balance, which is typically high given that the vehicles to which they are attached are usually not worth much.

Given that most borrowers are unaware of these lawsuits, they result in the courts granting default judgments in favor of subprime lenders, which, in turn, clears the way for them to begin garnishing wages -- sometimes for years.

How big of an issue is this?

Experts indicate that there is no official national figure tracking collection lawsuits filed against those who default on subprime auto loans. Nevertheless, state courts records show a dramatic increase in recent years. One of the nation's largest subprime auto lenders, for example, has filed over 17,000 such lawsuits in New York since 2010.

Compounding the problem is that debt buyers are now swooping in to purchase old subprime auto debt for pennies on the dollar. Indeed, one of the nation's largest debt buyers purchased roughly $30.2 million in auto loans during the first quarter of 2017.

This is truly a troubling development. Here's hoping the necessary regulatory parties begin to take notice.

Consider speaking with a skilled legal professional committed to protecting your rights if you have concerns about creditor harassment or other consumer protection concerns.

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