I can’t afford my car payments!

There is an unfortunate phenomenon in the auto industry that has trickled down from the housing crash – voluntary vehicle repossessions are on the rise.  I was thinking about this when there was an article in the local paper that quoted a bankruptcy judge as saying, “I’ve never seen so many people so willing to walk away from their homes.”  The same is true in the consumer auto industry right now.

The cause of this is the same as the cause of the housing crisis.  It’s not that the lenders were more willing to lend money; it is because the lenders trusted the “brokers” that arranged all the financing – in the case of the auto industry, it’s the dealer.  Here’s how that works:  Consumer comes into the dealership and gets “sold” a car that’s really out of their payment range.  The salesperson will either fill out the credit application for the customer, or have the customer fill out the credit application but tell him/her to “leave the monthly income line blank.”  The dealership will then fill in the amount necessary to get the consumer qualified for the vehicle loan and the lending institution, trusting the dealership, will not ask for stipulations (or “stips”), such as proof of income:  check stubs or income tax returns.  To the bank, it looks like the customer can afford the car.  To the customer, they are just excited to be financed for the vehicle.  This is especially true for consumers with “marginal” credit.  I see the ads stating that the national average credit score is “692” or whatever, and I don’t know whether that’s true.  What I do know is that consumers with scores in the low 600’s are the most vulnerable to this type of fraud because they are the most happy just to obtain vehicle financing.  Then, 5 months later, when the insurance, monthly payments, fuel and everything else finally sinks in, they realize that they just can’t afford the vehicle – which the bank would have known in the first place had the dealer not “embellished” the income on the credit application.

If you can’t afford your vehicle, you have VERY LIMITED options!  Unless you put a bunch of money (or trade equity) down toward the purchase, you are not likely to be in a position of equity.  You can’t just sell yourself out of the vehicle.  I have not heard of any auto financing institutions offering a “short sell” option, like housing lenders currently are, so you are pretty much stuck.  However, there is a paper trail leading from the dealership to the bank.  If you find yourself in the set of circumstances I’ve outlined above, you should call the bank and request a copy of the credit application that was submitted on your behalf.  If there are irregularities, then you should contact an attorney.