Auto loans to people with tarnished credit have risen more than 130 percent in the five years since the immediate aftermath of the financial crisis, with roughly one in four new auto loans last year going to borrowers considered subprime, The New York Times Dealbook reported yesterday. The explosive growth is being driven by some of the same dynamics that were at work in subprime mortgages. Just as Wall Street stoked the boom in mortgages, some of the nation’s biggest banks and private-equity firms are feeding the growth in subprime auto loans by investing in lenders and making money available for loans. Many subprime auto loans are bundled into complex bonds and sold as securities by banks to insurance companies, mutual funds and public pension funds. A New York Times examination found that subprime auto loans can come with interest rates that can exceed 23 percent. The loans were typically at least twice the size of the value of the used cars purchased. Such loans can thrust already vulnerable borrowers further into debt, even propelling some into bankruptcy, according to the court records, as well as interviews with borrowers and lawyers in 19 states. The investigation also found dozens of loans that included incorrect information about borrowers’ income and employment, leading people who had lost their jobs, were in bankruptcy or were living on Social Security to qualify for loans that they could never afford.
