John Oliver: Auto Loans

What is a subprime loan?

  • A loan given to people with low credit scores at a higher interest rate. These people are classified as “riskier” to lend to

    • “Loans to people who would not otherwise qualify for a conventional loan”

  • Subprime: being a below prime customer or borrower who get dealt higher interest rate loans

  • Prime borrower: offered lower interest rate loans

  1. Where is the power in the auto loan market?

  • The lender entirely, the borrower is at the will of the lender through threat of repossession and a “beeper”/shutoff of your car

  1. In a competitive market, what should happen to the interest on auto loans when more firms enter the industry?

  • What should happen is the interest rates fall, because in order to attract borrowers, a lower interest rate will do that (interest rates drop as incentive to borrowers).

  1. What has happened as a result of the increased number of firms in the auto loan market

  • Lenders have actually become more aggressive and misleading in their marketing and increased interest rates. They are praying on poorer people. They’ve made the loans longer term with an even higher interest rate but for less money upfront, taking more risk.

  • Bundling: offering multiple products and services as a single combined service