Subprime auto loans are on the rise in the U.S. In fact, nearly 1 in 3 auto loans goes to borrowers with not-so-great credit. Many of those subprime borrowers have a little extra incentive to pay their car loan on time: If they miss a payment, their car won’t start.
According to The New York Times, starter interrupt devices are wired into the dashboards of many vehicles, allowing lenders to remotely disable the vehicle’s ignition if the borrower misses a car payment. The “payment assurance” devices are also equipped with GPS so lenders can track the cars’ location and movements.
“Now used in about one-quarter of subprime auto loans nationwide, the devices are reshaping the dynamics of auto lending by making timely payments as vital to driving a car as gasoline,” the Times said.
Nearly 2 million cars are outfitted with the remote kill switches. But the devices have had their fair share of problems. The Times said:
Some borrowers say their cars were disabled when they were only a few days behind on their payments, leaving them stranded in dangerous neighborhoods. Others said their cars were shut down while idling at stoplights. Some described how they could not take their children to school or to doctor’s appointments. One woman in Nevada said her car was shut down while she was driving on the freeway.
Some lenders enable the devices after 30 days of nonpayment, while others wait just a few days after a missed car payment. Borrowers are supposed to be able to restart their car in case of an emergency, but the methods provided to do that don’t always work, the Times said.
Lenders that use the devices said they’re a measure to protect themselves from risky loans, and borrowers ultimately consent to them. According to CBS MoneyWatch:
The benefits of the devices, supporters argue, is that they allow some consumers to buy cars when they might not have qualified previously. According to the Wolters Kluwer white paper, customers are able to finance their purchases with smaller down payments, while more vehicles are being sold to people who wouldn’t have otherwise qualified for a loan.
Although the devices are legal across much of the country, borrowers’ privacy – and sometimes dignity – may be at stake. According to the Times:
“No middle-class person would ever be hounded for being a day late,” said Robert Swearingen, a lawyer with Legal Services of Eastern Missouri, in St. Louis. “But for poor people, there is a debt collector right there in the car with them.”
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