For many of the customers who get the worst deals in the used auto financing market, there’s a new service that can help them get low-interest auto loans and save on total costs of ownership. This month, New York Times writers have been covering the success of the More Than Wheels program, a small auto loan business based in New Hampshire that is offering New Englanders a chance to get an “assisted” loan instead of going out and shopping for loan options from conventional lenders. The assistance basically comes in the form of counseling and budgeting help from the small lender, as well as short-term help in the form of a “bridge car” where drivers pay a flat fee to use the vehicle; this element of the program is like a short term lease, but it’s part of a bigger picture: while the borrower gets short term reliable transportation, the team at More Than Wheels is working to arrange a fair auto loan with reasonable interest rates, and while those who enroll in the program do have to pay significant fees for participation, including an initial payment of almost $900, what they get for their money is a loan tailored to their needs, and one that they will have a better than average chance of successfully repaying.
What the NYT stories reveal about the success of the More Than Wheels program is the general loan environment for those with less than stellar credit. Basic surveys of this ominous landscape find customers often paying more than double the price of the vehicle over the term of the loan. Lenders reach out to sub-prime borrowers, those with credit scores below about 660, but they ask much higher interest rates to cover their “increased risk.” Individual dealerships mark up interest even more, and, as the New York Times aptly reports, many of these businesses actually plan default into their business model, making it very hard for the common borrower to ever really claim the title. After 2008, many lenders started to squeeze borrowers even more, holding on to their piece of the profit from loans that became a lot harder to originate as job worries clouded the horizon.
We’ve often reported on the need to find the best lenders, and the lowest interest rates, for any new or used car financing deal, but the example of More Than Wheels is one that any first time car buyer can use: take a look at what this small lender does, and balance that against what you find when you talk to the big banks. Then, use creative financing strategies to shrink your own projected debt down to a manageable size before you sign on the dotted line.