Some consumers who purchased a vehicle during the government’s Cash For Clunkers program are struggling to make the auto loan payments, with some even getting the cars repossessed.
When comparing consumers who used the CARS program to buy their vehicle with those who didn’t, consumers who used the Cash For Clunkers rebates have higher repossession rates and more late payments, according to a mid-January analysis from CNW Research.
The group who is having the most difficulty making their car loan payments is the sub-prime credit tier. These are consumers who generally have credit scores below 650. Sub-prime borrowers who used the CARS rebate program are at a 4.8% repo rate, compared to 2.24% of sub-prime borrowers who didn’t use the rebate.
In terms of timely car loan payments, CNW Research’s data shows that those who used the government program to buy a car have significantly higher rates of paying their auto loan late, compared to those who didn’t use the program to buy. For the sub-prime category, a whopping 18.2% of Cash For Clunkers buyers have made at least one late car loan payment, compared to 10.32% of non-CARS buyers. Even for those with prime credit scores (usually 750 and higher), 2.38% of non-CARS buyers were late with a payment, compared to 5.04% of CARS buyers.
In August, CNW Research reported that more than 17% of those who bought a vehicle using the Cash For Clunkers program had buyer’s remorse. At the time, only 7% of consumers who bought a car without the government rebate experienced regret. A follow-up survey conducted earlier this month shows the percentage of Cash For Clunkers buyers regretting the purchase rose to 19.4%, while those who purchased without the program saw their remorse fall to 6.1%.
Although the industry desperately needed a sales boost, it’s clear that some of these consumers should not have bought a vehicle. It’s not a great deal if you can’t afford the car loan payments in the first place.