Watch John Oliver Perfectly Explain Predatory Auto Lending

Host of HBO’s “Last Week Tonight” John Oliver doesn’t fancy himself a journalist. He’s admitted as much in the past. But once in a while, his show shines a light on an important topic that’s unfamiliar to most people. The latest episode deals with predatory auto lending, and while the show’s tone is lighthearted and humorous, the implications could be very serious.

Subprime home loans caused the Great Recession. The practice of lending money to borrowers with bad credit and a high risk of defaulting on a loan led to a crash in the housing market, which sent shockwaves throughout the economy. In the segment below, Oliver discusses a different subprime lending practice that could foreshadow another bubble-burst. Just like banks did before the housing crash, predatory auto lenders target people who are only eligible for high-risk, subprime loans. Some of the worst offenders for these types of loans are so-called “buy here, pay here” dealers, who do their own lending and therefore can set ridiculously high interest rates. According to data from the National Alliance of Buy Here, Pay Here Dealers (NABD), the average interest rate at a buy here, pay here lot is 19 percent, and the average default rate is 31.45 percent. Those numbers aren’t at all attractive, so why are people taking these loans? As Oliver explains, many people have no other options and/or they don’t understand the ramifications. The NABD says the average default occurs at seven months, and by that point the dealer can repossess your car and keep the payments you’ve already made, which often add up to more than the car is worth anyway. In one comical example, a 2003 Kia Optima was sold and subsequently repossessed eight times in three years, and each time it sold for at least double its Blue Book value.

Though subprime auto loans aren’t as big an issue as the subprime mortgages that caused the Great Recession, they could still negatively affect the economy if the bubble were to burst. What’s your take on the subject? Will cars be at the center of the next economic crisis? Watch the episode and tell us in the comments below.

Source: Last Week Tonight via YouTube

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