Uber Car Financing Presents Risky Bet to Drivers

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Uber may be fine to work with, but drivers should steer clear of the company’s vehicle-financing program, that is made to help individuals with a bad credit score get automotive loans.

The global rideshare company partnered with huge auto manufacturers Vehicle, Toyota and Ford to provide Uber drivers discounts on certain used and new cars. The organization also has an agreement with Banco Santander’s U.S. consumer finance unit to supply lease-to-own financing.

Uber-skeptical

Thousands of drivers have taken advantage of the discounts and financing, based on Kristin Carvell, an Uber spokeswoman. But personal finance experts are skeptical of the program, which began in November 2013 and advertises that it doesn’t require a credit check.

“Any financing that announces ‘available to people with low or no credit’ is likely to have high rates of interest and poor terms,” says?Carrie Houchins-Witt, a financial adviser in Coralville, Iowa. “At worst, it may be predatory lending.”

An Uber blog post announcing the financing program suggests that the earning potential at Uber for drivers with poor credit lowers their risk to lenders. An earlier NerdWallet study discovered that Uber drivers, typically, would have to give 60 rides per week to earn $50,000 a year before taxes and expenses.

Lyft and Sidecar, Uber’s rideshare competitors, don’t offer similar financial arrangements. With Uber’s program, drivers put $2,000 down to begin leasing an automobile with Santander financing. Uber deducts regular payments – less than $17 each day, according to its advertisements – from drivers’ paychecks.

Convenience factor

Uber’s marketing shows that the program helps borrowers who can’t get auto financing elsewhere. But Craig Smalley, an economic adviser in Orlando, Florida, states that even people with bad credit can typically obtain a traditional auto loan if they’re prepared to pay a high interest rate.

Although Uber’s program doesn’t offer terms that drivers can’t get at a dealer, getting the payments deducted directly from their pay might be one good reason some drivers are attracted to it, Smalley says. “It would be ‘set it and forget it,’?” he says.

Harry Campbell drives for Uber, Lyft and Sidecar and also runs The Rideshare Guy?blog and podcast from Newport Beach, California. Campbell says they know several drivers who’ve checked out Uber financing, but none of them he has talked to have actually tried on the extender.

“For those that have investigated it, it really isn’t a great deal because you’re locked into Uber for thus long and it’s a couple hundred dollars more than a traditional lease,” Campbell says.

Subprime auto loans

Uber is a player on a larger subprime auto loan landscape, which many compare to the subprime mortgage market in early 2000s that collapsed in 2007, resulting in the financial crisis and recession. Subprime lending is the practice of giving loans to people with bad?or no credit, and it has surged among auto lenders since the crisis.

“The auto industry is still within the ‘Wild, Wild, West,’ a lot like lenders were a few years ago,” Smalley says.

In August, Santander said?it received a civil subpoena in the U.S. Department of Justice associated with “nonprime” auto loans. The company’s consumer lending unit declined to discuss either the subpoena or its Uber financing program, based on Laurie W. Kight, a Santander spokeswoman.

Many experts say a credit bubble from subprime auto loans wouldn’t be as dangerous because the housing bubble spurred by mortgages given to people who couldn’t purchase them. “It is easier for any bank to repossess a car than for a house,” Smalley says.

For Uber drivers who need wheels but lack sufficient credit, the Santander lease deal is one way to go. However, the cost could be too steep for many to avoid an economic breakdown later on.


Image via iStock?