Robert Bouclin, a dental surgeon from Ottowa, describes how he knew his friend was having difficulty with her car loan when he saw her desperately flicking though a Yellow Pages in search of financial advisers specifically for those in a credit crisis.
Her problem, it turned out, was that she had co-signed? for a $24,747.72 car loan in order to help out a friend who needed a vehicle, but when the friend failed to pay for the loan on time, "she was left holding the bag and she was going to go bankrupt because she couldn't make the payments."
Dr Bouclin assisted his friend when she coulndn't make the payments, in a situation where one of the individuals who made the loan had no credit history, and the other had a very bad rating, meaning they had only been allowed a sub-prime loan at 18.5 %. This would have left the financing company Wells Fargo earning more than $16, 000 worth of interest over a period of 6 years.
If the situation had deteriorated, which tends to happen in the ever expanding sub-prime car loan business, the company would have been fine, simply sending the client a final invoice to make up any owed amount, as well as repossessing the car.
The problem for Bouclin's friend was that the particular type of deal she had gone in for, was made specifically for those in her situation. In the indirect car loan business, they provide loans for consumers with bad credit via car dealerships and online brokers, they are not eligible for regular car loans with competitive interest rates and can be found to have lending rates as high as 32%, making them the bedrock for a flourishing $4 billion Canadian business.
They give the impression that they are a fantastic new was for people to rebuild their credit score, quoting flawless credit ratings to lenders no matter what the actual credit history of the applicant might be.
Although larger scale banks are now involved, they won't make public the number of their clients that are unable to pay back the money resulting in repossession. The Bailiffs in question are far more open.
Rhonda Tetefsky is the owner of Mr. Bailiff Inc., which has offices in Toronto, Richmond Hill and Windsor, stated "I think this is the calm before the storm. We're on our way into some trouble,the economic downswing has already arrived in southwestern Ontario."
According to Tetefsky there is also a new ploy whereby car dealerships but GPS systems into vehicles of the customers with the worst credit ratings,
"They put this device into the car without the customer's knowledge, and it's trackable. We would be on the other end and get a call, 'We need to get it back because the leasee is in default.' We go to computer, we know exactly where it is, and we go and get the car."
Bouclin's friend, who only co-signed in the first place to help out another friend, tried to pay the $567.94 payment consistently after her friend coundn't, but after four of them found she could not afford this
"It was a lot of money, and I had to borrow money myself to make the payments," says the woman, who wishes to remain anonymous.
Monty Loree, the Regina-based founder of the online forum Canadian-money-advisor.ca. states; "If you don't have the cash, don't buy it. If people have bad credit, rebuild your credit first, and save up a cash reserve."
Simple, effective advice, if you can avoid temptation.
Bouclin offered the minivan back to an Ottawa dealership a few weeks back, who immediately took it, out of curiosity he inquired what would be done with the car
They " lease it on a sub-prime basis at 18.5 per cent to some other poor sap and the story goes on."
