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Can't Pay Car Loan? Bank May Not Even Want It Back!

Wednesday, 8 Oct 2008 | 9:27 AM ET
Auto Loans
CNBC.com
Auto Loans

Want a sign of just how screwed up this economy has become? Auto repo companies are finding business has slowed down because banks and lenders are reluctant to take back cars and trucks people can no longer pay for. That's right, some banks don't want the cars they would, in a normal economy, repossess.

Now before you tear up your monthly payment book and go for a joyride on delinquency highway, keep a few things in mind. Not all banks are ignoring the fact you haven't made a car payment in a couple months. And eventually, as this credit freeze thaws out, the repo man will come knockin'.

Why are the tow trucks not as busy as you would expect in a down economy? Blame it on a depressed used car market where values have cratered. So lenders who typically repossess a car after a loan is 60 days delinquent, are finding once they take a car back, they'll wind up selling it for a loss at a used car auction.

In other words, lenders are better off seeing if they can re-work delinquent auto loans as opposed to just taking the keys back. Think about it. If you're a lender aren't you better served changing the terms of an auto loan so the buyer can make a lower payment? It's either that or repossess a car that will sell in the used car market for thousands less than the cost of the original loan.

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Lenders are trying to avoid this problem by writing fewer loans to people with questionable credit. And they are being more proactive in reaching out to customers as they start falling behind on payments. The message: do we need to change your loan so you can make a monthly payment at a lower rate?

Strange as it sounds, one repo man summed it up best when he told me, "I never thought business would slow down with so many people delinquent on their car payments."

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  • Phil LeBeau is a CNBC auto and airline industry reporter based in the Chicago bureau and editor of the Behind the Wheel section on CNBC.com.

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