Business Magazine

Your Tax Dollars at Work: 127% Loan to Value Used Car Loans

Posted on the 07 March 2013 by Mdelp


Here are some interesting facts about Ally Financial, formerly General Motors Acceptance Corporation (GMAC). Data as of December 31, 2012.

  • For the second year in a row, Ally Financial was the largest provider of vehicle financing in the U.S.
  • The average loan-to-value on used car loans was 127%. This means the loan was issued for 27% more than the car was worth before the car was even driven off the lot!
  • The average loan-to-value on new cars was 110%. Once again the loan was issued for more than the value of the car!
  • They issued about 1.5 million new loans in 2012
  • Used vehicle loans and leases made up 46% of loan volume in 2012
  • Subprime loans (loans issued to borrowers with lower than 680 FICO score) made up 24.8% of new car loans and 55.4% of used car loans. As a reference point, subprime loans made up 24.9% of new car loans in 2007.
  • The average term of new car loan was 65 months and the average term of used car loan was 60 months.

I understand lenders are in the business of lending money but after reading the above facts, I am puzzled over a few items:

  • If I am selling a car for $X why does a borrower have to borrow 27% more (used car) or 10% more (new car) than that price?
  • Has the memory of what happens when lenders recklessly lend out more money than the collateral can support faded already?
  • Ally Financial is 72% owned by the American Taxpayer via the U.S. Treasury owning 72% of the common stock of Ally as part of their 2008/9 financial crises bailout. Why are our tax dollars being lent out at 27% or even 10% over what the item being bought was sold for?

Sources: Experian. Ally Financial

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