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9 lending partners have started waving "open auto stipulations" for consumers. This means that the lender lets the consumer buy a car knowing that they already have an open auto loan with another bank.
1. You take out a car loan in 2020-2021 on a high priced / overvalued vehicle.
2. In 2022 that vehicle is now declining in value rapidly.
3. Your car is declining in value, so now you owe more than it's worth on the vehicle.
4. So now you may not even want the car, maybe it's not reliable or you outgrew it so now you're ready to trade it in.
5. You go to the dealership to trade in your vehicle, but you can't because you owe way more than it's worth now.
-So the dealer will expect a LARGE down payment to pay for the difference.
6. But you may not have $1,000s to cover that difference between what it is worth and what you owe on the vehicle.
7. Now the dealer can't sell you a car and you're not able to purchase a car, everybody is at a loss. So now what?
8. The lenders know that most consumers are stuck in this sticky situation, so then they WAIVE THE OPEN AUTO STIPULATION.
-Which means that the lender lets the consumer purchase the vehicle, knowing that they already have an auto loan that is open with a different bank.
9. Taking out a second car loan is very RISKY and will put the consumers in a position to have a much higher risk of default. The lender knows that the consumer will default on the other car!
In conclusion, open auto stipulations are a risky move for both lenders and consumers. Lenders may be willing to waive these stipulations so that they can finance cars and dealers can get vehicles on the road, but this could lead to an increase in car repossessions in early 2023 if not managed properly.
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