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Two assertions made without data backing it up: (1) that this reduces the effective delinquency rate (2) that a reduced delinquency rate is being passed to sub

Two assertions made without data backing it up: (1) that this reduces the effective delinquency rate (2) that a reduced delinquency rate is being passed to subprime borrowers as savings in reduced interest rates. (1) depends on whether unavoidable, but temporary, delinquency will not have knock-on effects that will exacerbate the likelihood of default, such as losing one's job because you're unable to get to work. (2) I believe that many subprime lenders are counting on being able to repossess the car; it's part of their business model. But I might be wrong about that. (3) in a functioning market, lower delinquency rates might translate into reduce interest rates, but it is not clear to me that it is a functional market, rather than one built explicitly on exploiting subprime borrowers with limited avenues for between lender competition for subprime borrowers.

rufus_foreman 6y ago
>> that a reduced delinquency rate is being passed to subprime borrowers as savings in reduced interest rates What are the barriers to entry for subprime auto lending? Those lenders are ubiquitous in the inner city, so I don't think there is much of a barrier to entry, maybe I'm missing something. If there is no barrier to entry, and reduced delinquency rates aren't being used to reduce interest rates, then that is a problem poor people have that I could help solve by getting rich. In my experience, those type of problems do not exist. For the first assertion, there are some numbers in the article, but beyond that, why would lenders pay for this if it didn't reduce delinquency rates? It would be easy to run the numbers to see if it was worth the price, even a mom and pop shop could A/B test it.
- jonnycomputer 6y ago
  Having a low barrier to entry is not sufficient for there to be real competition between those in the market. Why? Well, for one thing, subprime borrowers buying cars are probably limited in their ability to shop around. If you cannot do price comparison, then there really is no effect on prices of competition. Firms will compete in other ways, for example, by making themselves more accessible, or limiting access to competitors. Look, the likely thing that is happening is they get a ride to the nearest local dealership, and take whatever loan package they're offering. And if they are doing that, its probably some shady corner dealership anyway.
  - rufus_foreman 6y ago
    >> Having a low barrier to entry is not sufficient for there to be real competition between those in the market. Why? Well, for one thing, subprime borrowers buying cars are probably limited in their ability to shop around Everybody's got a phone. And everybody can ask around, places get reputations. If you offer significantly better rates than the competition, you will get a good reputation. >> Look, the likely thing that is happening is they get a ride to the nearest local dealership, and take whatever loan package they're offering That's not what I did when I was poor, and it isn't what the other poor people I knew did.
SilasX 6y ago
That's the great part about markets: If you think the terms are unfair or overestimate the default risk, you can offer car loans at the same or lower rates without such odious restrictions! (Or invest in someone who does &c.) If no one's willing to do it, then maybe they're actually calibrating the risk correctly?
- jonnycomputer 6y ago
  Or there are market frictions that limit the ability of subprime borrowers from actually shopping around.
  - SilasX 6y ago
    That would be a hard case to make: https://www.google.com/search?q=auto+loan https://www.google.com/search?q=auto+loan

rufus_foreman 6y ago

>> that a reduced delinquency rate is being passed to subprime borrowers as savings in reduced interest rates What are the barriers to entry for subprime auto lending? Those lenders are ubiquitous in the inner city, so I don't think there is much of a barrier to entry, maybe I'm missing something. If there is no barrier to entry, and reduced delinquency rates aren't being used to reduce interest rates, then that is a problem poor people have that I could help solve by getting rich. In my experience, those type of problems do not exist. For the first assertion, there are some numbers in the article, but beyond that, why would lenders pay for this if it didn't reduce delinquency rates? It would be easy to run the numbers to see if it was worth the price, even a mom and pop shop could A/B test it.

jonnycomputer 6y ago
Having a low barrier to entry is not sufficient for there to be real competition between those in the market. Why? Well, for one thing, subprime borrowers buying cars are probably limited in their ability to shop around. If you cannot do price comparison, then there really is no effect on prices of competition. Firms will compete in other ways, for example, by making themselves more accessible, or limiting access to competitors. Look, the likely thing that is happening is they get a ride to the nearest local dealership, and take whatever loan package they're offering. And if they are doing that, its probably some shady corner dealership anyway.
- rufus_foreman 6y ago
  >> Having a low barrier to entry is not sufficient for there to be real competition between those in the market. Why? Well, for one thing, subprime borrowers buying cars are probably limited in their ability to shop around Everybody's got a phone. And everybody can ask around, places get reputations. If you offer significantly better rates than the competition, you will get a good reputation. >> Look, the likely thing that is happening is they get a ride to the nearest local dealership, and take whatever loan package they're offering That's not what I did when I was poor, and it isn't what the other poor people I knew did.

SilasX 6y ago

That's the great part about markets: If you think the terms are unfair or overestimate the default risk, you can offer car loans at the same or lower rates without such odious restrictions! (Or invest in someone who does &c.) If no one's willing to do it, then maybe they're actually calibrating the risk correctly?

jonnycomputer 6y ago
Or there are market frictions that limit the ability of subprime borrowers from actually shopping around.
- SilasX 6y ago
  That would be a hard case to make: https://www.google.com/search?q=auto+loan https://www.google.com/search?q=auto+loan