Maybe you don’t agree with it philosophically but I think most people would agree that the CARS program was a success for dealers all across the country. People were lining up to trade in their clunkers and take advantage of the $3500.00 to $4500.00 that the government was doling out. It was a win win scenario the dealers had customers buying cars again and the consumer basically had a windfall check from the government. As the demand increased the supply started to decrease and before we new it many dealers were sold out of inventory. But did it help people with bad credit? Below are some observations that make me think it did:
1)Auto loans with bad credit are difficult to obtain without a down payment-Most sub prime lenders are going to require a substantial down payment before they will give any type of approval. Someone with bad credit typically will not have the resources to come up with $3500.00 to $4500.00 in cash for a down payment. If they did they probably would not be behind on their bills to begin with. If they met the criteria to qualify for the cash for clunkers program they automatically had a very sizeable down payment in the form of a trade in. This gave dealers an avenue to get approvals for people who otherwise would have had very little trade equity or down payment. Sub prime lenders were more than happy to approve many of these loans because of their equity position in the collateral. In the event the customer defaulted they had very little risk out there because the vehicle was worth more than the outstanding loan.
2)Cost less to maintain-With the warranty that come on a new vehicle the consumer doesn’t have to budget for any unexpected repairs. They have full factory warranty coverage for at least three years or longer depending on the manufacturer. With their old car expensive repairs are more likely to happen which in turn could cause financial hardship if not budgeted for.
3)Better Gas Mileage- The whole idea behind the CARS program was to get old gas guzzling vehicles off the road and get new more fuel efficient models on the road. Many people were trading in vehicles that got 8 to 10 miles per gallon for vehicles that got 20 to 25 miles per gallon or more. This makes for a substantial savings in gas mileage every month leaving more money in the consumer’s pocket.
4)Reestablishing Credit- Very few things bring a credit score up like a paid as agreed auto loan. As discussed before the CARS program gave many people who otherwise would not have qualified for a loan the opportunity to start rebuilding their credit. If they make their payments on time it will cost them less money on loans in the future as their credit score starts to rise.
