| Subprime lending == bad Extending credit to lower-income borrowers == good Are we just talking about price (interest) here? You may not like the price, but prices exist for a reason and cannot be changed by diktat. Who gets prime vs a subprime lease isn't determined by some ethnicity or the religious sect someone belongs in. It's determined by the risk and size of the loan. Smaller loans have relatively higher fixed costs, driving up the up front fees or interest rate. They are also harder to recover and may have a lower residual value, all factors that go into determining the risk. People with little or bad credit history are also more likely to default. This isn't controversial. What's the alternative? Stop extending credit to risky borrowers? Force lenders to lend to risky borrowers at subsidized rates funded by tax dollars or through coercion? [Edit]
What I particularly don't like about these articles is the obfuscation of financial matters. For instance, > After dropping $250 up front for her lease of a 2015 Honda Civic, she pays $160 a week to Xchange. If she keeps the car for the full three-year term, she’ll end up paying Uber $25,210. The Kelley Blue Book fair purchase price for a new 2015 Honda Civic SE in Los Angeles is $18,142. > Schmitt said she’ll need to pay Uber $5,000 or so more to buy the car if she wants to keep it at the end of her lease. So basically, she's getting a $18,142 (PV) car paying $160 (PMT) a week for 156 weeks (N) and have to pay 5,000 at the end to keep the car (-FV). PV: 18,142 PMT: -160 N: 160 FV: -5000 I (weekly) -> 0.1942% (weekly) I (annual) -> 1.001942^52 - 1 ->10.615% So basically she got a loan at 10%. Also, you have to factor in that she has an option to purchase which she can choose to exercise. I don't know why they don't just say as much. |
This seems to be a lot of people's answer. There's this weird claim that payday loans and bad car loans and similar are caused by "greed!" when the companies making them are operating at tiny profit margins. High default rates dictate high prices (which forms a vicious cycle, but that can only be broken from the outside).
The most 'predatory' thing about most bad-credit loans is the fee/repossession system, which tends to be sloppy and abusive because the borrowers are too broke to fight it. Uber has sidestepped that almost completely with a no-consequence termination scheme.
The push to ban or cripple access to low income loans can really only be justified in two ways. One is that these loans are somehow corrupt, but we're not talking about balloon mortgages here - these companies are dealing with principal-agent problems like the home lenders were, and they don't have profit margins to give up. The second is that low-income people are too dumb to make good decisions, so they take these loans. It's a patronizing stance that shouldn't pretend to be uncontroversial.