Your Story: A Cautionary Tale of Sub-Prime Leasing

Lisa Nichols took out a sub-prime lease on a used car

Kate Davidson just reported on the risks and rewards for Buy Here-Pay Here car dealers and customers across the region.

Lisa Nichols didn’t buy her car at one of those lots, but she ended up in a similar situation. She sees her tale as a cautionary tale of “buyer beware.”

When her car broke down, Nichols’ credit score was low enough that she fell in the sub-prime lending category. She went to lots of dealerships, but couldn’t get a loan.

“The funny thing is when you have bad credit, they won’t finance a car that you can afford,” Nichols said. “I wanted to buy one for four or five thousand dollars, but they won’t finance a car for that little money if you have bad credit.”

Another dealer sent her along to Summit Place Kia, a dealer that works with sub-prime customers. She was offered a two-year lease on a used Hyundai Accent. “It was a nice car, it was way more car than I had any business trying to buy,” said Nichols. But she needed a car to get to work. “I didn’t feel like I had any choice.”

Tommy Leedle works in the financing department at Summit Place. He says they use outside banks and leasing companies to work with customers like Nichols. These companies charge high interest rates or fees. That means the dealer needs to sell a cheap enough car at a high enough price so they can still make money after those fees.This leaves sub-prime customers often getting less car at a higher price than those with solid credit.

Nichols ended up signing an $11,000 lease. Leases don’t come with interest payments. But fees can make up a hefty chunk of the total price of a sub-prime lease. The Kelly Blue Book value of the car Nichols leased was about $3,500 less than the cost of her lease.

Leedle told me he doesn’t know exactly how much the leasing company they use charges in fees. In a car sale, the financing company must disclose their fees to the buyer and the dealer. In a lease, the amount of fees is not disclosed.

Because of her credit, Nichols was required to make a car payment every week. Then, she would get a code to punch into a box attached to the underside of her car’s dashboard. If she missed a payment and didn’t get a code, the car wouldn’t start. “I managed to keep up the payments for about four months and then I just couldn’t do it anymore,” she said. “I ended up needing to give the car back, and that impacted my credit again.”

Leedle says sub-prime leases and high-interest car loans are risky for buyers. About 50% of the sub-prime buyers he sees default. But, he said, if people are smart about the risk they are taking they have a chance to rebuild their credit. He also said his dealership needs to offer these kinds of loans because so many people in their area have sub-prime credit.

After Nichols gave up her lease she went without a car for a few months, relying on co-workers and friends to take her to and from work. A co-worker then came to her rescue and sold her an old car. She now makes a car payment, without interest, directly to her co-worker each month.

Nichols accepts responsibility for what she says was a bad and desperate decision. “I don’t recommend it. It was embarrassing, honestly. I didn’t tell anybody the entire time I had the car because it just felt really embarrassing.”

Nichols is now steadily trying to rebuild her credit, and happily driving a car worth much less than the one she leased.  She says, “It’s not helping my credit, but at least now I have a reliable car that I can afford.”

*This story was informed by the Public Insight Network. Add your story here.

**We also want to disclose that at one time, Lisa Nichols worked as a technology contractor for Michigan Radio.

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