@AndySoCal wrote:
Ally Bank reported earnings yesterday. The earnings beat estimates easily. Two factors in those earnings one were costs were down also the percentages of delinquent loans was also down. The credit card business is not a low risk line of business. A credit card is an unsecured loan. If the card account goes bad and ends up in a BK 7 the bank loses the balance the was discharged in the BK. All lending institutions have a risk department which set the guide lines risks that that lender is willing to take.
In the auto lending line of business you have four groups basically in broad brush strokes
Group 1 Lenders that will accept prime only
Group 2 Lenders that prime and some sub prime loans
Group 3 Lender accepts sub prime loans primarily
Group 4 Lender will accept sub prime loans that no other lender will take.
The consumer's credit dictates which group the consumer goes into into. There is the corresponding increase in the interest rate on the loan.
What Ally will accept for auto loans I do not know. Ally Bank has considerable experience in this line of business. I would say in the same way that Capital One and Synchronny Banks have in credit card line of business.
Cars are not low risk either. As soon as you sign all the finance room garbage you owe about 20-30% more than it's worth not even counting all the interest they won't get if the loan goes bad, and as soon as you drive it off the lot there went another $10,000.
If they take it back right then and there somehow, that dealer got 40-50% more than what they're going to sell the car for.
The depreciation in the first 2 years is typically brutal. The reason it hasn't been like that during COVID is because the economy was so screwed up due to the virus and political incompetence that they couldn't make enough new cars for a while causing used cars to be more valuable than they usually are.
They could get lucky like that again if the tariffs and trade wars start a new bout of political malpractice. 25% increase in the price of a new car with the stroke of a pen pretty much wipes out all the cost savings the car companies got by making them in Mexico and Canada out of Korean parts. And it also means a bigger ask on the banks for buying any car which would force more people to get a clunker because no bank will give them a loan at all. They were marginal APPROVE at an entry model car and now they're not. The repo division of the bank will get lucky and they'll make more interest off the people who still can get a loan though.
In my opinion, Capital One is a filthy bank in that they do car business with customers that should be untouchable and frankly I've heard people whose credit was in the toilet bragging on Reddit that nobody even verified that they were employed.
Capital One has offered me loans and while the interest was high, I did not feel it was outrageous considering I had a bankruptcy 5 years ago. The only other people that want me are ones where the interest is going up so fast you can barely pay off the loan.
