House Bill Would Permit Balloon Car Loans
May 31, 2012
A bill was introduced in the North Carolina House to permit balloon loans for car purchases. Al Ripley, director of consumer and housing affairs at the N.C. Justice Center, warned that the measure could encourage some of the worst aspects of predatory lending. "It will lead to many people getting unaffordable loans that will end in default, and repossession of the car, and ruining their credit score, and a whole host of other problems,” he said. This involves "the same kinds of tactics that contributed to the financial crisis in the housing market." Rep. Tim Moore (R-Cleveland County) introduced the proposal after a former automobile dealer requested it, complaining that tight credit prevented deserving consumers from getting vehicle financing. Moore said that after getting feedback from consumer groups, auto dealers, and financial institutions, the bill may be tossed out if its negatives outweigh the positives. Currently, state law forbids the final payment on a consumer installment loan from being more than 25 percent larger than the previous average monthly payment. The House measure would exempt car loans that exceed $10,000. "The practical effect [of balloon financing]," according to Chris Kukla of the Center for Responsible Lending, "is that, essentially, you are pretty much underwater pretty much the whole time you are in the loan," meaning that the loan balance would be greater than the car's value.
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