Lenders have found a new way to ensure that borrowers keep up repayments on their auto loans. Thanks to a new device, lenders can remotely disable a vehicle if the borrower misses a car payment, rendering the automobile effectively useless until the customer pays up.
Car lots across the nation are fitting cars with devices that can disable the cars if owners do not keep up with auto loan repayments. For the most part, these devices are required when the auto loan customer has a poor credit score. Auto loan providers say that the new technology reduces the risk of lending to people with subprime credit scores.
The devices, which are known as starter interrupt devices, consist of a kill switch that prevents the car from starting and a GPS tracking device. The GPS technology allows lenders to not only lock the car at the push of a button, but it also allows them to track the car's movements, making it easier to find and repossess the car, if necessary.
This geolocation data could also be useful for gathering information about customers. For example, providers of auto loans can see whether a borrower is regularly traveling to a place of business and quickly determine if a customer has possibly been laid off. This information alerts the lender to borrowers who are likely to have problems making their next car payment.
Some customers and consumer lawyers are concerned that this type of information gathering could violate borrowers' privacy. For example, there is a concern that information about a borrower's location could be leaked or hacked. However, the company Spireon, which manufactures and sells starter interrupt devices, claims that it abides by all state regulations regarding privacy.
According to Lionel M. Vead Jr., who is head of collections at Covington's First Castle Federal Credit Union, the remote disable technology is very easy to use. Vead states that he can easily track auto loans on his mobile phone. He can then attempt to get in touch with the borrower, or disable the vehicle simply by clicking a button in the app.
Vead uses the technology to monitor nearly 900 subprime auto loan customers. He says that it makes his job much easier and reduces the risk of lending to customers with poor credit histories. Credit scores are affected by the amount of debt that a person holds, the number of payments missed, and the types of credit in the person's account. Auto loans, student loans, personal loans and credit card debt all factor into the calculation of a person's credit score.
Starter interrupt devices give borrowers an incentive to keep up with payments on their auto loans. They also reduce risks for lenders. Although some borrowers have found ways of disabling the devices, for the most part, they are an effective method of enforcing the terms of the loan.
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