Late On Your Car Payment with a Subprime Loan? Your Engine Could Be Shut Off ASAP! Skip to main content

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Late On Your Car Payment with a Subprime Loan? Your Engine Could Be Shut Off ASAP!


Car trouble

Beware of subprime lenders that can repo your car digitally from far away.

Image Source: Flickr User Ronan Shenhav

Subprime auto loans are up dramatically and now represent close to 30% of vehicle financing. You are likely in a subprime loan if your credit score is less than optimal and your interest rate is high. Subprime loans and debt are also notorious for coming with aggressive debt collections – much more so than prime or better credit arrangements. And now a scary new trend in car loans means if you’re late with your car payment, your car can be rendered undrivable by your lender with the flip of a switch. Here’s how.

Facing the digital repo man

Sending out a repo man to hunt down a car from a borrower who has missed a payment (or more than one payment) is a costly activity, but new digital tools make it easier than ever for lenders to punish borrowers who are late on their payments. This is the era of the digital repossession that leaves the car in your driveway but makes it so you can't drive it until you pay up.

As subprime auto loans continue to rise, so do advancements in how to ensure that higher risk borrowers will pay their installments on time. Many subprime lenders now require a “starter interrupt device” along with a GPS tracker. Together, these two devices allow the lender to always know where the vehicle is and grants the option to shut down your engine so it can’t be cranked.

If you miss a payment, all it takes is the click of a button on an app and the collectors for the lender can make your car uncrankable. A recent New York Times article cites examples where vehicles were shut off while idling at a stop light, while parents were on their way to take a child to the emergency room or to school, and one driver even claims her car was shut down while she was on a busy freeway.

How many cars have digital kill switches?

At one credit union mentioned in the NY Times article, 30% of auto loans come with the kill switch caveat. Overall, 25% of subprime loans now require installation of the device as a condition of financing, which comes at interest rates as high as a whopping 29%. Some drivers told the newspaper that their car was cut off just a few days after their payment was due and left them in dire straits.

Estimates indicate that more than two million US vehicles have these devices installed, but lenders claim that not only do the borrowers know about the device and consent to the use of it, but they would likely not have been granted the loan without this lender safety net. One digital debt collector says he always tries to contact the borrower first and notifies them the shutdown is coming.

But other collectors may not be so generous and, depending on the terms of the financing agreement, no notice may be required and payment even a day late could trigger a shutdown of the vehicle. Some of the devices also come with a warning tone that serves as a nagging reminder your payment is due and if the payment isn’t made, can chirp loudly like an auto theft alarm.

How bankruptcy can help with your auto loan

Whether or not your auto came with a kill switch as part of the loan, it can be nerve-wracking to fall behind on your auto loan and know you’re at risk for repossession, whether it’s digital or in person. Chapter 13 bankruptcy can buy time to catch up on past due balances on an auto loan and can also drop the principal to fair market value if you’re upside down on a loan.

What’s more, if your interest rate is subprime, both the APR and balance may be reduced so long as your loan was taken out a prescribed length of time before the bankruptcy filing. With Chapter 7, you may be able to pay off the fair market value of the car if it’s lower than the balance due, so long as you can make a loan payment. Bankruptcy can also secure the return of a car that was repossessed.

To find out more, contact the Law Offices of John T. Orcutt – call +1-919-646-2654 for a free North Carolina bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.



New York Times: Miss a Payment? Good Luck Moving That Car

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