While some auto industry experts fear that too many subprime loans could help trigger another financial crisis, Uber is throwing more risky loans into the mix.
According to a story last week by American Public Media’s Marketplace.org, ride-sharing company Uber joined the subprime market in late 2013 with a finance program that aims to help credit-challenged drivers own vehicles.
Uber connects drivers to dealers and lenders, such as Westlake Financial Services and Santander Consumer USA, and the drivers negotiate loan terms. Uber then takes the loan payments from the drivers’ earnings.
It sounds like a win all around: for the driver, Uber, the dealer and the lender.
But maybe not.
Some drivers who enrolled in the program struggle to make their payments, propelling industry watchers’ fears, the story said.
One driver Marketplace.org interviewed said he thought he could cover the loan payments and still earn money, but after he signed up for the program, Uber reduced drivers’ income. Now he’s just trying to break even.
“His payments are about $1,000 dollars a month, and the loan has a 22.75 percent interest rate. That means by the time [he] finishes the loan, he will have paid twice the price for his Kia Optima,” Marketplace reported.
Lyft, Uber’s primary competitor, hasn’t followed Uber’s lead.
Lyft has a partnership with AutoNation Direct that helps drivers find the best deals on vehicles, but at least so far, it has opted out of a driver finance program.