For individuals in Alabama who are unable to keep up on car loan payments, bankruptcy may be an option. Once a person files bankruptcy an "automatic stay" will go into effect stopping all collection efforts, including vehicle repossession. Although those efforts may start up again, causing an individual to lose their vehicle, it gives consumers the time to make decisions that are best for them.
A bill that was recently introduced in the state House aims to permit balloon loans for purchasing a vehicle. The representative who sponsored the measure said that he did so in order to "bring people to the table" to discuss the pros and cons. He was inspired to support the bill after hearing complaints from a former automobile dealer who complained that consumers' tight credit prevented them from obtaining car loans.
Advocacy groups are upset about the bill saying it will encourage consumers to take out loans they aren't able to afford. The director of consumer and housing affairs at the N.C. Justice Center said it involves, "the same kinds of tactics that contributed to the financial crisis in the housing market."
The senior counsel for government affairs at the Center for Responsible Lending in Durham explained that a consumer who paid a little more than $26,000 for a car today could take out a five-year loan at eight percent interest and pay $528 monthly payments. With the proposed House bill, the same consumer could get a five-year plan with payments of only $400 a month. Yet, at the end they would be left with a $10,000 balloon payment.
If the sponsor of the bill wanted to bring people to the table he certainly did. Advocacy groups, auto dealership executives, and consumer and housing affairs officials have all weighed in. So far, it doesn't appear that the proposed bill permitting balloon loans will float very far.
Source: Loan Safe, "House Bill Would Permit Balloon Car Loans," Alex Ferreras, June 1, 2012