Uber might be fine to work with, but drivers should steer clear of the company’s vehicle-financing program, which is designed to help people with poor credit get auto loans.
The global rideshare company partnered with huge auto manufacturers General Motors, Toyota and Ford to give Uber drivers discounts on certain new and used cars. The company also has an arrangement with Banco Santander’s U.S. consumer finance unit to provide lease-to-own financing.
Uber-skeptical
Thousands of drivers have taken advantage of the discounts and financing, according to Kristin Carvell, an Uber spokeswoman. But personal finance experts are skeptical of the program, which began in November 2013 and advertises that it doesn’t require a credit check.
“Any financing that announces ‘available to those with low or no credit’ is likely to have high interest rates and poor terms,” says Carrie Houchins-Witt, a financial adviser in Coralville, Iowa. “At worst, it could be predatory lending.”
An Uber blog post announcing the financing program suggests that the earning potential at Uber for drivers with poor credit lowers their risk to lenders. A previous NerdWallet study found that Uber drivers, on average, would have to give 60 rides a week to earn $50,000 a year before taxes and expenses.
Lyft and Sidecar, Uber’s rideshare competitors, don’t offer similar financial arrangements. With Uber’s program, drivers put $2,000 down to begin leasing a car with Santander financing. Uber deducts regular payments — as little as $17 a day, according to its advertisements — from drivers’ paychecks.
Convenience factor
Uber’s marketing suggests that the program helps borrowers who can’t get auto financing elsewhere. But Craig Smalley, a financial adviser in Orlando, Florida, says that even people with bad credit can typically get a traditional auto loan if they’re willing to pay a high interest rate.
Although Uber’s program doesn’t offer terms that drivers can’t get at a dealer, having the payments deducted directly from their pay might be one reason some drivers are drawn to it, Smalley says. “It would be ‘set it and forget it,’ ” he says.
Harry Campbell drives for Uber, Lyft and Sidecar and also runs The Rideshare Guy blog and podcast out of Newport Beach, California. Campbell says he knows several drivers who have checked out Uber financing, but none he has talked to have actually used it.
“For those that have looked into it, it really isn’t a good deal because you’re locked into Uber for so long and it’s a couple hundred dollars more than a traditional lease,” Campbell says.
Subprime auto loans
Uber is one player on a larger subprime auto loan landscape, which many compare to the subprime mortgage market in the early 2000s that collapsed in 2007, leading to the financial crisis and recession. Subprime lending is the practice of giving loans to people with bad or no credit, and it has surged among auto lenders since the crisis.
“The auto industry is still in the ‘Wild, Wild, West,’ kind of like mortgage brokers were a few years ago,” Smalley says.
In August, Santander said it received a civil subpoena from the U.S. Department of Justice related to “nonprime” auto loans. The company’s consumer lending unit declined to comment on either the subpoena or its Uber financing program, according to Laurie W. Kight, a Santander spokeswoman.
Many experts say a credit bubble from subprime auto loans wouldn’t be nearly as dangerous as the housing bubble spurred by mortgages given to people who couldn’t pay for them. “It is easier for a bank to repossess a car than it is for a house,” Smalley says.
For Uber drivers who need wheels but lack sufficient credit, the Santander lease deal is one way to go. However, the cost could be too steep for some to avoid a financial breakdown later on.