Lesson 23 of 25 · 7 min
Subprime auto, 2016–2017, as a recovery-speed episode
Subprime auto is day-one LTV above one hundred percent plus a recovery clock measured in weeks.
A wave of subprime auto lending, and a rise in auto repossessions around 2016–2017, is a widely reported public episode. The episode is category-wide. No lender is named as the villain. The sequence is the lesson. Terms lengthened, widely reported at the time as 72 to 84 months. Down payments were small. Loan-to-value sat above 100 percent on day one — Track 22 lessons 11 to 14 already taught that geometry. A missed payment then started lesson 11's taking, measured in weeks.
Track 1 lesson 6 is LTV. Track 1 lesson 8 is the call. On these books the ratio was already above 100 percent before any cash date failed, because a long term and a small down payment left a principal larger than a car that had just started to depreciate. When the cash date failed, the recovery clock was the car's clock: movable, titled, saleable in weeks. 2016–2017 is when that combination — day-one LTV above 100 percent, plus a fast taking — was widely reported as running in large numbers. That is a historical description of those years, not a current rate.
No individual is named. The category is the episode. The rules that govern taking and sale vary by state, and a reader's own situation belongs with a qualified professional. Nothing here is a recommendation about any car loan.
Long terms, small down payments, LTV above 100 percent on day one, then a taking in weeks. That is the 2016–2017 sequence. The category is the center, not a lender.
Key terms
- Day-one LTV above 100 percent
- A principal larger than the car's mark at origination, from a long term and a small down payment. Track 22 lessons 11 to 14.
- Subprime auto, 2016–2017
- A widely reported category-wide wave of that geometry, then a rise in takings. Named as the episode, not as a villain.
- Fast recovery clock
- Lesson 11's weeks. Track 1 lesson 8 on collateral that can be moved.
Worked example
Zero down, 84 months, then a 12 percent mark-down
Illustrative figures scaled down so the arithmetic is followable; they are not the reported amounts. $0 down, $27,650 at 14.99 percent for 84 months. After one month the car is marked 12 percent below cash price. Rules vary by state.
- Installment
- $533.40
- First-month interest
- $345.39
- First-month principal and remaining balance
- $188.01 / $27,461.99
- Mark after a 12 percent fall
- $24,332.00
- First-month LTV
- 112.9%
- What a miss then starts
- Lesson 11's weeks
PMT($27,650, 0.1499, 84).
$27,650 × 0.1499 ÷ 12.
$533.40 − $345.39, then $27,650 − $188.01.
$27,650 × 0.88.
$27,461.99 ÷ $24,332.00.
A taking clock, not a months-long house clock.
The installment is $533.40. After one month the loan is $27,461.99 against a $24,332.00 mark, LTV 112.9 percent, before any miss. A miss starts a weeks-long clock.
Check yourself
An invented $27,650 car is financed at $0 down, 14.99 percent, 84 months. After one month the mark is 12 percent below cash price. What is the installment, the remaining balance, first-month LTV, and who does a reader's own situation belong with?
Subprime auto is day-one LTV above 100 percent plus a fast recovery clock — Track 1 lesson 6 and Track 1 lesson 8 on a car. Open What a margin call actually is, procedurally →
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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.