GM's new acquisition: Sign of recovery or irresponsibility?

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Kai Ryssdal: From General Motors this morning came this news: That the once bankrupt, then bailed out, now recovering automaker is getting back into the car loan business. GM is going to buy an auto-financing company called AmeriCredit for $3.5 billion.

GM, obviously, wants to sell more cars. Americredit lends to people who might not usually qualify for a loan to buy those cars. A category broadly known as subprime borrowers.

Marketplace's Alisa Roth reminds us thats still where the money's to be made.


Alisa Roth: GM is hoping the deal will get more sub-prime borrowers to buy its vehicles. And GM's not the only one courting buyers with less-than-perfect credit. Still, we aren't back in 2006, when a pulse was all you needed to get a loan for a house or a car or just to go shopping.

Chris Kukla is at the Center for Responsible Lending. He says a lot fewer places are lending money to people with poor credit.

Chris Kukla: Most of the mainstream institutions have moved away from serving sub-prime customers, because it's perceived as being too risky. They don't want to go out to their investors and their shareholders and say we're doubling down on sub-prime.

He says the field is wide open for places that do still want to offer loans to people with poor credit. One recent study showed the number of credit card offers made to sub-prime borrowers doubled this year. Another says sub-prime loans still make up 40 percent of the car loan market. He says there's plenty of money to be made.

Kukla: If there's a couple people who are willing to lend, believe me, they're going to lend it to you. It's going to come at a very dear price, because now your options are limited.

Borrowers might not know that, though. He says sub-prime loans are often less transparent than prime ones, where you can easily go online and find out what it should cost. The new Consumer Protection Bureau could change that. Though at least in the case of car loans, it may not, since car dealers are exempt from its oversight, and the final rules haven't actually been written yet.

Robert Lawless is a law professor at the University of Illinois. He says the biggest money-makers have always been the marginal borrower -- the one who has enough money to keep making payments. Some of the time.

Robert Lawless: They're making their money off the back end when these people aren't able to make the monthly payment, and then get hit with a fee or the interest rate changes because of the missed payment.

He says those borrowers may default more often. But the higher interest rates and big fees more than make up for that risk.

I'm Alisa Roth for Marketplace.

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