How predatory but legal auto loans are systematically taking advantage of people with subprime credit

This is a story about a predatory loan that can ensnare you in a matter of hours and lead to crushing debt — and perhaps wrecked credit — that can span years.

It’s also a story about how it’s all perfectly legal.

Increasing numbers of consumers are caught in the cross hairs of car loans, which face far less scrutiny than other lending products, according to our reporting. Consider: A record number of us are upside down on auto loans, our collective delinquency rate has reached a 15-year high and repossessions increased by 43% between 2022 and 2024. These signs of consumer strain are a result, in part, of rising car prices and varying eligibility criteria.

Reputable dealers and finance companies, which also originate millions of above-board car loans each year, denied 15.2% of loan applications last October, double the 6.7% reported in June, according to the Federal Reserve Bank of New York. Yet the not-so-reputable lenders — namely, “buy here, pay here” used car lots — continue to offer predatory-but-legal loans, particularly to consumers with subprime credit. We know this because the average auto loan APR awarded to borrowers with credit scores below 600 continues to hover around a credit card-like 20%, according to Experian’s latest data.

At Bankrate, we’ve interviewed car buyers, advocates, lawyers and industry insiders to better understand how dealers are exploiting unknowing consumers in favor of commissions. This is what we think you should know — so that the next time you finance a car, you know what you might be up against.

The consumer experience

Until April 2024, Torry Holmesly had never owned a car in tip-top condition. So, when Holmesly, 50, received a mailer from DriveTime, a local used car lot with locations nationally, saying she was preapproved, she thought it was her lucky day. After all, she needed a reliable vehicle to drive to clients for her job as a home care aide. 

“Something I could walk out in the morning and it was going to start,” says Holmesly, who previously spent hundreds of dollars on beaters or, most recently, $1,500 for a 2008 Dodge Ram pickup on its last legs. “And I didn’t do my research on it… I’ve always rented or paid cash for everything, you know?”

Holmesly went to the lot and picked out a 2020 Chevy Equinox, financing it through DriveTime’s financing partner, Bridgecrest. She learned later she had agreed to repay the auto loan to the tune of a 20% APR for a loan amount of more than the car’s worth.

See more of Holmesly’s predatory loan contract.

“They saw me coming from a mile away,” says Holmesly, who lives in a rent-to-own RV in Azle, Texas, working 40 to 70 hours per week.

Despite making on-time payments, Holmesly is now “upside down” on the Equinox. Her lender made that a foregone conclusion by:

• Setting the sticker price ($21,695) as much as $7,000 more than online asking for this model with about as many miles (76,080) at the time
• Wrapping $4,465 worth of optional “add-ons” she didn’t fully comprehend, including nonessential gap coverage and a warranty into her loan balance
• Allowing her to finalize the transaction with a 3.6% down payment (far lower than experts typical recommendation of 10 to 20%)
• Bringing into question whether the terms meet the National Association of Consumer Advocates’ (NACA) standard of predatory lending: using “deceptive or unethical means to convince you to accept a loan under unfair terms”

Unfortunately, the trouble here is also that a 20% APR is the average cost of doing business for consumers with subprime credit, according to Experian.

Source: Experian State of the Automotive Finance Market Q3 2025

Years earlier, as a homeless single mom of two, Holmesly wasn’t maintaining her credit score. At the time she borrowed from Bridgecrest, she says, her credit score was about 525. But now no reputable financial institution will refinance her underwater Equinox, even though, with her credit counselor’s help, she’s raised her credit score into the mid-to-high 600s.

John W. Van Alst is a senior attorney at the nonprofit National Consumer Law Center (NCLC) and has been for nearly 20 years. He’s also the director of NCLC’s Working Cars for Working People project, which partners with nonprofits to help the lowest-income Americans get vehicles for no or relatively lower cost. 

When Van Alst hears the story of Holmesly, he’s not surprised, not in the slightest.

The lender’s point of view

DriveTime is far from the only used car lot in America to thrust its financing partner, Bridgecrest in this case, onto unsuspecting or underprepared car-buyers. That’s table stakes — and why it’s so critical for you to walk into a dealership with outside financing that your salesperson is forced to beat.

However, because DriveTime and Bridgecrest are both owned by DriveTime Automotive Group, Inc., they function, in unison, as a “buy here, pay here” lender: a term that describes a used car dealer that both sells and finances its vehicles, typically at higher interest rates and less attractive terms for consumers who may or may not have good credit. Bankrate reached out to  DriveTime and Bridgecrest to learn more about their side of the story, but they didn’t respond to our multiple phone calls or emails over a month before publishing the story.

And if you thought buy here, pay here was merely the domain of shady locally-owned-and-operated businesses that most of us know to avoid, consider the sheer size of the companies involved in Holmesly’s challenging situation.

Bridgecrest is “a privately-owned, massive corporation, one of the largest used-car retailers, buy-here, pay-here dealers in the country,” says Yossi Levi, the founder and CEO of Car Dealership Guy, an online trade publication. “So, they obviously, as being a privately-owned firm… I would say they have more flexibility, I would assume with their lending.

“I don’t want to speak [about] BridgeCrest because I simply don’t know how they operate their finances. What I will say is that they’ve been around for many, many decades at this point, and that, to me, signals that they are solving some need in the market. They have competition, it’s not like there’s a monopoly. So, I would hope that if they were not putting out a decently quality product in a market, that they wouldn’t sustain and they would go out of business.”

Therein lies the free-market argument that industry experts like Levi have heard ad nauseum: While you can suspect lenders of preying upon less-financially savvy consumers, they exist and are likely to fill the void in ever-expanding banking deserts, to serve consumers who wouldn’t otherwise be served. This means that an underbanked — and perhaps uninformed — person is more likely to face a higher auto loan APR than a peer who lives next to a credit union and name-brand car dealership. (And buy here, pay here and banking deserts could be reinforcing each other: If you struggle to repay your predatory-but-legal auto loan, your damaged credit can make it harder to bank somewhere safer.)

Consumer advocates agree there are far more dealers that operate ethically than those that don’t, particularly the name brands that face more scrutiny, in some cases because they have shareholders. For those more recognizable dealers, it’s not good business to make unaffordable car loans, Levi says.

“Even if you’re not a righteous saint, it’s in your best interest for your customer to buy something affordable, because that means that you are going to be able to successfully pay off that loan… or if you don’t, you’ll come back to me to buy another car,” he adds.

Holmesly’s own credit counselor, Todd Christensen, acknowledges the inherent nuance at play for subprime lenders: “They’re not all crooks.”

“Granted, they are working with a very high-risk population,” the counselor adds, referring to car buyers like Holmesly who don’t have fair or better credit. “And the higher the risk, the higher the interest because they need to do that [to profit]. But it absolutely feels predatory.”

It makes you wonder what interest rate Holmesly would have been handed if she had an even lower credit score.

“Twenty percent is a good price at those places,” says Christensen. “I have seen 35% APR on car loans.”

How your rate can get lost at the car lot

Imagine yourself on the lot. You could be simultaneously trying to negotiate the trade-in of your current vehicle and the price of your next one. You’re also worrying about whether your new car payment will fit into your budget — while you possibly fend off those costly but often unnecessary add-ons, foisted upon you by a salesperson.

It’s easy to lose focus on the big priorities, like interest rate. 

“You’re really going in with both hands tied behind your back,” Van Alst says. “You can’t simultaneously keep all these things front and center.”

Dealers, meanwhile, do this sort of thing daily. Once they know what you care about — whether it’s the monthly payment, the price of the car or your trade-in’s value — they can adjust the transaction’s other terms to your disadvantage. Oh, you’d like a lower car payment? Let’s lengthen your loan term.

“A lot of consumers don’t realize, when they walk into a car dealership — and this isn’t true of all dealerships, but it’s true of many of them — that their objective is to extract as much profit from every aspect of the deal that they can,” says Dan Blinn, a lawyer who handles automotive claims in Connecticut and Massachusetts. 

Blinn makes the comparison of buying a toaster oven from Walmart, a worry-free transaction because you generally don’t have to worry that you’re paying more than another customer would.

Walmart “is not going to be sizing you up, they’re not going to be determining how gullible they think you might be, and they’re not going to try to see what they can sneak in there that you may not know about,” Blinn says, continuing the example. “And a lot of people walk into a car dealership thinking it’s the same thing, and it’s absolutely not. It’s an environment where the other side has all the information, and they have all the leverage, and they have all the experience in doing these types of deals. And consumers who are not savvy and don’t have the ability to protect themselves can be very badly taken advantage of.”

While it’s seemingly always stressful to buy a car, not all dealerships add to that stress in the same ways. Still, the bad actors and their deeds are what garner the attention of Van Alst and NACA senior policy director Christine Hines. Predatory tactics used by dealers include:

Picture yourself back at the dealership. You’ve picked out your car, haggled over the price and, sure, successfully avoided unnecessary add-ons offered by the salesperson. Then starts the “cascade” of paperwork, says the NCLC’s Van Alst. After those initial fits and starts, you’re suddenly being asked to read over everything quickly, sign here, initial there. Your new loan agreement is just one paper, digital or otherwise, mixed into the stack.

Yes, the Truth in Lending Act requires that, when you’re obtaining credit, you should be given the disclosures for its cost, so that you can shop around. But “you never get any of that until the end, and so you’re already kind of locked in,” Van Alst says. “And so, it really is just such an opaque and difficult-to-manage transaction that we just see horrible abuses built into this, time and time again.”

In Holmesly’s case, she admits she didn’t understand the meaning of APR at the time of signing. She certainly didn’t understand that her loan amount had been inflated by add-ons, not just by the sticker price of the car — which brings into question whether her signature was a stand-in for consent. In 2024 settlements in states like Illinois and Rhode Island, attorneys general explicitly called out dealerships for failing to get customers’ “express” and “informed” consent.

Like the rest of us, Holmesly was more concerned with her short-term costs.

Lisa Cameron has been working in credit counseling one way or another for 32 years. She recently visited some dealership websites to re-acquaint herself with their offerings.

“The banner across the top was, ‘What do you want your payment to be?’” says Camerson. “So, again, people who maybe have a tighter budget are going to be more focused on that piece of it and not be so concerned about what that long-term cost is going to be because they got a higher rate — they were just worried about that initial payment where it was going to land in their budget.

“So, it’s a complex process, it’s not necessarily easy to navigate. I don’t know that I would know the things to look for if I wasn’t in this industry.”

Lacking regulation, enforcement shifts responsibility to consumers

For many of us, a car is the second-biggest purchase we’ll ever make. But it may happen over a period of hours — getting a home and a mortgage takes months.

Consider the example of the Department of Housing and Urban Development-mandated homebuyer education courses for those of us buying our first home (in a while). We have to sit through it, in part to qualify for a homebuyer grant or down payment assistance, but also, in part to learn about how an APR works or which fees are negotiable. It’s only logical to have this process in place before you make a life-changing financial decision.

In the auto lending industry, no such process exists. That’s despite the fact that a car — like a roof over your head — is a necessity for many Americans. Not to mention that auto loans, while far smaller than home loans, are typically five figures. Struggling to repay them can easily impact your financial future.

As it stands, auto financing has less red tape than mortgage (and other types of) lending, in part because its bad actors haven’t helped to cause an economic crisis (see Great Recession of 2008). It’s also because of regulatory and enforcement gaps, both at the state and federal levels.

Regulation and enforcement

With a made-to-starve Consumer Financial Protection Bureau (CFPB), increased auto loan regulation is unlikely to arrive anytime soon. As much as you might assign this fact to political turnover in Washington, D.C., it’s really years in the making, since the Great Recession of 2008.

“The dealers are a very powerful lobbying force in Congress,” says NACA’s Hines. 

In fact, Hines adds, those forces — including the National Automobile Dealers Association and the National Independent Automobile Dealers Association (NIADA), which didn’t reply to Bankrate’s interview requests before publishing — convinced Congress that auto dealers should be exempt from CFPB oversight. The CFPB had a record of enforcement actions against certain types of auto lenders until the second Trump Administration. And about 15 years after the Dodd-Frank Act that created the CFPB, its new leadership has suggested it shouldn’t be charged with supervising auto lenders, either.

Consider that NIADA represents about 40,000 licensed used car dealers nationwide.

Much of auto loan regulation takes place at the state level, anyway, not federally. Most notably, the maximum (or permissible) auto loan APR that can be charged by dealers varies by a state’s usury laws, plus factors like the loan size and age of the car.

“It is hard because, a lot of times, it’s smaller dealers, sometimes it’s smaller finance companies,” Van Alst says. “And so I understand that that’s a lot for an enforcement entity, whether it’s a state AG or the CFPB or the FTC to take on. But it’s so necessary to really try to police the market.”

NCLC published a state-by-state review of laws meant to inhibit unfair and deceptive lending practices, but it’s from 2018 — Bankrate is currently working on an updated analysis that broadly measures which states are most effective at protecting consumers. The following are examples of states pursuing regulations more aggressively than others:

Levi, the CEO of industry platform Car Dealership Guy, makes the case that more regulation isn’t a simple solution. When a car dealership bumps up against their state’s permissible interest rate, he says, it’s typically charged a higher acquisition fee by the bank that can take on the risk of underwriting a subprime loan. That makes the dealer less incentivized to sell the car, which means there may be fewer opportunities for subprime borrowers to buy cars from reputable dealers.

“And so then the question is, what’s better, right?” asks Levi. “Is it better to just shut off access to traditionally high out-of-market lending? Or is it better to still offer it, even knowing that certain consumers are maybe not educated enough to make the proper decisions?”

The onus on consumers

By her own admission, Holmesly lacked the knowledge and understanding to enable a better borrowing decision. When Bridgecrest financing showed she’d be making $296.44 payments twice per month, not once per usual as most car owners are used to, she didn’t blink. 

One month after borrowing — and upon realizing the predatory nature of her new debt — Holmesly contacted Bridgecrest to ask about the possibility of refinancing. They told her they’d refinance it for $1,000, but she didn’t have that kind of cash. She’d just put a $1,000 down payment on the car.

If putting the onus on someone like Holmesly seems unfair, multiple consumer advocates would agree with you. Still, in the absence of smart regulation and enforcement, the rest of us can at least attempt to make the best of a disadvantageous situation.

Take Holmesly’s tale as cautionary.

Holmesly, of course, also decided to purchase a car from a buy here, pay here lot and lender. But experts agree unanimously that this should be your last-resort option.

“We actually urge consumers to look at the private market — if you’re buying a used car, you don’t have to buy it from a dealer,” says Rosemary Shahan, the president of Consumers for Auto Reliability and Safety®, who advocated for California’s recently-passed CARS legislation. “You can buy it from a private party. That market has its own set of potential pitfalls, and you have to be careful, but we have tips for consumers.”

Holmesly, for her part, now understands the value of being more prepared whenever making a financial decision, particularly in an auto financing industry that seems willing to lend difficult-to-repay debt.

“Educate yourself on any and every way that you can, anything that has to do with your finances,” Holmesly says of her advice, including for her two daughters. “Because there’s a lot of people out there that are going to try to rip you off, and there’s a lot of red tape and everything… You can feel real stupid real fast. You get yourself into a lot worse situations.”

Already had a bad car-buying experience? Submit detailed complaints to the CFPB and to the FTC, says Hines. “It may not solve [your] problem immediately, but it will build a record,” she adds. “Do that because other state officials, state attorneys general and other state financial services, other officials across the country will have access to that information.” And if you’d like to share your story with us, email [email protected].