With its innovative technology, user-friendly platform, and promise to save its users money, ride-sharing app Uber has quickly become a dominant disruptive force in the transportation-for-hire industry — one that was overwhelmingly in the grip of large taxi companies just five years ago. Where we once hailed cabs without a second thought, modern consumers now turn to their smartphones to hail a neighbor, college student, or local entrepreneur instead.
Because of Uber’s surge in popularity, its tribe of active drivers – those who have completed four or more trips – swelled to 162,037 by the end of 2014. But Uber isn’t content with that number – at least not yet. In an effort to lure more drivers to its platform, Uber recently launched a questionable auto financing scheme aimed at getting more drivers into new, reliable cars.
While the transition into auto lending might seem like a natural one, a quick look at the details of this “program” shows that there’s not much in it for the drivers it’s supposed to help. So, what’s the deal?
Is Uber Financing Really a Bad Deal?
“We can help you get a car,” says Uber about its new financing program, adding that you can “drive your business forward with exclusive discounts and financing options designed for Uber partners.”
Unfortunately, those discounts and options may come at a high cost to those who hop on board. It all starts with Uber’s overly generous policy as to who might qualify for a loan. Uber insists that “drivers with poor credit or no credit history are eligible to apply for financing from participating lenders.”
With requirements so broad they include almost anyone, it’s safe to wager that Uber’s interest rates will be sky high. Uber claims that each lender sets the terms and requirements for the loan, and that certain credit situations may exclude some people from eligibility. But, since Uber financing is actually offered through third-party lenders, the actual interest rates they’re charging aren’t exactly trumpeted all over the place.
But we’re already hearing how some of these subprime auto loans are panning out, and it’s as bad as one might think. NPR’s Marketplace recently highlighted an Uber financing loan with impossible terms and a hefty price tag. According to the article, 58-year-old Richard Brunelle has been struggling to cover the $1,000 monthly payment for his Kia Optima. The loan’s interest rate? An astonishing 22.75% APR.
With Uber financing, part of the risk is in how payments are made. When you’re working for Uber, car payments are automatically deducted from your monthly earnings. It’s easy to see how that could work well for some drivers – especially those with bad credit. Just like income taxes are taken out before most people see their paychecks, active Uber drivers who take advantage of Uber financing are paying for their cars all along – but without having to actually write the check.
But, what happens when you’re not driving for Uber?
Just as one would expect, you still need to fork over those monthly payments, whether you’re earning money driving or not. For those with poor or bad credit, paying off a car with an exorbitant interest rate is an unlikely proposition – especially if they aren’t bringing in plenty of money.
Does Uber Financing Ever Make Sense?
While Uber financing seems like a raw deal for most people, it may be a godsend for those whose bad credit would prevent them from qualifying for a traditional auto loan. On its website, Uber highlights a handful of driver testimonies that bolster that idea. Here’s one:
Thanks to Uber I am driving a new Toyota Avalon Hybrid. This has allowed me to drive more and save half the money I used to spend on gas in my previous car. I don’t have to worry about the payments since Uber deducts the payments out of my weekly earnings. – Jonathan, UberX Partner
While that sounds positive and cheery, here’s the truth: Any driver, Uber partner or not, should shop around to find the best deal for an auto loan. Outside of Uber, there are plenty of other lenders that offer loans to people with poor or bad credit, and they may offer better interest rates and terms to boot.
Just because Uber offers financing with a convenience factor doesn’t mean it offers the best deal. And if you get stuck with a crazy-high interest rate, that convenience factor can cost you.
Remember – even small differences in interest rates matter a lot more than you might think. With a high-interest rate loan, you’ll not only pay a higher monthly payment, but a whole lot more for your car over the life of your loan as well.
To illustrate this, let’s look at a $20,000 auto loan and compare the monthly payments and the total amount owed over the life of the loan with different interest rates:
$20,000 car loan financed over 60 months
|5% APR||10% APR||15% APR||22.5% APR|
|Total paid over five years||$22,645||$25,496||$28,548||$33,485|
Just a few percentage points can add up to thousands of dollars over the course of a car loan.
Need a Car to Drive for Uber? Here’s What You Should Do Instead
Just because you want to make money driving for Uber doesn’t mean you have to sign up for one of their auto loans. If you need a newer or more reliable car to begin driving for money, you have plenty of other options to consider.
The first thing you should do is find out your credit score. By signing up for a free service like Credit Karma or Credit Sesame, you gain access to a free copy of your FICO score and some of the details on your credit report. Remember, assuming you have bad credit and actually having bad credit are two entirely different things. So before you assume the worst, you should find out where you stand.
- Related: What is a Good Credit Score?
If you have bad credit, the key is shopping around. In addition to searching for online auto loan options, set aside some time to stop in your local bank or credit union. If your relationship with them is already established, they might be willing to offer a loan with decent terms.
Another option you may want to consider is getting a co-signer. If you have a family member with good credit who is willing to back up your loan, you could secure a much better deal in the long run.
Your third option is considering some of the already established lenders who offer auto loans for people with bad credit. We already highlighted some of the top options for you in our post on the Best Bad Credit Auto Loans of 2015.
Yes, Uber financing exists, but that doesn’t mean you have to use it. Since Uber financing is aimed at consumers with poor or nonexistent credit, the interest rates and terms they offer will usually be less than stellar. If you want to get the best deal possible, you need to shop around.
And remember, when something sounds too good to be true, it usually is. Sure, Uber wants to help you get a new car. But, as always, the devil is in the details.
What do you think about Uber financing? Have you ever considered driving for Uber?