Its for a few reasons, and you must remember, the loan amount starts at a much higher LVR than the value of the security.
Example say a 2008 holden commodore with 150,000 kms
Glass's Guide Retail valuation $8,000
Client buys from dealer at say $8000 and wants rego on top, stamp duty, and a nice new paint job, total say $9250
MNY will lend up to 150% LVR on the $8000 (valuation)
So loan "could" be up to $12,000
** Some of the "lender" fees I'll keep out for now as they are not a loss but just not received by lender unless loan is paid.
Purchase price $9250 (inc all extras)
Warranty $1600 (MNY needs to pay)
Brokerage (if broker induced loan) say $990 (MNY pay)
Say $11,840 net loan (not inc fees or interest for now)
Say client pays first 6 months repayments at $80week = $1920
$9920 still in the red.
Cost to repossess/legals blah blah say $1000
Now out of pocket $10,920.
Car now goes to auction.
car buyers (dealers) pay "trade in" value, not retail, so on that car trade in is $3500 - $5000
Sells for say $4000 less 10% auction fee = $3600
Funds out $11,840
Less
Funds back $1920
Sale of security $3600
11840 - 5520
Total loss = $6320 (not inc interest loss, fee loss, time loss etc)
MNY Price at posting:
$1.81 Sentiment: Hold Disclosure: Not Held
