Driver chase sees Uber turn sub-prime lender

Driver chase sees Uber turn sub-prime lender

BR-5972_LAjandrive16_MG_a02Uber needs drivers – and drivers need cars, so it’s using its subsidiary Xchange Leasing to solve the problem.

Xchange partners with dealerships, promotes itself to drivers and even sorts out the repo bill when a driver doesn’t make payments and it all turns to custard.

With various other ride-share and private cab companies springing up – some well-funded services like Lyft representing serious competition – it’s a deft move by Uber.

In fact, it’s given investors another chance to dip into the subprime lending pool and run risk-reduced loan lines to those with bad – or no – credit. The prospect of giving drivers the tool they need to do the job, and getting payments directly from Uber is attractive enough for Goldman Sachs to put together a deal with lenders that gives Xchange a US$1bn credit facility to draw upon.

The drivers that are likely borrowing from this billion-dollar fund are those who have failed to get credit from other channels, including Uber’s other finance efforts.

Andrew Chapin, who pitched the unusual lending set-up to Uber’s chief executive Travis Kalanick a few years ago, oversees a variety of ways of backing potential drivers into vehicles, including partnerships with rental car companies, and hefty discounts on purchases.

It also signed a partnership with Toyota recently that will even further extend Uber’s reach into the finance world. Uber estimates that through its driver-financing efforts it will have over 100,000 extra drivers on the road in the United States.

To expand at a rapid pace and potentially get a march on the competition, it’s pretty clever business practice.

“I want the driver to get an option that is best for them,” Chapin said in an interview with Bloomberg News. “I try to provide a menu of options that the industry thus far has not provided.”

Uber insiders – including drivers – have differing views on subprime lending against work done.

The Xchange lease works by drivers fronting up a US$250 deposit, then make weekly payments over the three-year lease term. Payments are automatically taken from Uber earnings over the 36-month and then, relinquishing that initial $250, the drivers return the car to Uber.

There’s no limit on mileage – obviously Uber wants its drivers to clock up as many as possible, and there are no additional fees. The Xchange system even allows drivers to return the cars, after the first 30 days and with two weeks’ notice, and walk away.

Some in the finance world are calling the lending practice predatory, others question the relatively high payments – but there are those that see it as a way to get work, and get a car, for people who would otherwise be unable to.

Boston University’s business school lecturer Mark Williams reviewed T&Cs on an Xchange/Uber lease, and told Bloomberg that the leases are more expensive than those available to drivers with good credit.

“I’d say the cost is greater than the benefit for your average driver,” said Williams, “The terms, the way they’re proposed, are predatory and are very much driven toward profiting off drivers rather than to facilitate an increase in drivers.”

Finance through Xchange costs, on average, US$130 per week, according to data from the US credit agency Experian – while the average weekly lease for a mid-size car like a three-year-old Toyota Camry was $96 per week.

America’s publicly-funded National Consumer Law Center’s leasing expert John Van Alst told the agency: “They’re making it easier to walk away, which is a good thing, but they’re making it pretty expensive throughout,.”

Uber said Xchange isn’t meant to be a money-spinner, but a way to get drivers in cars.

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