Big Brother is My Co-Pilot: Car Lenders Get Tough

May 5, 2009— -- Some high-risk borrowers now get car loans with a digital leash attached: if they don't pay up, they can't drive.

Elliot Munoz loves driving his Jeep Liberty around his hometown outside St. Louis, Mo. He particularly likes the four-wheel drive for the snow in his hilly town.

But when a red light on his dashboard starts flashing, Munoz knows he needs to get out his checkbook or else he won't be able to start the SUV.

Munoz is part of a small but growing group of drivers whose car loans come with a digital leash attached: if they fail to make timely payment, the car won't drive.

"When you get near to your payment, it starts flashing red," Munoz, a steelworker said. "You might be busy, but you get in and you see light flashing red and it catches your eye."

With the device in his car, Munoz has never missed one of his $370 monthly payments.

Homeowners who fall behind on their mortgages can't hide their homes from banks looking to foreclose. But delinquent vehicle owners can easily move their vehicle around, hiding it from the repo man.

That has led car financing companies to charge higher rates for assuming greater risk. But these devices -- which have been around for a decade but are growing now in popularity -- severely reduce the lenders' risk.

"They own the car and if people aren't paying for it, they want the car back," said Jack Nerad, market analyst for Kelley Blue Book. "Borrowers are very frequently pretty resourceful at keeping cars away from lenders, even if they haven't paid for them."

Nerad said the business is growing for two reasons: the technology is now cheaper and people want more expensive cars.