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Uber is the leading ride sharing service in North America. Started in 2009 in San Francisco, the app quickly took off and now provides people around the world with a cheap and efficient alternative to public transportation and taxis. From when it started to 2016, Uber facilitated over 2 billion rides and in 2016 made $20 billion in gross revenue. Despite competitors in the ride sharing space, Uber has a majority of the market share.
Most people know about Uber because a friend or a family member wouldn’t stop telling them about the great new app that they had to download that allowed them to get cheap rides in fancy cars. But others see Uber as an easy way to make a little extra cash by driving for the company as either a full or part-time job. Whether you’ve never taken an Uber ride or you’ve driven for Uber for years, you might have heard about the Uber financing program and thought that it might help you buy a car or upgrade to a nicer vehicle so that you can start driving for Uber or earn more money with your fancier wheels.
After all, buying a car isn’t always an easy process – especially if your credit isn’t ideal. The Uber Financing Program offers the promise of almost guaranteed acceptance.
Uber found that many of its drivers or potential drivers struggled to purchase a new vehicle because they couldn’t qualify for financing. In order to make sure that they could continue to expand their business by getting more drivers to drive for them, Uber decided they should get into the financing business and help their drivers secure financing to lease or buy a vehicle. They wanted to make sure those with poor credit or thin credit files had the vehicle they needed to start driving.
What is the Uber Financing Program?
While Uber launched the Uber Financing Program expressing an interest in getting into the auto financing game, they don’t actually provide the auto loans themselves but instead work with third party lenders who are willing to offer sub-prime loans to their drivers.
Many of the borrowers who receive loans to purchase vehicles through the program were unable to qualify for funding anywhere else and were attracted to the program because it did not require a credit check. Others saw it as a convenient option to get and repay an auto loan. Because of that added risk involved in lending to primarily sub-prime borrowers, lenders charged significantly higher interest rates on the loans that they extended – often as much as 20% to 30% APR. Drivers were required to put at least $2,000 down towards the vehicle.
Uber helps reduce some of the risk for lenders by taking the car payments out of the drivers’ Uber earnings before paying the drivers. This is part of the reason why lenders are willing to take a chance on sub-prime borrowers, but that can create problems for borrowers if they don’t earn enough money driving that month.
The Uber Financing Program vs. Traditional Auto Loans
Possibly up to 30%
Possibly up to 30%
3.49% – 11.89%
24 – 84 months
The Uber Financing Program focuses on helping drivers who have bad credit or no credit get financing. If you have good credit, a traditional auto loan would likely be a much better option. With good credit and a steady income, you can qualify for very affordable rates for a traditional auto loan. There are, in fact, a lot of auto loan options these days – either online or at a traditional bank or credit union. For that reason, you can easily shop around and save money by finding the best rate, as well as terms that work for you. Your interest rate could be as low as 3% or less with terms of anywhere from 2 years to 10 years with no pre-payment fees.
Applying is also easier than ever with the option of applying online and a number of online auto loan marketplaces where you can fill out one application and get quotes from multiple lenders.
If you have bad credit, it would likely be more difficult for you to qualify for a loan and you would have to pay more in interest, but it might be far cheaper than the Uber Financing Program and would allow you to choose from a broader range of terms. In addition, you might have more flexibility around what kind of make and model of car you buy and you won’t have to pay your car payment directly out of your paycheck.
One great example of a traditional auto loan for those with good to excellent credit is LightStream loans which provides great rates, flexible terms, and some unique options. LightStream offers easy to apply for auto loans of between $5,000 and $100,000 without having to put any money down. Candidates can be approved as soon as the same day and have the funds deposited into their bank account that same day as well. LightStream’s great fixed rates start as low as 3.99% which is considerably lower than the Uber Financing Program. The interest rate you qualify for depends on your personal credit and financial situation.
LightStream also charges no origination fees or pre-payment fees and you can choose whatever kind of car you want to buy regardless it’s make, model, year, or mileage. LightStream’s terms range anywhere from 24 months to 84 months and they provide financing for both used and new cars. While many traditional auto loans require that you use the car as security on the loan, LightStream offers the option of unsecured auto loans for those with excellent credit. While LightStream does offer financing for those who don’t have perfect credit, they primarily lend to those with credit scores above 660.
For those with poor credit, one example of a lender who would be an Uber Financing alternative for you is Capital One. Capital One provides auto loans to those with credit scores above 500 and charges fixed interest rates as low as 3.24% APR. You can potentially qualify to borrow anywhere between $4,000 and $40,000 for terms up to 72 months. They also have an easy online application that allows you to find out quickly how much you qualify to borrow and at what rate. Their loans can only be used at participating dealership, but they can be used for both new or used cars. You’ll also need to put down a 20% down payment which could be more than you would pay via Uber Financing.
Traditional banks tend to charge more than online alternatives, although they still end up being cheaper than what you would have paid via the Uber Financing Program. Another option for more affordable auto loans include credit unions, which tend to provide lower rates and low fees. Credit unions are membership-based non-profit organizations and so they keep fees low to provide more value to their members. They also sometimes have less strict lending terms and are willing to take a chance on a borrower with less than ideal credit.
One example of a credit union auto loan is offered by Unify Financial which provides up to 100% financing of your loan for terms of up to 8 years. They offer loans starting at $10,000 low fixed rates that start as low as 0.74% APR with discounts for a term of fewer than 2 years – which is much lower than you would pay via the Uber Financing Program. They also don’t charge pre-payment fees.
If you do plan to borrow from a credit union, just be sure to read the fine print since some credit unions practice what’s known as cross-collateralization. That means that if you have a mortgage with the credit union, they might secure your auto loan with both your vehicle and your home.
The Bottom Line
If you are desperate to drive for Uber, but don’t have the cash to buy a new car or if you’ve been driving for Uber for a while and want to earn more money by upgrading your ride, you can likely find an auto loan at a lower interest rate than you would pay via the Uber Financial Program. Even if you have bad credit, there are likely still lenders out there who will extend you a loan. These lenders could offer better interest rates, and more flexible term options. If you have good credit and an income, you will likely be able to easily get an auto loan with much better terms and rates.
If you have no credit or if you don’t currently have an income, then it could be almost impossible to find a traditional auto loan and, in that case, an Uber loan might be your only option. But before you sign on the dotted line, be sure that you can afford the high cost of your loan.
Ultimately, the key is to shop around in order to find the lender who is right for you and who will provide you with the loan that gives you the best deal.
*Payment example: Monthly payments for a $10,000 loan at 9.34% APR with a term of 3 years would result in 36 monthly payments of $319.58. LightStream disclosures here.
Author: Jeff Gitlen