The S-Curve

Why Improving Access to Auto Loans Will Improve Job Stability and Diversity in the Workforce

Connor Campbell

For many people, having accessible transportation (a car, for example) is necessary. Most U.S. people live in areas without adequate public transportation and require vehicles to access jobs, healthcare, and groceries.

Transportation barriers are among the many obstacles to achieving diversity and inclusion in the workforce. If people can’t get to work, people can’t get jobs. But the inaccessibility of auto loans is too often a barrier.

The solution isn’t as simple as applying for a car loan. Taking out risky, high-interest loans without understanding the terms is a dangerous move for borrowers. The practice might technically improve access to auto loans in the short term, but the long-run picture is bleaker. Predatory lending leads to more auto loan defaults and more barriers to owning vehicles, especially in lower-income brackets.

People work hard to make sure they can meet their financial commitments each month, and I believe there are many areas to improve accessibility when it comes to applying for an auto loan. Businesses that focus on helping borrowers with these areas will reap the benefits of workforce diversity while also doing good in their surrounding communities.

Financial Barriers to Employment

Life is unpredictable, and a stressed financial situation over a consistent period increases the risk of not being able to meet financial commitments. Unexpected costs pop up, resulting in borrowers being unable to meet their payments in already stressed situations. A chain reaction can then occur when a financial burden snowballs into losing a car, a job, or even a home. 

Common barriers to employment include homelessness, substance use disorder, long-term welfare dependence, and lack of computer skills. Many companies also run background checks that include credit scores, even though it’s been proven that these models are biased against people who do not have generational wealth.

Even worse, predatory lenders often target the financially disadvantaged. Some lenders are incentivized to give out risky loans with high interest based on imperfect information. These loans are then sold so the originator is no longer responsible for the risk of the loan they originated.

This cycle ultimately leads to less diversity in the workforce. But we can overcome these barriers to employment if we start by resolving one thing at a time, starting with the transportation situation.

3 Necessities to Apply for an Auto Loan

A vehicle can get us back and forth to work, and it can also be a place to live in a pinch while getting things back together. But if someone lacks one of these key aspects of securing an auto loan, they’re likely to experience major barriers in the process:

1. Steady Income

Default rates on auto loans are closely correlated with unemployment. A steady income is becoming more ambiguous with the rise of the gig economy, but a good rule of thumb for borrowers is finding an average income received per month after taxes. If they don’t have a full-time job, they shouldn’t hesitate to take on gigs to earn income.

2. Healthy Credit Score

While some lenders may give borrowers an auto loan despite bad or no credit, a healthy credit score provides borrowers with the best rate. It’s important to remember that dealers are incentivized to give people loans, so borrowers will often feel pressure from salespeople. One way to alleviate that pressure is for borrowers to get preapproved with their bank first to get a better rate based on a clearer picture of their financial situations.

3. Monthly Expenses

It’s important for borrowers to budget and know where their money is going each month. This helps them understand what type of monthly payment they can afford. Personally, I break my spending down into two categories: essential (food, housing, utilities) and nonessential (streaming, cable, etc.). With an idea of how much they’re saving or spending, borrowers can make better financial decisions.

Getting to Work

No qualified job candidate should have to decline a job offer because they can’t afford to commute to work. But businesses can integrate transportation allowances into their hiring and onboarding processes for potential candidates.

At Andrew Davidson & Co., Inc., we are actively researching how to incorporate alternative metrics that can be used to help paint a more accurate picture of a person’s financial history. Some of these include paying rent and cell phone bills consistently on time, which are not included in traditional credit scores. This information can be used by either employers or auto lenders to make better decisions.