Wanted: car enthusiasts with a heart for a good project.
Low family incomes and high rents are the two key sources of poverty for my clients. The third major reason for poverty is huge debt associated with car purchases.
Poor families are more likely to live in cold, damp, overcrowded houses. Children accordingly suffer from more illnesses and a car is vital for families needing to transport children to doctors and to Starship, as well as for getting to work and other family needs.
When I bought my car, I went to a car fair and a friend checked over the car I was planning to buy to make sure it was mechanically sound. I paid $3900 for the vehicle and it has been going well for nine years. Total cost of car purchase: $3900.
That is completely different from the typical car-buying experience for my clients. They get ripped off both when they buy the car, and with the loan they take out to finance the vehicle.
I have dealt with many cases in which people have been sold unreliable cars for $15,000 to $20,000, when the vehicles might actually be worth $3000 to $5000. Then, as my clients cannot pay cash, they need to borrow to pay for the car.
They will not be able to get a loan from a bank, meaning that they are driven into the clutches of lenders who charge extremely high interest rates and fees.
A family might end up paying a total of $30,000 for a car which is worth only $5000.
Sometimes, the cars break down within a week or a month of purchase. However, in law the car purchase and the loan contract are two completely separate legal transactions. Even if the family now has a car which doesn’t go and is worthless, they still have to repay the entire loan.
Microfinance schemes have evolved to provide affordable finance to low income families who cannot obtain loans from banks. The projects charge low or no interest. As soon as the money is repaid by one family, it is lent to others.
Such schemes have been operating for more than 30 years in Australia, with Good Shepherd helping to initiate more than 700 of them across the Tasman.
The projects are in their infancy in New Zealand but it is very pleasing to see politicians finally taking their merits on board.
The Government announced in the 2014 Budget that it would making some funding available for affordable loans schemes. In August, more details were released. Good Shepherd, the BNZ and the Salvation Army are partnering with the Government to provide the loans.
Similarly, Kiwibank came on board to help set up Nga Tangata Microfinance Trust several years ago.
However, the missing part of the equation is that there is still nowhere that people can buy cheap, reliable cars. Low income families need to be able to access cars like mine – affordable and which keep going for years.
There is no reason that a government could not set up car yards which sold reliable second hand cars which had been thoroughly checked over before being placed on the market. Families would then be able to access funding through a low or no-interest loans scheme to buy the car.
This would in one fell swoop deal both to loan sharks and to rip-off car yards which exploit unsophisticated purchasers.
Unfortunately, there appears to be no enthusiasm from politicians of any party for such a car yard scheme. However, there is no reason why it could not be initiated as a community venture.
A group of women in Timaru runs a low interest loans scheme. The lenders have partnered with a local car yard. The owner has a garage attached to his vehicle sales business. He finds cheap cars, does repairs and ensures that they are mechanically sound, and then makes them available to the women running the loans scheme. They provide funding so that low income people can buy the cars. In particular, vehicles and finance are provided to women seeking to re-enter the workforce.
That scheme needs to be replicated all round New Zealand.
This country prides itself on its DIY and “Blokes and Sheds” mentality. Jim Hopkins’ 1998 book, Blokes and Sheds, was a bestseller and spawned a documentary of the same name.
We now need “Blokes and Sheilas in Garages.” Car enthusiasts who like nothing better than spending weekends at car fairs could find cheap, reliable cars. They could be checked over and any repairs done by volunteers, and then the cars could be sold to low income families. The purchases would be funded through low or no-interest loans schemes.
Loan sharks and unscrupulous car dealers would be put out of business and many of the crippling debts which are a millstone around the necks of low income families would be avoided.
*Catriona MacLennan was the Project Director for Nga Tangata Microfinance Trust.