Uber Starts Directly Leasing Cars in Program That Could Appeal to Short-Term Drivers

Uber is piloting a revised car-leasing program with features that could be more favorable for certain kinds of drivers. This appears to be its first major revamp of the program since the company introduced it in November 2013.

Uber will be directly leasing the cars, both new and used, to drivers through an Uber subsidiary called Xchange Leasing.

Under the new terms, drivers can lease a used car, such as a 2013 Toyota Corolla, with a $250 deposit and monthly payments that are much higher than in a typical lease (see more below). There are some benefits to Uber’s new terms, however, including no limit on the amount of miles they can drive as well as the ability to break the lease before the end of the three-year term by paying a $250 fine.

The information comes from an email Uber sent to drivers in the San Francisco area Monday. One driver in Okalahoma City told Re/code he didn’t receive the email, suggesting that the loan program is only available for some markets.

(Update: Uber says the pilot program will initially run in California, Maryland and Georgia.)

“I think it will definitely increase the supply of drivers, since now Uber provides everything you need to get started (phone and car),” Harry Campbell, author of the blog The Rideshare Guy, told Re/code. “As long as you can pass a background check, you can now work for Uber.”

Drivers’ weekly payments are at an 11.6 percent interest rate) over the three-year term according to Uber’s example of lease terms. At the end of the lease, drivers have the option to buy out the rest of the car and own it.

In some ways, Uber’s new leasing terms still aren’t a great deal compared to going straight through a dealership. A driver leasing a 2013 Toyota Corolla, for example, would be paying about $385 a month through Uber, while they could lease a 2015 model car for $159 a month directly from the dealer.

That said, the up-front cost is higher at the dealer, breaking the lease would incur higher penalties than with Uber and there’s usually a cap on the number of miles a car can be driven. In those ways, the Uber offer is a better deal for some drivers. Furthermore, Uber allows people with bad credit, who might not be able to lease directly from an auto dealer themselves, to lease a vehicle.

With these terms, Uber is opening the door to a new group of potential drivers who may only want to drive for several months instead of committing for a longer term.

The change in leasing terms comes soon after Uber severed its relationship with one of its first big loan partners, the financing service Santander, which has previously faced scrutiny from the U.S. Department of Justice for its subprime auto loan practices. On one driver forum site, a commenter said a local Uber employee told him Santander raised many drivers’ interest rates on their leases after they were signed.

When asked why the Santander relationship ended, Uber’s head of vehicle solutions, Andrew Chapin, told Re/code the company tries to be receptive to driver feedback. He wouldn’t give more information than that.

The new car leasing terms might be more favorable for drivers, but they still don’t address the largest criticism of Uber’s car leasing partnerships: They give subprime loans to people who can’t afford them. One such driver told local news affiliate KQED that his loans cost him $1,000 a month with a 22.75 interest rate, and that he had to keep driving for Uber just to keep up.

“Uber is unstable and things change without any notice — you wake up and the rates are lower,” Randy Shear, an Uber driver who makes ride-share advice videos, told Re/code. “It’s hard to go into debt on something and not have any certainty about what you’re actually going to be making.”

Uber’s new interest rates are cheaper than before, but they’re still far more expensive than a normal leasing agreement, hitting vulnerable populations who might be least equipped to pay them.

This article originally appeared on Recode.net.