How to Shop for a Car Loan
Great Consumer Reports article on how to avoid becoming part of the statistics about Americans being ripped off on car loans.
A MUST-READ if you are or anticipate being in the market to buy a car anytime soon. And for everyone else, a good article to read anyway -- you never know when someone will smash your car for you by driving inattentively and you will be in the market to buy a car on short notice.
"Surprise, surprise, surprise" as Gomer Pyle used to say.
Consumer Reports has a good article on how car dealers rip you off on loans.
Well worth a read if you ever consider buying a car.
ProTIP: If you can't pay cash and must finance a car purchase, separate the loan deal and the car deal; never do them together with financing from the dealer.*
Get your loan approval from your own credit union or bank before you go car shopping so you can know exactly how much you can afford and the dealer can't bamboozle you by negotiating both deals at the same time. And, of course, you have to be willing to walk away from the lot without buying anything. And never buy any used vehicle without having your own independent mechanic to a complete pre-purchase inspection and test drive of the vehicle; if you can't afford the pre-purchase inspection, you can't afford the car anyway.
(* With the possible exception for the case where you are buying a new car and the maker is offering zero-percent financing and you are certain that you aren't being overcharged on the car.)
Experts say that CR’s analysis suggests a broad problem with the way car loans are arranged in this country: Dealers and lenders may be setting interest rates based not only on risk—standard loan underwriting practice—but also on what they think they can get away with. Studies show that many borrowers don’t know they should, or even can, negotiate the terms of a loan, or shop around for other offers.
Ask Congress to Undo Anti-Consumer Rule Implemented in Final Days of Prior Administration
Urge Congress to Support a Congressional Review Act Resolution to Overturn the OCC's "Fake Lender" RuleDear friends and allies,
Congress has a short window of time to pass a resolution under the Congressional Review Act to invalidate the Office of the Comptroller of the Currency’s (OCC’s) "fake lender” rule. The fake-lender rule enables predatory consumer and small business lenders charging 179% APR or more to evade state- and voter-approved interest rate caps.
ACT NOW! Email your senators and representative to ask them to support the resolution (S.J. Res. 15 or H.J. Res. 35) to overturn the OCC's "fake lender" rule.
The rushed “fake lender” took effect in December and protects “rent-a-bank” schemes whereby predatory lenders (the true lender) launder their loans through a few rogue banks (the fake lender), in order to claim that it is a “bank loan” exempt from state interest rate caps. The fake lender rule overrides 200 years worth of caselaw allowing courts to see through usury evasions to the truth, and replaces it with a pro-evasion rule that looks only at the fine print on the loan agreement.
Congress can use the Congressional Review Act to overturn the rule with only a simple majority vote in the Senate -- no filibuster. But the deadline is approaching, so Congress must act soon.
Please also urge your members of Congress to support the Veterans and Consumers Fair Credit Act, which would stop predatory cost rent-a-bank loans by extending to all lenders, including banks, the 36% APR rate cap that currently protects active duty servicemembers.
Tell Congress to overturn the OCC's "fake lender" rule!
National Consumer Law Center
Fellow consumer attorney Ian Lyngklip of Michigan produced this helpful video that you should watch if you are stressed about bills during work interruption from COVID-19.
Good Washington Post Article on How Car Dealers Rip You Off with Financing
Ian Ayres is the William K. Townsend professor at Yale Law School.
As websites such as Cars.com and TrueCar have made car pricing more transparent, auto dealers have turned to boosting their profits with hidden fees on loans.
When a consumer chooses in-house financing with an auto dealer, the dealer sends the customer’s financial information to a lender and is told the rate that the customer qualifies for. But it’s legal for the dealer to turn around and charge the customer a higher interest rate. You might qualify for a 5.9 percent interest rate, but if the dealer can get you to agree to a loan at 11 percent, the lender will kick back more than $1,000 to the dealership as pure profit. This discretionary markup of the interest rate allows auto dealers to arbitrarily increase their fees.
An analysis by the independent online auto-loan marketplace Outside Financial has found that dealers are charging an average markup of $1,791 per loan. By contrast, in 2003, Vanderbilt University economist Mark Cohen estimated that 10 percent of loans to Nissan’s borrowers were marked up more than $1,600. Now the average loan is boosted more than that.
. . .
Economists have had evidence for decades that car dealers tend to charge minorities higher prices. A series of studies I authored and co-authored in the 1990s found that auto dealers consistently charge black consumers prices that are hundreds or thousands of dollars more than their offers to white shoppers. These inflated prices can more than double the dealer’s profits compared with selling the same vehicle to a similar white customer.
. . .
The CFPB and other government agencies should be on the lookout for ways to better curtail dealership lending abuses. Yet instead of stepping up enforcement and protecting customers, the CFPB has rolled back rules on discriminatory lending practices and decreased enforcement of existing protections. Just last year, the Senate used the Congressional Review Act to overturn a CFPB rule that explicitly banned auto lenders from charging discriminatory fees on the basis of race. . . .
Turns out I'm not alone in recognizing that most used car dealers (not all, but most) are really just shady payday lenders disguised as merchants.
But I've been too optimistic!
Below is a quoted comment from an auto industry expert in the midwest. And this ins't me talking or another consumer attorney. This is a car industry guy talking - someone who helps dealers!
BHPH = "buy here, pay here" -- the classic small independent car lot.
He warns that even the big chain used car places have the same practices!
For used car dealers, the car is just the bait for the important part -- selling you an outrageous loan and optional "extras" that give the dealer much more profit than the car ever could. (Because, think about it -- the only reason 99% of the customers step onto the lot at one of these places is that they have such poor credit that they have to buy the car that someone else felt good about getting rid of.)
With the horrible increase in economic inequality in the US, this isn't going to change anytime soon.
But at least understand what you're dealing with -- if you feel like you have to buy a used car from a dealer, do everything possible to GET YOUR OWN FINANCING first, before you get anywhere within 100 miles of a dealer. Know what you are approved for IN TOTAL as well as in weekly or monthly payments, and walk away the minute the dealer tries to sell you financing.
Dealers are pushing out financing terms to absurd lengths to make used cars "affordable," but that just puts you into a negative equity trap (you owe much more than the car is worth) at trade-in time ... if the car even lasts long enough for a trade to be possible.
I am not a bankruptcy attorney, but I have helped many clients understand when they should look into bankruptcy and when there is no need for a bankruptcy filing because the clients have no assets that creditors can reach. If you are concerned that you are drowning in debt and don't know a good bankruptcy attorney to consult, you can make an appointment with my assistant and discuss your situation; I will be happy to refer you to good consumer bankruptcy attorneys if we decide that bankruptcy is appropriate for your situation.
Below is another article in the terrific series by the National Consumer Law Center on this important subject.
Deciding Whether to File for Bankruptcy: Consumer Debt Advice from NCLC
A consumer-rights leader and expert sends the following comment:
John Gear Law Office -
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