Vote with your $. Congress killing a rule that protects consumers from local auto dealers increasing interest rates on auto loans
To put these numbers in perspective. Based upon your credit, assuming a 60 month loan.
FICO Score 500 – 589. Average rate is 15%
FICO Score 590 – 619. Average rate is 14%
FICO Score 620 – 659. Average rate is 9.5%
FICO Score 660 – 689. Average rate is 7%
FICO Score 690 – 719. Average rate is 5%
FICO Score 720 – 850. Average rate is 3.5%
As you can see, 1.5% to 2.5% can make a big difference, regardless of your credit score. This also helps give you a little insight into how improving your credit score can save you money on any loans you take out for a car or home.
How can they do this?
Lawmakers had specifically exempted auto dealers from the CFPB’s jurisdiction when the CFPB was formed in 2010, accepting the argument that dealers didn’t fit the definition of “lenders,” except for so-called “buy-here, pay-here” used-car dealers who make and collect their own loans, whereas, new-car dealers typically act as a middleman between customers and auto lenders.
How widespread is this unfair lending practice?
Subprime auto lending is estimated to be a $26 billion industry and growing. It’s the third largest type of debt in the U.S.
While it’s hard to know every financial institution and dealer that’s doing this, there are many cases where companies have paid large fines for unfair or discriminatory lending practices, and there are some things we can do as individuals to stop the corruption.
What can we do?
1. If you are getting the financing through the dealer, require the information on the quote from the bank providing the financing. If you have bad credit or no credit know your state laws. For instance in New York, charging interest about 16% is a violation of the state’s civil usury law and charging more than 25% is considered a felony.
2. Go in with your own financing from your bank or a bank that offers fair and transparent terms.
3. Learn to spot the predatory practices
Dealer Kickbacks. A car buyer initially qualifies for a lower interest rate or “buy rate.” The lender willing to fund the loan allows the dealer to increase the “buy rate” at the dealer’s discretion. The extra interest is “kicked back” to the dealer.
Loans Packed with Junk Fees. Dealers inflate the overall price of the car loan through overpriced add-on products including “GAP” insurance, vehicle service contracts, credit life and disability insurance, rust proofing, theft deterrent packages.
Yo – Yo Sales. The buyer is placed in a conditional sale agreement rather than a final sale. After driving the vehicle home, the dealer claims to be unable to fund the loan at the agreed terms. The buyer must return the car, renegotiate a more costly loan and is often told their down payment is non-refundable and/or their trade-in has already been sold.
Buy Here – Pay Here (BHPH). BHPH dealerships typically finance used auto loans in-house to borrowers with no or poor credit histories. The average interest rate is much higher than a bank or credit union loan. BHPH dealers expect much higher default and repossession rates. The business model is based upon churning the same vehicles to local buyers as many times as possible.
4. Report an auto dealer that is acting unethically and we will investigate. Contact us a email@example.com