Auto Loans from Dealerships: Great Deals or Ruthless Rip-Offs?

[May 10, 2010.]

 

Auto Loans from Dealerships

Many Americans venture onto car dealer lots before they've researched their auto loans options. And, for a whole lot of them, that can prove to be a very expensive mistake; cheap auto loans from dealerships are few and far between.

Why is that? Well, the April 30 edition of the Washington Post provided a pithy explanation. It pointed out that you, as a customer, would never know that auto dealers:

...act as the front end of a giant auto-loan conveyor belt that stretches back to Wall Street's "shadow" banking system. Nor would it be clear that dealers often earn as big a profit financing a car as they do selling it, and that as the point-of-sale lender, they are not above engaging in high-pressure tactics to get customers to sign loan documents before they leave the showroom and before they have a chance to shop around with other lenders.

Dealer Auto Loans: Some Horror Stories

The Center for Responsible Lending (CRL) describes what it calls "auto dealers' lending abuses," and alleges that just one of these costs Americans more than $20 billion a year. In addition to routine kickbacks and overcharging, it details what can only be described as bait-and-switch scams.

An example of a form of abuse that the CRL doesn't even mention was covered May 7 in the Bellingham Herald. The story tells the experience of Robert Mims of Greenfield, WI, who, back in 2006 bought a used Ford Taurus for $13,000. Four years later, he's a long way from paying off his auto loan, but has already parted with $17,000.

Mr Mims, who has had credit problems in the past, alleges that he signed up for a high-interest loan because the dealer promised him that his rate would reduce after six months of faultless repayments. After four years of on-time payments, he's still waiting for his cheap auto loan to kick in.

Decision Time for U.S. Senate

U.S. Senators are currently considering proposals to create a Bureau of Consumer Financial Protection (BCFP), which would have the authority to regulate most financial products, including dealer-assisted financing. Dealers are, of course, outraged at the prospect of having such a large revenue stream threatened, and are lobbying legislators to exclude them from the BCFP's control.

But a recent editorial in USA Today argues: "Predatory home lenders, deceptive credit card companies and, yes, coercive car dealers deserve greater scrutiny, regardless of their political clout."

Cheap Auto Loans Here

You can avoid all the risks associated with "dealer-assisted financing" by lining up your credit before you set foot on a car lot. Begin by looking for cheap auto loans here.

 

About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.