Not enough people sourcing auto loans online

[Dec 13, 2011.]

 

First, the good news: more and more people are sourcing auto loans online. Now for the bad: the number is still very small.

Auto loans online

That information appeared last week in Automotive News, a trade publication, and appears to be based on research from the Power Information Network. Apparently if you add the number of cash buyers to the number of those with "direct" loans (those not arranged by a dealer) then the two categories together represented just 22 percent of all vehicle sales in the third quarter of this year.

That's down from 31 percent during the same period in 2009. Of course, that year's numbers were skewed by the great recession: fewer cars were sold then, and lenders weren't lending, so only cash buyers and the hyper-creditworthy stood any real chance of changing their cars. Even so it's slightly depressing that more people aren't applying for auto loans online, if only because having an approved offer in your pocket puts you in a much stronger bargaining position when your dealer starts negotiating your finance package.

Auto loans and dealers--a bad mix

But it's not just that. This blog's always banging on about the scams and abuses that many dealers routinely practise when it comes to auto loans. Perhaps the biggest of all are dealer markups, which the Center for Responsible Lending calculates cost American consumers $25.8 billion over the lifetime of their loans. Here's how it works.

Your dealership makes a call or goes online and is told by the lender how low your interest rate should be, based on your creditworthiness. But the salesperson reckons you can afford to pay more, so he or she ups the rate to whatever he or she thinks you can afford. You sign at the higher rate and the dealership gets to keep (or sometimes shares with the lender) all those extra interest payments: $25.8 billion!

Then there's the yo-yo scam. You sign a deal that you may believe to be final, and drive away in your lovely new car. A few days or weeks later, you get a call from the dealership to say that the loan was only provisional, and that you actually have to pay a much higher rate. If you want to call off the deal, you may well be told that your trade-in has already been sold, and that it's too complicated to unravel the contract. You just have to pay up.

Auto loans booming

You may be wondering why anyone would trust a dealer with a finance deal. But plenty do. J.D.Power and Associates recently forecast that new-vehicle sales in November would top 791,900, which it described as "the highest monthly selling rate in three and a half years." And, if that Automotive News data are correct, 78 percent of those (617,682 units) are going to have been financed through dealerships.

If you don't want to follow the herd, check out competitive quotes for auto loans now.

 

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.