By on February 8, 2018

Image: Edward Kimmel/Flickr

It pains me greatly, dear readers, to say what I’m about to say. Those of you who regularly follow my writing know how I lean when it comes to politics. However, given the current state of the auto dealership world, I have no choice. I gotta admit it — I agree with Elizabeth Warren on something.

Good ol’ P…er, Senator Warren and I both agree that there needs to be more oversight of the automotive lending business. Part of my day job is to educate new automotive advertising sales representatives about the car sales industry, and when I get to the part of the day where I tell them about how the Finance and Insurance office works, I always give them the following warning:

“Guys, if you don’t know about how car loans work, you’re about to get very, very angry.”

So I’ll give you the same warning, friends. I’m going to share about the predatory lending practices that go on behind the scenes, and I’ll tell you what I think should be done to stop it.

Let’s say you’re Suzy SubPrime, and you want to buy yourself the latest and greatest CUV from Maibatsu. You don’t have the worst credit in the world, but you know that you’ve missed a payment or two along the way, so you’re a little bit nervous about whether or not you might get approved on a loan. After you pick out your dream car from the lot, you find yourself in a very confusing office, where the man sitting behind the desk looks less like a salesman and more like a banker, which intimidates you more than a little bit.

You fidget as you sit in your chair and watch as he murmurs quite a bit, shaking his head as he scratches out some numbers from his computer screen (which you can’t see). After several more uncomfortable moments, he sighs and says, “The best we could get you approved for is 6.9 percent, but luckily that still fits your payment that you told your salesman that you could afford.”

Breathing a sigh of relief, you sign whatever papers are put in front of you, and drive home happily with your new ride.

Here’s what really happened.

The finance office is designed to confuse and intimidate you. There’s nobody offering you popcorns or drinks, no colorful balloons and cheery music. There’s just you and a ton of paperwork that they genuinely hope that you don’t read. You’ll be given a Truth in Lending disclosure, which is required by law. It tells you what your Annual Percentage Rate is, the total cost of your financing, the amount financed, and the total of the payments.

However, what it doesn’t tell you is what your Buy Rate from the lender was, and what the bump in your rate was. In 2016, the average bump for consumers financing through a dealership was 2.5 percent.

This should be the part where you get very, very angry.

Yes, that’s right — the dealer doesn’t have to (and most likely won’t) give you the actual rate that the lender has approved you for, and in many states in the union, there’s no limit to how much the dealer can add in interest. It’s in his best interest to get you bumped as much as he can, because the dealership gets to keep the majority, if not all, of that money.

Your average car buyer has no idea about this. Maybe you do, Mr. Educated TTAC Reader, but when I get to this point in my training workshops, there is genuine shock and outrage from my employees — and these aren’t low income individuals. These are career sales professionals, many of whom are earning in the six-figure range. Nearly unanimously, the sentiment expressed is along the lines of, “I really wish that I had known this before I bought my last car!”

Senator Warren wants auto lending to fall under the jurisdiction of the Consumer Financial Protection Bureau, a federal agency created in the aftermath of the 2009 financial crisis. While the CFPB can and does regulate loans that take place outside the four walls of the car dealership, they have no power over what happens inside. The Bureau did, however, issue a warning memo to dealerships back in 2013, advising them that hiking the rates of minorities more than their white counterparts would be seen as a discriminatory practice. As a result of this memo, Ally Financial was forced to pay $98 million to settle claims that the average black car buyer was charged $300 more over the course of his loan than the average white buyer with the same credit score.

So what should be done? I say we should introduce federal legislation capping the amount that a loan can be bumped to 2 percent. I also say that the Truth in Lending statement should disclose the buy rate that was offered by the bank, any additional markup by the dealer, and the amount of money that the consumer will pay as a result of this markup.

B-b-b-b-but, says the dealer, that will cost me thousands in back end profit! I don’t know if that’s necessarily true. Once customers are educated on the nature of auto lending, they might be encouraged to go loan shopping, yes, but most customers understand there is profit on the front end of a car sale, and yet you’re still making money on your used car sales.

In fact, there’s no ethical reason that a customer shouldn’t be made aware that he’s not getting the best possible rate that he can get. Customers assume — and F&I managers often straight up say — that the reason their F&I guy is sweating is so hard is that he’s working his hardest to get the customer the best deal. Negative. He’s working hard to find the bank that will give him the best deal, so he can bump you as much as possible and keep you in a comfortable payment.

The best thing about this legislation, however, is that it would force the National Automobile Dealers Association to have to lobby against it, exposing them for the snakes that they are.

So go on with your bad self, Liz. I got your back.

[Image: Edward Kimmel/Flickr (CC BY-SA 2.0)]

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142 Comments on “Bark’s Bites: Regulators, Mount Up!...”


  • avatar
    Sub-600

    This is why I go to my credit union before I set foot on the stealership lot. There’s no need for regulation or more government, people need to walk in with financing in place. People spend more time picking out a craft beer than they do auto financing. More government won’t cure laziness. You’re right about the dealer finance guys sweating though. I bought my current car used, 18 months ago, my credit union gave me a loan at 3.2%, my bank gave me the same offer. I told the guy I was all set, he insisted he could do better, I almost had to walk out before he left me alone. He couldn’t do better and I knew it, he was steamed, lol. I didn’t need that Bozo shotgunning my credit.

    • 0 avatar
      FreedMike

      Two or three auto loan inquiries in the space of a few days won’t “shotgun” your credit at all. That’s a misconception.

      Take it from the mortgage underwriter – I could care less. Now, if someone’s doing ten inquiries for REVOLVING debt (or personal loans) in a very short period of time, that gets my attention.

      I’ll disagree with you about the need for regulations here, though – even seasoned consumers who are smart borrowing money deserve to know what their borrowed money really costs them.

      • 0 avatar
        Sub-600

        You learn something new everyday. I’m always nervous about hard inquiries on my credit report. I wouldn’t finance at a dealer anyway. Despite my screen name I’ve got very good credit. I check my credit union and bank before I head out, if I’m buying new I look at manufacturer credit too, though I’ve never used one yet.

        • 0 avatar
          FreedMike

          If your credit is 750 or above, you can do a few inquiries a year and it shouldn’t impact you very much.

          • 0 avatar
            highdesertcat

            It doesn’t matter if you have a great FICO score because the lending industry is not a level playing field and is biased against old people, especially well-to-do old people.

            I know some of the B&B will take exception to my statement but there are just too many real-world every-day examples that lenders prefer the 21-54 demographic, regardless of how financially secure they are.

            Pocahantas may think she has a great idea but it doesn’t do diddly for the older new-car-buying demographic. More oversight also does nothing for defaults in real life. Either you got the money, or you don’t.

          • 0 avatar
            danio3834

            “the lending industry is not a level playing field and is biased against old people”

            I’d be a little more leery of lending a lot of money to someone who is more likely to die, too.

          • 0 avatar
            Fred

            I retired last year and my income was about half what it was the year before, this year even less. So who is going to loan me money with no job and little income? It’s not that I’m poor but in the eyes of a loan manager, I’m probably sub-prime, no matter my 830 credit rating.

          • 0 avatar
            highdesertcat

            danio3834, exactly my point! But young people die untimely as well, i.e car accidents, drug overdoses, suicide, etc.

            But for the lenders it is OK for young people to die and default while old borrowers are automatically categorized as a bad risk even though the old people could outlive the young ones.

            Fred, don’t put too much stock in that 830 rating. It doesn’t mean anything.

            My grand 26-yo daughter and her husband recently bought a $398,000 home outside of Phoenix, AZ, even though they did not have a credit rating since they never financed anything.

      • 0 avatar
        Felix Hoenikker

        Highdesertcat,
        I’m a bonafide senior citizen since I’m now on medicare but not collecting social security. My credit union doesn’t discriminate on age with respect to car loans. I wish I could say the same about employers, but that’s another story.

        • 0 avatar
          highdesertcat

          Felix,

          Credit Unions are good that way since they are owned by their members. But not everyone can qualify to belong to a Credit Union.

          If I ever need to finance anything again I’ll turn the USAA. I’ve been a member there since they allowed enlisted military to become members.

          And I have everything already with USAA, like bundled home, car and life insurance.

          Great organization, USAA! Highly recommend them to American military and retired military.

          My credit union doesn’t do all that USAA offers.

    • 0 avatar
      mikedt

      That’s what I do. get the rate my credit union will sell me a car loan for and then simply tell the dealer, if you beat that you can do the financing. He makes some extra bucks and I save some bucks. Win win.

    • 0 avatar
      notwhoithink

      “I bought my current car used, 18 months ago, my credit union gave me a loan at 3.2%, my bank gave me the same offer. I told the guy I was all set, he insisted he could do better, I almost had to walk out before he left me alone. He couldn’t do better and I knew it,”

      How do you know he couldn’t do better if you didn’t even let him try? I’ve never had a car dealer that *couldn’t* get me an interest rate that is lower than the bank would give me. Remember, they deal with the banks and credit unions in volume, so they can get “wholesale” rates. After all, the banks are competing with each other for the dealerships business. Yeah, the banks are competing for your business as well, but the dealer sends them a lot more.

      IMO, there’s literally no reason for you to not let them try to beat your bank rate.

      • 0 avatar
        danio3834

        Yeah, this. Car dealers send a TON of business the way of creditors, so they have a lot more leverage than the individual. Finance people who have been the chair a while develop relationships with the credit people and can sway them if it means making a bit of reserve, even if it’s a small flat.

      • 0 avatar
        jalop1991

        “IMO, there’s literally no reason for you to not let them try to beat your bank rate.”

        100% this.

        Money is a fungible. I want to buy it as cheaply as I can; ALL other considerations are meaningless.

        True story: in early December I agreed to buy a GTI. Dealer had to find one, though. So in the meantime I started shopping loans. In the middle of this the dealer called and said, why don’t you fill out our online application, just to see what we can do for you. Why not.

        Two days later the new car sales manager (great guy) called to say he’d found my car and it would be in in a few days, and oh by the way–I found you 1.86% financing for 60 months.

        Jesus Christ. That’s same-as-cash. Of course I’ll take it. I’d found down as low as 2.89% myself to that point; but 1.86%!

        Of course, I had already spreadsheeted the purchase price of the car and the tax/title/license/tradein stuff. So I had that all laid out. I made another spreadsheet for financing.

        When I went into the F&I office and pulled out my laptop, he didn’t flinch. Sure, there was a bunch of paperwork. I read it. But interestingly enough, he kept checking with me throughout the process that his numbers matched up with mine. They did. He procesed the sale paperwork and the loan paperwork. It took awhile, but it was 100% transparent.

        I pity people who go in unprepared. The F&I guy can say anything.

      • 0 avatar
        b534202

        Yes there is; I don’t want to be in that office for an extra 2 hours just to see them try.

        • 0 avatar
          jalop1991

          Why would you be anywhere near the dealership while they try?

          Ever hear of email? Phone?

          ALL dealerships have online finance applications anymore. Sit on your butt, fill it out, wait for them to process things.

          Jesus. It’s not rocket science.

      • 0 avatar
        Erikstrawn

        The dealership may deal in a wholesale number of loans, but they’re still acting like a middleman. When I bought my Jeep I financed directly with my credit union. Without a middleman trying to make profit, and with my solid history at that institution, they were able to give me a better rate than the dealership could.

    • 0 avatar
      krhodes1

      I’ve had it go both ways. CU got the Saab. Fiat resoundingly beat my bank and credit union on the note for my Abarth (and their own advertised rate). BMW was the same as the bank both times, so I went with them, but my CU had a refi special six months later so I did on the M235i. The CU in Florida hammered what VW could/did do on my GTI. But that was allegedly a weird issue because I had moved but not become a resident yet. Took the VW deal and refi’d with the CU (at 1.5%) the day I closed on my house two weeks later.

      Ultimately, no matter what if you go to buy a car without pre-arranged financing you are a moron, even if you end up not using it. It gives you leverage, and gives you a more honest idea of what you can afford than a dealership will.

      I have never had any games played in the F&I office on any of my car purchases.

  • avatar
    Frylock350

    Regardless of anyone’s personal opinions in politics, Ms. Warren does seem genuinely motivated to help the middle class out.

    I thought this was common knowledge? Besides I always refinance my loan with a credit union almost immediately. Typically there’s some sort of cash incentive to finance through Ally or Chrysler Capital that I want to take advantage of, but nowhere does it say I can’t just refi the loan after payment 1.

    • 0 avatar
      dont.fit.in.cars

      Warren created her kingdom by funding through the Federal Reserve so no Congressional oversight. It’s known not for helping consumers but shaking down corporations and redistributing to Democrats.

      https://theconservativetreehouse.com/2017/11/19/pocahontas-financial-control-scheme-returns-to-bite-its-creator/

      • 0 avatar
        turbo_awd

        Keep politics out of this. Your link makes the GOP look pretty bad (as in: we’ll destroy any consumer protection no matter how hard we have to work, because it makes it harder to fleece people).

        • 0 avatar
          TonyJZX

          This thread kind of shows what’s wrong with Americans. Here’s a conservative right wing website… here’s a link where we smear Warren even in the URL and it seems almost a throwaway line that you insult a person based on their alleged ethnic background… ie. Its somehow shameful to be part Native American?

          How does that work? But I suppose that’s about right when its ok to ask Navajo Americans to “get out” as immigrants arent wanted here…

        • 0 avatar
          dont.fit.in.cars

          The point is info in the article not a headline.

  • avatar
    FreedMike

    Completely agreed about the need for regulations here, and 200% agreed on the need to expose lobbyists – all of them – as enemies of the Republic.

    But here’s the problem: the current administration seems hell-bent on destroying the CFPB. As someone who’s in the mortgage industry, I agree completely that the CFPB itself needs reform. But without it, the kind of regulations Bark’s talking about will have no teeth.

    • 0 avatar
      Jeff Weimer

      Lobbyists are merely one manifestation of “petitioning the government for redress of grievances”, so getting rid of them is a non-starter. If you’ve ever implored your Congressman or Senator over a piece of legislation, you’ve lobbied them.

      The CFPB as currently organized needs to go. It’s borderline unconstitutional and was definitely set up to be as unaccountable to our elected representatives (and us) as possible. In any case, the “teeth” of regulations are granted to the regulator by Congress, so who regulates a certain sector is irrelevant as long as someone is charged with enforcing it. I believe the FTC used to have jurisdiction over much of the current CFPB portfolio – plus it is funded by regular appropriations instead of by the Federal Reserve.

      • 0 avatar
        civicjohn

        +1 Jeff W, the CFPB answers to no one. As a (currently recovering) small business owner, (revenues under $5 mil), the CFPB was the single biggest obstacle for a company of my size to obtain financing for our expansion into other markets, even when the revenues were already in place to justify the loan.

        “Civic, you know I’d like to do this deal, it’s just not a matter of the bank believing that you can pay it off, but the total cost of the loan is just too much for us to service”.

        If you think the CFPB played no role in that, then explain it to the 4 banks who essentially told me the same thing.

        • 0 avatar
          ect

          civic, this smells like total BS. The CFPB regulations cover consumer loans, not business loans. The Bureau’s mandate does not extend to commercial lending, and so far as I can see none of its regulatory work has been related to commercial lending.

        • 0 avatar
          mikeg216

          What they should have said is… We say we do small business loans.. But we cherry pick. Which they all do rate=risk and they can make more doing less work by loaning it to someone else who has a bigger company with more revenue and has been established longer. Source? Me.. Did loans for years.. Currently self employed.

        • 0 avatar
          Malforus

          I think your first mistake is believing banks when they refocus blame on a third non-present party rather than owning the fact that they think you are too risky to give a loan.

          I mean its not like the banking industry is known for inventing convenient reasons to deny loans and then claim they are “doing everything they can”.

          Seriously, if your “business” loan was skunked because of CFPB regulation you should re-evaluate your banking choices.

      • 0 avatar
        FreedMike

        Jeff, you’re correct, lobbying per se isn’t the issue. Having those lobbies directly and indirectly grease the palms of our elected officials is the problem.

        If lobbyists want to “redress for grievances,” let ’em. They can grab a sandwich board, mount a soapbox in front of the Capitol, and redress to their hearts’ content. ‘Murica!

        Otherwise, though, I’m pretty sure the First Amendment was never meant to allow legal bribery of elected officials. If we were able to get rid of the bulk of the money in elections, lobbies wouldn’t be a problem.

      • 0 avatar
        Astigmatism

        “It’s borderline unconstitutional” according to whom? Certainly not the courts; in fact, the DC Circuit just ruled a few days ago that it was very much constitutional.

        “and was definitely set up to be as unaccountable to our elected representatives” which was precisely the point: “our elected representatives” are beholden to campaign donors and well-funded interest groups, which the CFPB was expressly designed to avoid.

        “In any case, the “teeth” of regulations are granted to the regulator by Congress,” which is why Congress created the CFPB, teeth and all, when they passed Dodd-Frank.

      • 0 avatar
        Steve Biro

        The FTC? You mean the people who don’t even have enough authority to do something about all of those sales calls you get every day? Even the operations that call numbers on the “Do Not Call” list? The same people the FCC wants to “regulate” Internet traffic and privacy? An FTC rule carries all the weight of a U.N. resolution.

  • avatar
    pale ghost

    I worked at Chase (they are the biggest originator of auto loans but I wasn’t in that division) and they offered an employee discount on loans. A coworker lined up such a loan and bought a car. When F&I was told financing was already in place they asked for the opportunity to beat the rate. Sure enough they were able to by a decent amount. The dealer loan was with Chase. The dealer probably marked it up and was still able to beat the ’employee discount’.

    • 0 avatar
      Rob Cupples

      I want to add on an experience I had. I once had an F&I rep offer to match a rate but I spotted right away that their paperwork showed a payment that was a few cents a month higher than the financing I brought with me despite the same rate and length of loan. I guessed on the spot that the details between the 2 loans calculated interest slightly differently. Not a lot of money but still something to be aware of.

    • 0 avatar
      Adam Tonge

      Chase indirect rates are way lower than direct rates through branches/online. Especially through captive finance companies that they own (Subaru/Mazda).

      • 0 avatar
        pale ghost

        I had a personal experience with Mazda/Chase captive financing. I’ve been paying cash for cars for a long time. I was buying a new Mazda 6 for my wife and the salesman was really pushing leasing. I did some research and the money factor was incredibly low (*2400 came out to a tiny bit over 0 per cent) and the residual was decent. I assume Mazda was subsidizing the lease. The idea of knowing upfront the biggest portion of TCO (depreciation) sounded appealing. The sales manager confirmed the money factor and residual. I said go for it. The paper work came back and the monthly lease payment was way way higher than my guesstimate. I’m not a human HP 12c calculator but with an almost 0 money factor the lease payment should be in the ballpark of capitalized cost – residual divided by lease term. I argued and F&I said – yeah mistake – payment came down but not nearly to what it should have been. At that point I just paid cash. I went home and plugged the figures into an online lease calculator and the payment was right about what I calculated in my head. I know think it was the dealer F&I trying to work me over. As far as I remember the money factor and residual are not stated on the lease – that should be required. I wish I had pushed the issue – the car is three years old, I’d like to get rid of it but the value is less than the lease residual.

    • 0 avatar
      zamoti

      I have also worked for Chase (though not in finance). Their employee auto rate at the time was total garbage. It basically boiled down to getting I believe .75% of a percentage point off of what you might have originally been qualified for. You got .5% off for the employee discount and the other .25% for doing auto-pay. Additionally, there were a lot of restrictions on used car purchases; they had to be fewer than (I think) three years old, they had a very low mileage cap, etc. I was not eligible for the loan because the car I bought was too old by their measure. I then went to Kemba, opened an account with a dollar in it, did all the paperwork at home and sent it in; took maybe an hour. They called me the next day, told me I was approved and my rate, emailed me the details and I bought my car. Rate was lower, fees were minimal, made the Chase deal look like a joke.
      Having the loan done ahead of time made life WAY easier. Having done dealer financing since, I have come to regret it and from now on will always use a credit union.

  • avatar
    PrincipalDan

    I’ll confess and say that it’s been a few years since I taught high school and I’ve been an elementary principal for the past 6 years but I believe strongly that financial literacy ought to be taught in high school.

    The more impoverished the student population the more desperately they need it.

    I’d love to see a American population so well educated about their money that all these guys go out of business for a lack of customers.

    • 0 avatar

      I couldn’t agree more. A well-educated consumer is the best weapon.

    • 0 avatar
      elitistsnob

      Entirely correct. Dave Ramsey’s system should be part of American primary school curriculum.

    • 0 avatar
      Cactuar

      I believe there is a curriculum made by Dave Ramsey that is taught in schools. Even if not everyone agrees with his radical ideas, the fact that it teaches kids about credit, debt, budgeting etc is a good thing. We need to teach our kids these basic principles at an early age so when they need to take important decisions the concepts aren’t entirely foreign to them.

    • 0 avatar
      danio3834

      It’s funny, I hear people complain all the time, “They never taught me personal finance, about taxes or anything else useful in high school”.

      I specifically remember learning about annuity, compound interest and other personal finance fundamentals in a regular public high school math class. Perhaps I was the only conscious?

    • 0 avatar
      John Horner

      Our educational system does nearly nothing to educate students in basic financial literacy, yet we seem very worried about their ability to do geometric proofs and to factor polynomial equations. Why do we ignore skills which are critical for everyone while emphasizing skills used by very few adults?

    • 0 avatar
      krhodes1

      Spot on PDan.

      I’m lucky enough to have an accounting degree, which takes the mystery out of much of this sort of thing. But even though I went to one of the best public high schools in the US not one moment of one class was spent on financial literacy. Crazy. Surely far more useful to most people than Algebra II.

      Oddly though, I DID have a little bit of basic consumer math in middle school in a different town. How to balance a checkbook, a bit about income taxes, that sort of thing. Part of home ec, I think. But nothing in my exceedingly college preparatory high school.

  • avatar
    volvo

    Ah yes. The F&I office. Everything you say is true. IMO the F%I office is the #1 profit center on the sales side of the dealership. I did not realize that for dealer loan customers the actual APR was not clearly spelled out. I guess if the monthly payment is what the customer wants then the interest paid is secondary.

    To rub salt is the wounds of the car buying experience. Even if you come in with a cashier’s check for the total agreed OTD price of the car you still need to go through the dance. The last two car buying experiences I underwent required filling out all the loan docs which were then put into the computer system with the loan amount zeroed out.

    The F&;I interrogation lasted about 30 minutes with me saying no and initialing no innumerable times. I never figured out what it was all about and didn’t really complain since I was getting the car I wanted at the price I wanted and figured that between my bank, Google and the DMV all the info was already out there in the cloud. At least they did not want a certified birth certificate or a copy of my passport.

    I will say that the Toyota buying experience was otherwise OK at this specific dealership. The F&I lady was pleasant and semi-apologetic considering that it was 30 minutes of her time for which she would get no commission. During this half hour the bank check lay on the table between us. I understand that if you don’t finance through the dealership there is less profit but for cash buyers there has to be a better way.

    • 0 avatar
      rpol35

      “Even if you come in with a cashier’s check for the total agreed OTD price of the car you still need to go through the dance.”

      Find that to be curious. I bought two cars, for cash, in the last three years, one in California and one in Florida. No F&I dance, told them I wasn’t interested in F&I or anything else they were selling and that was the end of it – just sign the title application and the tag switch/application document.

    • 0 avatar
      krhodes1

      I kind of want an F&I office to pull some BS on me, I think it would be highly entertaining.

      I had a GREAT time one afternoon recently playing with a very high pressure in-home replacement window salesperson. I knew exactly when she was blowing smoke and called her out on a number of BS things she was saying to try to get me to sign today. But I see how people fall for it – she was good.

  • avatar
    ronald

    Markets can only work their “magic” when everyone in them has good information. Many of those who bleat about the benefits of the free market (which are very real), appear to be firmly committed to making sure at least some of the players are not informed. The resulting market is not efficient.

    “They should have known better” doesn’t convince me. I am quite sure that many people here who are savvy with regard to financing, are not at all savvy in other domains. That’s just the real world.

    • 0 avatar
      notwhoithink

      “Many of those who bleat about the benefits of the free market (which are very real), appear to be firmly committed to making sure at least some of the players are not informed. The resulting market is not efficient.”

      And very profitable for the ones who are informed.

  • avatar
    johnhowington

    You cant fix stupid.

    • 0 avatar
      Cactuar

      You fix stupid with knowledge.

    • 0 avatar
      turbo_awd

      Are you gonna claim you’re an expert on ALL aspects of life? I fully admit I’m ignorant about certain things, and yet hold a master’s degree in engineering. Sure, I COULD learn them. On the other hand, if the FDA is doing its job, I shouldn’t have to research every single item for sale in the grocery store – I just don’t have that much time. Nor the time to get a degree in chemistry, nutrition and whatever else.

      If I know the loan regulations are sound, I can do less footwork and still feel reasonably comfortable. Time is money after all, so it’s more savings on my part, if you will..

    • 0 avatar
      FreedMike

      You’re right, but then again, I’d say everyone deserves to know what their borrowed money is really costing them. That might just “smarten up” quite a few stupid people as well.

  • avatar
    gasser

    As important to teach your kids as how to swim or how to drive. I am a 45 year USAA member and taught my kids to get their USAA loan before they shop. You also didn’t mention our local frequent scam. Our employee went to a dealer and bought a used Ford Focus a few years back. She got a borderline reasonable deal. A few days later the dealer called and said the financing didn’t go through, but they could put her in a loan for about TWICE the interest rate. We told her to go back to the dealer and throw the keys on his desk and tell him to unwind the deal (who else wanted a two year old FOCUS in 2004?). Amazingly they were able to work out the deal at the original interest rate.

  • avatar
    IBx1

    When I went to buy my Abarth, I compared loans that I could get from a few places, picked my lowest rate, and told the dealership that if they could match or beat that interest rate then I would gladly use their financing. I don’t care if they get a lower rate and then mark it up to match what I said; the price is fair, the interest is what I expected, and everyone’s happy to work with each other since I don’t feel the need to take food off someone’s plate.

    When you lead an article with “predatory lending practices” I would generally consider that to be 40% interest rates on people who deserve to have that learning experience if they don’t argue against it.

  • avatar
    JaredN

    Question: What is a fair percentage to mark a rate up, if you’re a dealer?

    At the last dealership group I worked at, they had a company policy to mark it up no more than 2%. A good finance manager will compare different banks- you might make more on a flat fee that the bank pays, than to mark up the rate. It’s a balance of what is good for their paycheck and what does right by the customer.

    The people who do your paperwork only get paid on the finance rate and the products they sell, such as an extended warranty.

    The way the internet age has changed car buying, dealers rely on that income in the finance department. You can’t make money on new cars alone. You can’t rely wholly on used car profits, or service profits. You need to make a little in every place.

    I’m not defending the practice- I’m trying to figure out where the fair middle ground is. If you abolish the ability of a dealer to make money in the finance dept, where would they make it up? More markup on used cars?

    I do agree regulation is needed. But to what extent?

  • avatar
    Prado

    This is just a flat out loophole to ECOA that should be closed. Unless a dealer can demonstrate (with records) that every customer is charged the exact same bump rate on every loan originated through them, dealers are discriminating based on whatever they desire.

    “Fair Lending. ECOA, enacted in 1974, prohibits discrimination based on race, color, religion, national origin, sex, marital status, age, source of income or whether a person exercises rights granted under the Consumer Credit Protection Act for any credit transaction and through the life of the loan.”

    • 0 avatar
      FreedMike

      You’re right, but the equation here is more complicated than “race = rate.”

      All of the factors that affect your credit – your education, your income, your profession, etc – vary demographically by race. If Race A has a 40% poverty rate, and Race B has a 15% poverty rate, then Race A is going to pay a higher rate as a whole. That in and of itself may or may not indicate inequity. If the poorer members of Race A pay the same rate as similar people from Race, B, then I’d say there really isn’t an inequality issue – it’s lenders pricing for risk, which is appropriate.

      The problem is that the data collected only covers race and ethinicity, so it paints a picture that’s damning, but it’s also incomplete. If we really want to draw valid conclusions, the data would have to drill down a lot deeper.

    • 0 avatar
      notwhoithink

      “Unless a dealer can demonstrate (with records) that every customer is charged the exact same bump rate on every loan originated through them, dealers are discriminating based on whatever they desire.”

      Not necessarily. Say two customers with similar financials and credit scores come in for a loan. Customer A did his homework and shopped around in advance and says “I’m already approved at 2.9%, if you can beat that rate you can do the loan.” Customer B didn’t do his homework and doesn’t know what they are qualified for. Both customers can be approved at 2.2%, so the F&I guy tells Customer A they can get him at 2.8%. Customer B gets told they can get him at 3.2%. Both customers are happy.

      Now is that discriminatory? Are they discriminating against the uninformed Customer B, or are they just competing harder for the business from the informed Customer A? What if Customer B is just uninformed but says “If you can get me under 3% you can do the loan”, and so the F&I guys gives him 2.95%?

      • 0 avatar
        FreedMike

        It depends.

        If you have a group of customers from Race A and Race B, and both groups have similar financial profiles, there’s no reason for the folks from Race A to have a significantly higher rate, all things (including the percentage of people who like to bargain for better rates, which theoretically shouldn’t be much different by race or ethnicity) being equal.

        But when you have folks from Race A being charged a significantly higher rate, when they have similar financial characteristics to Race B, you’ve potentially got a problem.

    • 0 avatar
      jalop1991

      “This is just a flat out loophole to ECOA that should be closed. Unless a dealer can demonstrate (with records) that every customer is charged the exact same bump rate on every loan originated through them, dealers are discriminating based on whatever they desire. ”

      You need to learn the terminology. To discriminate in and of itself is not unlawful.

      Sure, some classes are protected under law. But if you decide to bump me 5% because I wore a blue shirt, and not bump that cute chick who just came in, that’s not illegal. Discrimination? Sure. Illegal? Not at all. Blue shirted customers are not a protected class.

      Everyone, quit seeing some difference in treatment and declare it (in outrage) to be “DISCRIMINATION!” in an unlawful sense.

  • avatar
    turbo_awd

    Just a question: Kia offered me some great “lease cash” incentives on a Stinger (at least I thought so). But nothing for purchasing. However, they claimed I could sign up, use the lease cash to reduce the overall capital value of the loan (let’s say it was for $43k, and they offered $3k lease cash, the lease would then be drawn up for a $40k purchase). They said I could buy them out after 1 payment, and only pay a very low amount of interest (just one payment’s worth) and end up getting the car for ~$40k. Does that all sound legit?

    Secondly, to quality for a lease deal, do I *HAVE* to go with some bank/credit union/manufacturer bank? What if I have enough $$ to pay for the car outright, but just want to save the lease cash? Is there a way to get a 0% lease if the manufacturer isn’t offering one? I read something about some kind of deposit you can make (and then get refunded) which then charges you 0% for that portion of the lease?

    What’s considered a reasonable lease/loan rate these days? I can get 1.4% just letting my money sit, so 3.5% ends up roughly being like 2.1%?

    • 0 avatar
      FreedMike

      Any lease will have a guaranteed buyout, but that figure is at the *end* of the term.

      I’d say they need to disclose what the actual buyout will be – along with stuff like early termination fees – up front. Make your choice from there.

  • avatar
    cdnsfan27

    Bark, what is wrong with marking up the rates? The banks do it, why shouldn’t we? The last time I checked we were not a registered non-profit. We already don’t make money on new cars sales, make a little bit on pre-owned sales and parts/service.

    There is something seriously wrong when a business is asked to operate at a loss. Do you work for nothing? Why should we?

    • 0 avatar
      bking12762

      cdnsfan27-You are correct. And no matter how many regulations are in place for consumer protection, the uneducated ALWAYS pay more.

    • 0 avatar
      Garrett

      You’re not a bank.

      You’re acting as a broker.

      What is going on is akin to the good old YSP game in the mortgage industry.

      http://www.thetruthaboutmortgage.com/yield-spread-premiums-banned/

      Once you guys start disclosing as much info as you see when you get a mortgage these days, we can have an honest conversation.

    • 0 avatar
      Adam Tonge

      Every bank or credit union I have worked for has only marked up rates on direct loans for credit reasons. If your credit profile is better, you will get a better rate. Dealerships will give people with the same credit rating different rates because one accepts 4% and the other says they were able to get 3.49% from their credit union.

      We have regulators that look to make sure we are giving everyone with the same credit profile the same rate. I talked to some last month.

      We do indirect lending, but we do not allow the process that Bark is describing. That’s why we don’t do indirect auto loans. Only RV and ATV/Motorcycle/Snowmobile. There are less players in those markets and the dealerships are more focused on selling a unit than the finance portion.

    • 0 avatar
      FreedMike

      I don’t have a problem per se with my rate being marked up, as long as the markup amount is being disclosed to me.

      • 0 avatar
        Adam Tonge

        Right. It needs to be disclosed in the Truth In Lending disclosure. AND IN CLEAR AND PLAIN LANGUAGE.

      • 0 avatar
        bking12762

        Do credit card companies have disclose what the cost of their money is?

        • 0 avatar
          FreedMike

          No, but credit card lenders are direct lenders. Car dealers aren’t.

          In any case, the cost of money to a bank is public knowledge. It’s called the “Fed rate.”

          • 0 avatar
            Adam Tonge

            And rate tiers are credit based. If you have a 750 credit score and get a credit card with Capital One, you’ll get the same rate on that card as everyone else with a 750 credit score.

          • 0 avatar
            bking12762

            FreeMike-I guess I’m looking at it from another point of view. I’m trying to understand why the cost of a merchants product or service is any of the consumer’s business.

          • 0 avatar
            FreedMike

            I see what you’re saying, but keep in mind the dealer isn’t the “merchant” here – it’s not actually lending the money. It’s just acting as a broker for the lender. And the dealer has every right to make money on that, as long as it’s being up front about how much it’s making. From there, it’s on the buyer to decide if the offer’s acceptable or not.

            This kind of arrangement isn’t unique in the financing world. Mortgage brokers do the same thing the F/I office at the car dealer does – they arrange financing for you through their portfolio of lenders. Like a dealership, they also charge fees and mark up the rate, but they’re legally required to disclose those fees to you up front. If they mark up the interest rate, then by law they have to disclose that on your closing docs as “YSP” (yield spread premium).

            I don’t see why it should be all that different in the auto lending world – this is a reasonable approach.

          • 0 avatar
            vartan terian

            so any loan less than the fed is a good rate

    • 0 avatar
      notwhoithink

      “Bark, what is wrong with marking up the rates? The banks do it, why shouldn’t we?”

      There’s nothing wrong with marking up the rates, and Bark wasn’t arguing for that. He suggested that there should a) be a cap on how much the rate is marked up, and b) be a disclosure as to how much the rate is marked up.

  • avatar
    Kendahl

    Customers get hosed at the dealership because they are too stupid or too lazy to shop around in advance for financing. At the very least they could check with their bank or credit union.

    I’ve used dealer financing exactly once. When the F&I guy proposed his financing, I told him what I had arranged. He requested 24 hours to see if he could do better. He did through a local bank rather than one of the big auto lenders.

  • avatar
    JustPassinThru

    The lending business is a dirty one.

    No argument.

    Now…what happened to the old-fashioned, quaint concept, that loans were only made to adults who proved their credit-worthiness? And of credit-criminals having to go to Beneficial Finance or Buy-Here-Pay-Here?

    Why…between lawsuits and government regulations, it was RUBBED OUT! Now, we have the You-Gotta-Pulse-You-Getta-Loan policy.

    Thanks, in the end, to government.

    So…now we have half-wits with part-time Jack-In-The-Box jobs, signing on for cars they couldn’t CONCEIVE of paying, all the add-ons, all the mark-ups…and no, a lending officer can NOT say no. Because there might be a Syrian/Columbian/Martian in the family tree, and it becomes Ray Sissm.

    So. Government is supposed to clean this up? How, like it’s cleaned up the Student Loan program?

    Remember tobacco subsidies? That’s right. Government buying PSAs telling people not to smoke – while providing price supports to tobacco farmers.

    Playing both sides; and making both sides dependent on their every whims.

    No I don’t want Senator P….Senator Warren deciding how vehicle loans should be run. Her banking experience is a little light, as is her economic knowledge.

    • 0 avatar
      Adam Tonge

      If you want to make more money as a financial institution, you gotta lend to those subprime borrowers. You just have to make sure to do it wisely.

    • 0 avatar
      FreedMike

      I’ll blame the government when JPT provides evidence that a bank is legally required to make a loan to someone with bad credit. Good luck with that.

      Nope, this kind of financing exists due to good old fashioned market forces. There’s a demand for it and – voila! – there’s a supply. Capitalism in action.

      • 0 avatar
        Adam Tonge

        I’m fine with lending to people with bad credit. As long as it makes sense when we are talking Debt-to-Income and collateral value. I’m not going above 100% loan-to-value or a certain DTI percentage.

      • 0 avatar
        JustPassinThru

        How many lawsuits do we need to see, where credit criminals are denied home loans, car loans…because, they claim, they don’t match the Imperial Knights’ color-chip test?

        And who provides the court, and legal framework, and judges that order lenders, dealers, mortgage brokers, to DISREGARD history, employment, and other relevant factors simply because identity-politics agitators claim a lack of special treatment is discrimination?

        Remember the Community Reinvestment Act? REQUIRED a racial percentage of loans by mortgage brokers. Never MIND the creditworthiness. That was the seed of the Housing Crisis of 2008.

        Now, with pressure from government and zero-interest Federal Reserve money to member banks (all major national banks) and their affiliates…we’re expanding the Liar Loan program to autos.

        Because it worked so well before.

        This is simple conjecture. You can deny it; but the only one fooled is you yourself.

        • 0 avatar
          FreedMike

          Yep, here comes the CRA card, right on schedule. And it’s fake news.

          I know all about CRA loans, JPT. I processed them, and I underwrote them. They were used so that poor folks could buy $50,000 houses in a crummy neighborhood in Detroit. They had census-based income restrictions. A guy making a hundred grand and buying a $400,000 house in the ‘burbs didn’t qualify for one.

          Most CRA loans didn’t get approved, because they were primarily made to poor folks, and poor folks generally had poor financial histories.

          You can’t decline someone because of race. You also can’t approve someone because of race, on a CRA program, or any other program. There is no such thing as preferential racial treatment for these loans. Start that nonsense, and you’ll be drummed out of business in short order.

          Whatever dittohead media outlet you listened to on this one should have done some homework, JPT.

          • 0 avatar
            JustPassinThru

            You can sure argue you were “discriminated” based on race. Point of fact, it was because you were a credit criminal and a dumb schlub; but all you need to do is get a race hustler and twelve morons on a jury to agree, and you hit the McDonalds Hot Coffee In The Lap Lottery.

          • 0 avatar

            Hey JPT, you may want to rethink using the McDonald’s Hot Coffee Lottery reference, because 1. The person absolutely did not spill it on themselves on purpose (they had to have reconstructive surgery on their genital skin IIRC) 2. The large award for pain and suffering was reduced on appeal 3. The lawyers and corporate McDonalds pricks knew, and had been warned that their coffee pot settings were way too hot (reducing them from 200 to 160 or 180 or whatever the recommended settings were would have greatly reduced chances for anything but the mildest of burns happening on a spill)

            So once again, your argument falls completely apart if someone has the least bit of knowledge about the facts of a case you reference.

  • avatar
    eggsalad

    I took my current loan from my credit union without even shopping. I probably paid 1% more than I could have, BUT…

    1] Credit Unions have SIMPLE INTEREST loans. If you have any thought that you might pay more than the minimum, or pay the loan off early, simple interest loans can save you a TON of money vs. the much more common compound interest loan.

    2] Credit Unions are non-profit. In theory, at least, that means that the money they earn is shared with all the members.

    The dealer offered to find me a lower rate than the 3.24% I’m paying. I told them “no” and refused to give them my social security number.

    I don’t go to the bank to buy a car, why should I go to a car dealer to buy a loan??

    • 0 avatar
      jalop1991

      “I don’t go to the bank to buy a car, why should I go to a car dealer to buy a loan??”

      Because (a) the car dealer can lawfully sell you money, and–this is most important–(b) money is a FUNGIBLE. A car is not.

      I really, REALLY don’t care what entity sells me money. Money has no inherent quality difference from one loan to another. Two entities offer me $25K with a car as collateral; one is a local bank at 5% and the other is the dealer at 2%. Are you telling me that you’d never take the dealer’s 2%, all other things being equal???

      That’s insane.

      While I was shopping around for loans, I found Sun Trust. They would give me 2.89% to use to buy the car, but technically it was just a signature loan. They would not hold title in any way. Explicitly they said for me to keep the title, and that they had no lien on it.

      I didn’t take them up on it–my dealer found me 1.86%–but they were a strong contender, given that they would beat any other honest rated offer by 0.1%. I almost showed them the dealer 1.86%, but at that point I just wanted to get it done. Having it all handled at the dealership in one transaction offered a convenience I was willing to pay that 0.1% extra for at that low of a rate.

  • avatar
    chuckrs

    By all means, force some truth in lending disclosure requirements upon the car business. But do it while avoiding the CFPB.

    Couldn’t find this link on google but bing had it. Hmmm… Not complementary to the CFPB. Before you dismiss it at least look at the photos of the Class A space renovated at a cost of over $400/ft2. Did your house even cost $400/ft2 to build? Mine sure didn’t. These are the people who are supposed to look after the financial affairs of the regular citizenry? When CFPB collects fines, does the money go towards making the actual victims whole? No, it goes towards causes near and dear to the hearts of those who collected the fines.

    http://dailycaller.com/2018/02/07/cfpb-headquarters-tour/

    • 0 avatar
      spookiness

      Most houses are built of popsicle sticks and glue. To compare that to commercial construction in an urban area that’s not an outdated firetrap is apples to oranges. I clicked the link, and the spin is to be expected given the source. There is nothing about that building that is out of the ordinary or is outside of what tenants and employees expect in a decent office.

      • 0 avatar
        chuckrs

        In the late 1960s the Twin Towers were built from the ground up for $22/ft2. Using an inflation calculator, that is $238/ft2 in 2017.

        You really should read the link, as they compare the cost of Trump Tower to the the CFPB. Guess which is cheaper?

        Here’s a cut and paste from the link:

        “It’s also double the $227.64 per square foot construction costs for “Class 1 – Best Quality” of masonry or concrete government buildings as reported in the 2018 National Building Cost Manual, the Bible for construction cost projections.”

        FreedMike – If the Pentagon proper was renovated at the same rate per ft2, it would take a real chunk of the Defense budget ;)

      • 0 avatar
        chuckrs

        “There is nothing about that building that is out of the ordinary or is outside of what tenants and employees expect in a decent office.”

        In my 42nd year in business and the first 39 were in an un-renovated WWII era War Department building. Grade Z space. The last 3 years have been in Class B or C, light wood construction. Since when do all the amenities described in the linked article and shown in the photos constitute an expectation of a decent office? Those who believe so are out of touch with the vast region called the USA, outside the Acela bubble and West Coast enclaves.

        Also, my first house in New England, built in 1895, of popsicle sticks and sheeting – no glue, is still standing just fine. It is a short walk from a street of wood houses twice as old and 1/2 mile from the a pair dating back almost 3 centuries. My current house is, however, timber framed of #1 structural Doug fir lumber, so that does kind of show my distrust of glued sheathing and the like.

    • 0 avatar
      FreedMike

      CFBP needs reform badly, but it – or something like it – still needs to exist.

      And I’m sure the Daily Caller is all too glad to point out wasteful government spending no matter whose sacred cow is being gored.

      Cough…pentagon…cough…

  • avatar
    tinbad

    While we’re at it, can we just get rid of dealers altogether. Likely, the market will work it out as “middle men” in many industries are being cut out.

    Oh but dealer lobbies have bought laws in many states? Never mind.

  • avatar
    chuckrs

    I’m not in the market for a car right now. Thanks to Experian, I’ve locked access to my credit at four bureaus. When I feel the need for a new car, I’ll visit some credit unions and AAA (where I got my last two loans) having unlocked credit long enough for them quote me, then relock it. What ever will the car store F&I guy do?

    • 0 avatar
      jalop1991

      “When I feel the need for a new car, I’ll visit some credit unions and AAA (where I got my last two loans) having unlocked credit long enough for them quote me, then relock it.”

      Mine was locked; that didn’t stop any of the lenders I applied to very long. The final lender, Capital One, gave me the hardest time. It was a somewhat lengthy interview, some multiple choice and some freeform questions, to validate my identity. It was a phone call, and it lasted about 20 minutes.

      But that’s all they needed to verify me. No need for me to unlock anything.

      You do the math.

  • avatar
    S197GT

    what do the captive finance companies think about the dealerships that tell you to take the cash rebates, including the one from the captive finance co. for financing with them (in my case ford credit), and then immediately refinance with your credit union at a better rate if you can?

    i wonder if the ford dealer that sold me my new car financed me at higher rate (5.9 IIRC) than ford credit offered… thus getting more cash from ford credit. The whole time knowing i was going to get re-financed at 1.9% through my credit union that same month?

    • 0 avatar
      Adam Tonge

      Was you original loan with Ford Credit? That’s how the rebate thing usually works. You get the standard, non-promotional, rate for Ford Credit and they give you some cash. Ford Credit knows you are going to refi if you are a Tier 1 or 2 borrower. Its all about being the captive lender and moving a unit.

      Working at a credit union in the Detroit area, we do 100s of those refis a year.

      • 0 avatar
        S197GT

        yes, i got a $750 rebate for financing with ford credit. so my initial loan was with them and then refi’d right away.

        so you think ford credits actual rate was 5.9 and not something even a little less? i wondered if it was really 3.9 or something like that, and they gave the dealer a bonus for getting me to agree to 5.9.

        i figure ford credit knows a fair amount of people will refi. i do wonder if ford requires dealers to finance customers at the best rate ford credit offers, or maybe they don’t and they get enough people that don’t refi to make up for those that do…

        you never know what is really going on; only what they tell you.

  • avatar
    JMII

    Auto loans suck… but I just wanted to give a thumbs up to the Warren G reference.

  • avatar
    Der_Kommissar

    In one of my less sterling car buying moments, we had to replace a 2nd gen CR-V with a blown AC unit ASAP in the middle of big crash in the late 2000’s. It was summer in St. Louis and my wife was about to have our first baby, and I was under a direct order to get it done. I got a great deal on a base Highlander w/ a 3rd row, but I did not focus on the interest rate. The markup on our rate was so high, Toyota (or the dealer- I assume it was Toyota) actually lowered it after the first payment. I assume they marked up much more than they were allowed. Since then, I always go in with a rate that I tell them they can meet or beat. Even when I’ve made up the number they have always managed to meet it. No one, no matter how smart, wins every car deal across their lifetime.

    • 0 avatar
      S197GT

      i had the same experience. i told the mazda dealer where we bought our used cx-9 from that our credit union was offering 2.29% for 60 (at that time). they financed us through teachers credit union at the same rate. turned out it was actually 2.9 that our credit union had.

  • avatar
    PentastarPride

    I think that people need to take responsibility for their actions and educate themselves in personal finance. So many people sign away without knowing what they are signing and think that they are locked into only one option. They spend so much time shopping for the car but virtually no time for the financing. Do people even know they have choices? And why does the blame lie with the dealers (much as I loathe them)? Its just business, if the customer doesn’t seek better terms elsewhere for whatever reason, then it’s on the customer.

    I buy my cars (used) with cash and pay myself a car payment. However, my wife finances as she likes to trade up every five years or so. Before we even stepped onto the property of any dealership she secured preapproval through one of the many lenders offering excellent incentives. We spent a couple afternoons carefully evaluating all of the options, crunching numbers for each one and comparing the outcomes side-by-side, eliminating offers along the way. You don’t want to know what we did when we were shopping for our mortgage, but you know what? Simple things like that can pave the way for financial independence and it really is worth it.

    The F&I guy’s reaction was priceless when we mentioned that not on!y did we not want the extended warranty or various “upgrades”, but we had our own financing, especially since the lender we chose would save her almost $1600 over the life of the loan (five years not factoring in the early payoff) versus their offer which we reviewed for kicks and giggles. We were out of there in ten minutes. It felt good to show the guy that we weren’t the typical young couple that didn’t know how to play the game. We loved the challenge.

    • 0 avatar
      JustPassinThru

      Thank you for that.

      It DOES lie upon the buyer to know what he can afford; and what he wants to sacrifice. Back 18 years ago, buying a home…with my income at the time I could easily have justified a $200,000 mortgage.

      I didn’t want to be house-poor. I bought a country fixer-upper…five acre lot…owner built…for $49,000. Very comfy; and UNLIKE so many McMansions, it had real character.

      Likewise, cars. I haven’t borrowed for a car in awhile, but I have a bad addiction: Motorcycles. I bought one new a couple of years ago.

      The dealer, who I knew from having gotten my previous machine serviced, spent some time with me. I had good credit; but there were some options.

      I also had local credit-union membership. I walked in, got a quote; took it back to Scott, the manager of the dealership.

      He got me a loan a percentage lower, out of the same credit union.

      A little shopping around, helps a lot. So does a good credit score.

      That comes from paying your bills and being responsible.

      Which of course means you’re never in the spot of Suzy Subprime.

    • 0 avatar
      FreedMike

      You’re right, but even educated consumers benefit from knowing how much they’re actually paying for credit, don’t you think?

    • 0 avatar
      dwford

      The finance guys are under no obligation to offer any better a deal than they have to. It is when they purposely obfuscate the deal you are signing for that they should be nailed to the wall.

  • avatar
    Fred

    Last time I was shopping for a car I over heard several people come in and say “I can afford $400 a month, what can I get” Seems like you are setting your self up for a life time of debt.

  • avatar
    dwford

    Dealers don’t discriminate based on race. They discriminate based on customer knowledge and intelligence. Dealers have NO motivation to lose profit to give a better deal based on race. They will gladly maximize profit on ANYONE who lets them.

    • 0 avatar
      JustPassinThru

      False accusations abound.

      Also, there IS often some contempt of some customers. And if the contemptible prospect is of a sanctioned-protected race…cha-CHING!

  • avatar
    kvndoom

    I let them play their game because my credit union pays 1% on conquest refinance loans, and their best used car APR has been consistently less than 3%.

    Case in point… 2014 Elantra GT I just bought. Negotiated OTD price for a hair over $10k, happily signed their papers for 6.5% APR through Ally Financial. Waited for my statement, made the first payment, then refinanced through my credit union.

    2.4% APR and $99 deposited into my savings. Please don’t throw me in that briar patch.

  • avatar
    Vulpine

    More than once I have made the purchase at the dealership and turned right around to my own bank or credit union to refinance, very often at a much lower interest rate AND putting the bite on both the dealer’s bank and the dealership itself. All you have to do in most cases is make one single ‘scheduled’ payment and then simply pay it off with the second bank’s re-fi. I’ve typically found that with the much lower rate, the payment itself is well below what the dealership pushed.

    Oh, and no matter how many times they ask, I do NOT tell them how much payment I can afford. I always ask how much the cash price is, negotiate the trade (if there is one) and then talk payments when it’s time to sign on the bottom line. I still end up saving on the re-fi.

  • avatar
    baggins

    I’ve had loans from the Ford Motor Credit (2002), Toyota Financial Serices (2004) and Honda Financial Services (2011), and all were simple interest loans.

    Cant speak to more recent loans or traditional bank loans, but I’ve never had a compound interest auto loan.

  • avatar
    TW5

    To agree with Senator Warren, particularly as it relates to regulations issued by the Consumer Financial Protection Bureau, is to admit to egregious and felonious misdeeds. I know we have a dozen scandals, both real and imaginary, percolating in the press right now, and it’s difficult to keep them all straight, but people should at least have heard about the rot at the CFPB.

    The CFPB was so corrupt that the Trump admin had to sue to get Mick Mulvaney installed as director because rogue bureaucrats filed an injunction to give them time to destroy evidence and cover things up. Now there are reports surfacing that government computers are missing (no surprise) and, of course, Warren is knee-deep in the muck. The missing equipment is perhaps the most innocuous of the bad stories about the CFPB.

    But enough about politics. Morally-speaking and economically-speaking, consumers need transparency to make the correct decision. Personally, I don’t want oversight because lending tactics are how I rake the system over the coals on the rare occasion I buy a new vehicle. I fight like hell for trade-in value and MSRP reduction. Then I cave in the financing room, and I pay the entire note shortly thereafter.

    I like walking into a dealership and letting them think I’m just another mark. It makes them very easy to manipulate.

  • avatar
    ajla

    This is surprising because everyone I know gets approval on a loan before visiting the dealer. Even the Moldovan strippers have their financing figured out beforehand.

    I thought it was common practice.

    • 0 avatar
      rpn453

      When I’m pricing out trim level and options on the manufacturer website, there are always financing options presented in the build and price section and the rates are always very low; particularly for the 24 to 36 month financing, but the 48 and 60 month financing is usually reasonable as well.

      I’ve never thought that anyone would need to go any further than that. Do manufacturers not provide these financing options in the U.S.?

  • avatar
    28-Cars-Later

    “The best we could get you approved for is 6.9 percent, but luckily that still fits your payment that you told your salesman that you could afford.””

    Its a Festivus miracle!

  • avatar
    Master Baiter

    You had to torture us with a picture of Fauxcahontas?
    .
    .

  • avatar
    scuzimi

    Seems rather simple….Went to my Credit Union, got approved for a loan of between 20k to 35k amount at 2.9%, went to the dealer and bought my X Trekking Plus. Easy Peasy. The dealer was giving a $9500 discount walked out at $23k!

  • avatar
    CincyDavid

    “And rate tiers are credit based. If you have a 750 credit score and get a credit card with Capital One, you’ll get the same rate on that card as everyone else with a 750 credit score.”

    There are nuances there too, beyond that 3 digit number. Age of accounts, utilization, inquiries,etc…different ways to get to that magic number, and some lenders are sensitive to inquiries, for instance. For that matter, Chase won’t touch me at all for a credit card because I ran afowl of their “5/24” rule…too many inquiries.

  • avatar
    HuskyHawk

    I pay cash unless I get 0% financing. End of story. I’m not paying interest to any of these people.

    But like you, I agree there needs to be more awareness and disclosure about this. And I reluctantly agree with my Senator, who I cannot otherwise stand.

  • avatar
    cpthaddock

    Congratulations, Mark! The reality based community urges you to continue this journey towards us and welcomes these tentative steps away from the realms of absurd right wing trollery!

  • avatar
    JimBot

    Mark,

    Well written and concise article, and frankly this sentence sums it all up so nicely.. “The best thing about this legislation, however, is that it would force the National Automobile Dealers Association to have to lobby against it, exposing them for the snakes that they are.”

    Lobbying firms in general, as well as the senators that ally with them ARE snakes, and so are the companies that employ them. Rarely is a time when a company has anything but their own profits in mind, they hire a lobbyist, the lobbyist and the company WRITE THE LAW – and they find a senator to push it on some BS platform that makes no sense. I work in state government, and I always say if people REALLY knew how the sausage was made … look out.

    I’m going to actually say this, as absurd as it sounds; The government, at ALL levels (Local, state, federal) is in fact.. run by the corporations, man.

    JimBot

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