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Editor’s note: This is the second installment of a two-part series on predatory auto loans. The first article ran in the April 10 edition of The Globe.
Most service members cannot simply write a check to buy a car. They need a loan. All too often, inaccurate credit reporting can prevent you from getting the loan you deserve. Furthermore, auto financing through a car dealer is a target rich, free fire zone for cheats, deceptive salesmen and predatory lenders. Here are some tools to avoid being victimized.
Deceitful, unfair antics associated with vehicle financing. Deceitful, unethical, illegal practices perpetrated by car salesmen in the financing of vehicles are common. These practices include, but are not necessarily limited to, the following:
Yo Yo Sales. In this predatory trick, you sign the purchase contract, give the dealer your trade in and maybe make a down payment as well. The seller lets you drive the car off the lot even though your financing is not “final.” A day or so later you get an ominous call; “there’s a problem with financing,” says the seller. He jerks you and the car back to the dealership, like a yo-yo on a string. He says that those low rates aren’t available to you, but how about a terrible loan at a terrible rate? You tell him to cancel the sale because he isn’t fulfilling his promise to get you the original loan. You want your down payment back and your old car, too. The dealer tells you that you’re not getting that down payment and besides, he’s already sold the trade in car. This practice is an illegal trick, a fraud designed to give the dealer a second opportunity to negotiate a deal with you. Contact your legal assistance officer, the consumer protection section of the state attorney general, and the Department of Motor Vehicles fraud inspector. Better yet, don’t ever drive a car off the lot until financing has been completed and finalized.
Bait and Switch Financing. The advertisement says that wonderful cars are available at great prices and interest rates. However, when you get to the car lot, you are told that you don’t qualify for that low interest rate or for that large a loan, but how would you like to buy this jalopy at 22 percent interest?
Fraudulent Financing Applications. That salesman wants to sell you a car, but what happens if you don’t qualify for a loan, because you have insufficient income, because you don’t even have a valid driver’s license, or because the size of the loan is completely out of whack with the value of the car? None of that is a problem for the crooked salesman, he just takes your driver’s license or LES or other documents, whites out the parts he doesn’t like and replaces it with phony information. Or presents a statement to the lender falsely stating that the car has additional options, artificially increasing its value. The documents are then faxed to your credit union or bank and, voila, you are approved for a loan. Three problems: First, there’s probably a good reason you don’t qualify for the loan-like you can’t afford it. Secondly, the loan is all based on fraud. There can be problems if the lender finds out. Maybe the lender decides to cancel because the application was all a lie. Then where are you? Thirdly, if you yourself knowingly assist the dealer to perpetrate this fraud, you may have civil or criminal liability, or both.
Product Packing. In this scam, the salesman tells you what your interest rate is, and then, when he calculates the monthly payments, he adds in additional products that greatly increase the cost: credit life insurance, disability insurance, gap insurance, and an extended service contract. Maybe he doesn’t even tell you about these products. Or he doesn’t tell you how much each of these items add to the cost, or he simply says they are extras that come with the car, never telling you that they are options you can choose not to buy.
Interest Rate Mark Up. In this extremely common trick, the dealer lies to you about the “buy rate;” that is, the interest rate that you qualify for based solely on your credit worthiness. Instead of charging the buy rate, the dealer throws on an additional three percentage points or more and tells you that’s the best rate he can get. The higher interest rate results in additional profits for the lender and the dealer and thousands of dollars more cost to the consumer. For example, the dealer contacts lenders and learns that you qualify for a loan at five percent interest. Instead of offering a five percent loan, the dealer tells you that you qualify only for a loan at eight percent interest. The dealer then finances you at eight percent, earning all the excess interest. Or the eight percent loan is financed through the lender that the dealer contacted, and the two of them split the excess interest. Avoid this trick by shopping around for a car loan, or, better yet, get pre-approved by a financial institution before going to the dealer finance office.
Your chain of command, your command financial advisor, and the legal assistance office can help you to get the credit you deserve and to combat the tricks of some car salesmen. The legal assistance Web site www.lejeune.usmc.mil/legal/ provides additional tips for negotiating a reasonably priced car for a reasonable interest rate.
