Now that the financial overhaul bill has passed both the House and Senate and been signed by President Obama, it will regulate lenders and their practices. Auto dealerships were left out of the bill.
The new consumer financial protection agency will not oversee auto dealers and the car loans they give to consumers. The New York Times looks at a few auto finance issues at the dealership and gives advice to car shoppers so they don’t get taken to the cleaners when negotiating their next auto loan or lease.
You think you’ve been approved for the auto loan, but get a call a week later from the dealer saying the bank didn’t approve the loan. The dealer then asks for a larger down payment or tells you that the interest rate has gone up. And if you don’t agree to the new terms, you have to bring the car back.
When shopping for your next car, be aware of dealership finance tactics that won’t be regulated by the new financial reform bill.
The NADA says many times there are errors on the auto loan or lease application, which would cause the lender to say no. But others say it’s simply the dealership bumping up the interest rate to make more of a profit on the transaction.
The New York Times suggests consumers get pre-approved for the car loan through their bank, credit union or private lender before heading to the dealership. Or simply don’t take the car home until you hear from the lender that your financing has been approved. You might have to wait a few more days, but won’t have to go through the embarrassment of returning the car if you get rejected.
Another thing that won’t be regulated by the consumer financial protection agency is the increase in auto loan rates through the dealership. The lender quotes a wholesale interest rate to the dealer, and then the dealer is free to mark it up by as much as 3 percentage points. This is one area dealerships make most of their profit.
The New York Times says the way around this is to come to the dealership with your own pre-approved financing. If the dealer can’t beat it, you’ve already been approved for a loan through your bank or credit union.
Another area for dealer profit that won’t be regulated by the new bill is add-ons. Dealers will try to include things like paint protection, rust-proofing and VIN window etching into your auto loan to earn more profit, especially if you have your own private lending.
These items are high-profit for the dealer, and are much lower in price when purchased separately from the dealership. The New York Times says to read through all of your paperwork extremely thoroughly before signing it to make sure there’s no extras added in, especially things like extended warranties.