Shop around for car loans before heading to the showroom

For many consumers, the great car deals in 2014 are the ultra-low auto loan rates combined with easier credit.

But saving real money will require digging through cryptic lingo for car loans, going beyond some wacky ads and even decoding some charges.

We’ve seen federal regulators in the past month highlight some ways consumers have gotten taken for a ride in the car-buying process.

In January, the Federal Trade Commission announced “Operation Steer Clear,” which cracked down on deceptive advertising. Get a postcard from a car dealer saying you won a prize at a dealership? Don’t bank on a fat check.

The Consumer Financial Protection Bureau also is taking issue with dealer markups involving car loans obtained at dealerships, bringing home the point that consumers need to shop around for loans before heading into the showroom.

For consumers, it’s essential to know these traps and tips.

•  Should I worry about being able to get a car loan?

Not really. Mark Zandi, chief economist for Moody’s Analytics, said auto lending had one of its best years ever in 2013, and lending should remain strong in 2014.

“Subprime auto lending is almost back to its prerecession levels,” Zandi said.

Overall, borrowers with good credit can expect to see rates below 4 percent on both new- and used-car loans, according to Greg McBride, senior financial analyst for Bankrate.com.

•  Take steps to lock up a loan before you take a test drive.

In December, the U.S. Department of Justice and the Consumer Financial Protection Bureau brought to light charges of discrimination in lending that allegedly took place through dealer markups regarding interest rates.

More than 235,000 African-American, Hispanic and other minority auto loan borrowers who dealt with Ally Financial were unfairly charged higher interest rates for loans on cars or trucks because of discriminatory practices, according to the federal regulators.

Ally Financial and Ally Bank were ordered to pay $80 million to harmed borrowers and pay $18 million in penalties relating to auto loans made between April 2011 and December 2013. In a statement, Ally said the company does not engage in or condone violations of law or discriminatory practices and, based on the company’s analysis of its business, it does not believe that there is measurable discrimination by auto dealers.

The lesson for consumers: Make absolutely certain to be pre-approved for a car loan before shopping for a car. Then, you have a better idea of what type of loan rate would apply to someone with your credit score, said Christopher Kukla, senior vice president for the Center for Responsible Lending.

Kukla pointed out that consumers don’t know what kind of extra compensation dealers might be getting on the auto loan markups.

“You’re paying the dealer for a service, but you don’t know how much you’re paying the dealer for that service,” Kukla said.

•  What if an ad looks too good to be true?

Consider that all might not be on the up-and-up.

The FTC said false claims made by some dealers drove consumers to believe they could keep super-low monthly payments until the car was paid off. But the payments were temporary teasers, after which consumers would owe a higher amount each month or perhaps a large balloon payment at a given date.

And the FTC said Fowlerville Ford in Michigan allegedly violated the FTC Act by sending mailers that deceptively claimed consumers had won a sweepstakes prize, when, in fact, they had not. The Michigan Attorney General’s Office said it received two consumer complaints regarding deceptive advertising regarding a sweepstakes win at Fowlerville Ford.

“Both citizens received mailers that had the exact same ‘winning’ numbers under the scratch-off portion,” said Joy Yearout, a spokeswoman for the office. “When the citizens went to collect their $1,000 prize, they were told they did not, in fact, win anything.”

Fowlerville Ford said it agreed to a consent order with the FTC because the cost of appealing would have been prohibitive, its attorney, Roy R. Hunsinger, said. The dealership said it stated the odds of winning a sales promotion contest in its program. The FTC concluded the disclosure was not specific enough, according to the dealership, but the dealership said no regulations had been published defining what kind of disclosure was needed.

•  The price of the car isn’t just a sticker on the window.

Consumers want to compare the going deals on similar makes and models by going to sites such as Kelley Blue Book at KBB.com.

But get a detailed breakdown of fees and features on a specific deal, too.

One consumer told me a few weeks ago that while considering buying an SUV, he spotted that he was charged for a full tank of gas, too.

“Oh, really? You’re going to take $30,000 of my money and you’re going to make me pay $60 for a tank of gas?” said Karl Brauer, senior analyst for Kelley Blue Book.

Spot an item like that one? Negotiate.

Susan Tompor writes about personal finance issues for the Detroit Free Press.

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