SHOPSMART AUTOS – CUSTOMER INFORMATION – APRIL 1, 2021
Don’t take car until loan is final
Whatever the reason or however often deals change after customers take cars home, it’s clear that dealers aren’t the only ones taking a risk. Your trade-in can be sold, down payments lost and use of the newly purchased car could cost you a lot more than you expected if the bad outcomes other consumers have experienced happen to you. Which means taking a car home before the deal is done is a bad idea, no matter how much you want to and the dealer encourages you. “Dealers want to get you emotionally invested and financially invested in the car,” Manner says. Marv Eleazer, finance manager at Langdale Ford in Valdosta, Ga., says there’s responsibility on both sides in what he and NADA say are the rare cases when consumers may be subjected to yo-yo financing. “During the purchase, customers often get excited with that new-car smell and may not listen or note that the deal isn’t finalized, ” he says. “It’s incumbent upon the dealer to strongly emphasize the car is being delivered subject to final approval with a written notice confirming the terms of the delivery.”
How dealer financing works
After dealers run a credit report on consumers seeking financing, salespeople, finance or other managers often estimate what they can offer a person with that credit rating based on how much they put down, the length of the loan and other factors, Eleazer says. If that initial offer is acceptable to the buyer then the process goes a step further for an actual loan approval. Usually, such deals are approved within 15 minutes, he says. Buyers with low credit scores, however, often get a preliminary offer for financing that might be contingent upon proof of employment or other documentation, and getting these things may take some time. Then, the dealer will shop the loan to various financing sources to get that deal, and the amount of profit they hope to make on it, he says. In the meantime the consumer can take the car on a conditional basis. But if the consumer has delinquent credit or other issues with their application, the interest rate may be higher than discussed, and the dealer may need to ask for more money down or take less profit. In such cases, says NADA’s chief regulatory counsel for financial services Paul Metrey, signing a new deal “with a dealer in the conditional delivery situation … is completely optional. Typically, the customer is approved on the terms submitted.” Consumer advocates, however, say that buyers often believe they have little choice but to take a dealer’s new, less favorable, offer, especially after they’ve already driven the car and shown it to family and friends. The FTC won’t comment on its deliberations, but MaliniMithal, assistant director for financial practices, says that because auto purchase and financing is such an “expensive and complicated transaction … protecting consumers in the auto marketplace remains a top priority for the commission.”
How to avoid car financing problems:
1) Know your credit score and what’s on your credit report before applying for financing from a dealer or other lender sources. 2) Join a credit union and see what loan amounts, terms and interest rates you can get from there or from other lenders before you go to a dealer to buy a car. 3) Don’t bring the car home until it’s truly yours — that is, the deal’s sealed. 4) Consider renting if you have to have a car before the deal is final. 5) Check out resources, including the Center for Responsible Lending, the industry-based www.autofinancing101.org and the Consumers for Auto Reliability and Safety.
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