Latest Auto Lending News
Here are the latest news in the world of consumer auto lending. Stay informed on the latest practices affecting the cost of your next car loan and vehicle.
- Regulators Scrutinize Auto Lenders Over Add-Ons
Wall Street Journal 03 May 2013
The Consumer Financial Protection Bureau has issued subpoenas to U.S. auto lenders over the sale of extended warranties and other financial products, expanding a civil probe that could put the brakes on the thriving vehicle-finance industry. Although such products are legal, regulators are investigating whether terms and costs -- which typically are built into the total purchase price -- are adequately disclosed...
- Edmunds.com: Cash for Clunkers Better Than High-Interest Car Loans
Los Angeles Times 11 Apr 2013
A recent investigation by Edmunds.com delved into the Buy Here Pay Here (BHPH) industry, which has been criticized for charging interest rates approaching 30 percent, requiring steep down payments, and repossessing vehicles at a high rate. In “The Debt-Free Car Project,” researchers purchased a 17-year old used Lexus outright, drove it for a year, sold it, and then compared the total out-of-pocket costs to a BHPH loan on a newer car...
- Car Dealers Fight Back Against CFPB Auto Financing Rule
American Banker 25 Mar 2013
Auto dealership advocates are warning that costs will rise for borrowers if the Consumer Financial Protection Bureau presses banks to curtail auto loan markups set by dealers. The red flag followed the CFPB's new bulletin that said banks are liable for discrimination if their partner dealers mark up the interest rates on loans for minority borrowers or otherwise violate fair lending laws...
- Consumer Bureau Warns Auto Lenders on Discriminatory Rates
Reuters 21 Mar 2013
The Consumer Financial Protection Bureau on March 21 warned auto lenders that they might be liable for breaking the law if they engage in a common industry practice that consumer advocates say results in higher interest rates for minority borrowers...
- Banks Brace for Looming Crackdown in Auto Lending
American Banker 18 Mar 2013
The Consumer Financial Protection Bureau is readying a crackdown on interest-rate markups that automobile dealers tack on to the cost of vehicle loans. Through a practice known as dealer participation, the dealer typically retains most of the markup -- which usually ranges from 2. to 2.5 percentage points...
- Credit Spigot Opening Up for Subprime Auto Borrowers
U.S. News & World Report 16 Jul 2012
Credit remains tight for most Americans, but auto financing is the exception. In recent months, consumers have found it increasingly easy and cheap to borrow money for vehicle purchases. New auto bank loans reached a seven-year high between January and March 2012, Equifax reports. The trend even applies to subprime borrowers. "The feeling is there is more loosening in auto lending than there has been and will be in other sectors of the consumer credit world," notes Andrew Jennings, chief analytics officer at FICO. The increase in auto lending is partly due to higher demand for cars and trucks to replace older vehicles. Additionally, auto loans tend to be less risky for lenders, with traditionally lower delinquency rates. Cars and trucks also are easier to repossess than homes. "It's not like a house where you stop making the payments and they take two years to kick you out of the house," explains Bankrate.com senior financial analyst Greg McBride. "You miss two car payments and it's not going to be in the driveway in the morning." However, even as borrowers with subprime credit have more access to credit, it comes with higher interest rates.
- Rate of Late Auto Loan Payments Sinks to Lowest Level Since 1999 in 1st Quarter
Associated Press 22 May 2012
The pace of late payments for auto loans fell nationwide in the first three months of the year to the lowest level in more than a decade, even though lenders have granted financing for more high-risk borrowers. For the 2012 first quarter, the rate of U.S. auto loan payments 60 days or more past due declined to 0.36 percent, about 27 percent lower than the same period of last year, according to TransUnion. That also is down about 22 percent from the fourth quarter of 2011. The latest rate is the lowest since TransUnion began tracking auto loan data in 1999. Auto loan delinquencies have been trending downward on an annual basis for the last 10 quarters in a row -- in part because, after the last recession, many borrowers opted to pay their car notes ahead of their mortgage, credit cards, and other debts.
- The Color of Money: Pay for Car With Cash, You'll Reap the Payoff
Columbus Dispatch (OH) 20 May 2012
While it may seem like common sense, some consumers are unaware that they can buy a vehicle with cash as an alternative to getting caught up in predatory auto financing. Edmunds.com recently announced the launch of its "Debt-Free Car Project," which aims to teach consumers to purchase a reliable used car for less than $5,000 in cash. The site editors developed the project due to concerns over "buy here, pay here" used car outlets. Consumer advocates have long criticized dealers who prey on vulnerable individuals by offering car loans at high interest rates. According to Edmunds, buyers are often working to save about $3,000 to purchase a reliable car. "We were thinking, 'Why don't people buy a car outright,'" said Ronald Montoya, Edmunds.com Consumer Advice Editor. "If they are putting down deposits of $3,000, then that's more than enough to buy a car that is reliable." As part of the campaign, Edmunds staff purchased a 1996 Lexus for $3,800. The team plans to track and write about the vehicle's performance over the next year.
- Returning Veterans Can Lower Credit Card Interest Rates
KSTP Eyewitness News ABC 5 (Minnesota) 16 May 2012
Although not widely known, the 2003 Servicemembers Civil Relief Act (SCRA) offers valuable protections for current and past members of the U.S. military. Under it, deployed veterans can serve out their missions overseas without worrying about finances. For example, the law prevents banks from foreclosing on veterans who are deployed. This applies not only during the active-duty period but also for nine months after. During this time, creditors cannot foreclose or repossess items from veterans without a court order allowing them to do so. The SCRA also caps loan interest rates at 6 percent while enlisted persons are on active duty, a limit that also applies to credit cards, auto loans, and business financing. Veterans who send a letter to lenders to request the 6 percent cap, within 180 days of coming home, are entitled to a credit or refund if their loan is fully paid.
- Car Buyers Cautioned to Avoid Financing Scheme
Nooga.com 08 May 2012
Consumer protection agencies are cautioning auto buyers about a certain type of costly financing that can involve higher interest rates or bigger down payments. With "yo-yo financing," a consumer takes possession of a vehicle before the financing process is completed. This is an offshoot of the "spot delivery" process, in which the buyer can drive away with a car before the financing process is officially completed. "Spot deliveries aren't typically a problem," Carroll Lachnit, consumer advice editor for Edmunds.com, said. "But they are sort of a 'gateway' that unscrupulous dealers can use to pull a buyer into the yo-yo financing scheme." Problems occur when a buyer with poor credit does not actually qualify for a dealer's loan. If a car is purchased in a conditional sale, the buyer can drive off the lot; but sale terms are not finalized in the contract until the loan is approved by the dealership. If the dealership does not approve the loan, it can negotiate new, less favorable terms with the buyer. "Unscrupulous dealers use yo-yo financing to lull buyers into thinking that they have loans they can afford, but then pull a bait and switch for loans with higher interest rates or a bigger down payment or both," Lachnit said. A survey by the Center for Responsible Lending, conducted with legal aid groups that help consumers with auto buying problems, found that about 27 percent of respondents said their clients had experienced a yo-yo scam. Buyers can avoid the scam by receiving preapproved financing and by making sure every part of the deal is in writing. They should avoid signing anything "conditional" in the contract. Individuals with bad credit may want to try to improve it before financing a car purchase, or shop around for a car loan and have the financing settled before purchasing. Saving money and paying for a used car in cash can help avoid financing schemes completely.