Auto dealer exemption means first time car buyers must be wary

a sporty red car, mostly outside the frame

The auto dealer exemption in the financial reform bill means shady auto financing practices will continue. photo.

The financial reform bill that was signed into law this month included an auto dealer exemption. The auto dealers’ exemption allows them to escape auto lending regulation that could have prohibited many common deceptive auto lending tactics. To get a better deal, first time car buyers need to be aware of these practices. They also need to do their homework before they get auto financing.

Lower car payments, higher interest rates

AOL Autos reports that the auto financing operations at dealerships, not auto sales, have become their real profit generators. Car dealers ask their customers what kind of payment they want, not the car loan interest rate they’re looking for. Then the dealership maneuvers to fit customers into the car payment they desire, regardless of the interest rate. An interest rate one or two points lower could save a car buyer hundreds or thousands of dollars over the life of the car loan. Car buyers need to be careful working with an auto dealer on car loan for their next vehicle.

Know about your credit score and dealers’ interest rate deals reports that dealers are middlemen working with lenders who give them wholesale interest rates. Dealers mark up those rates by up to 3 percentage points. Some dealers take advantage of car buyers who aren’t aware of what car loan interest rate they qualify for by writing them a loan for a higher rate. Know your credit score and what type of interest rate it qualifies you for.

Get approved for a loan before going to the dealership

A good way to know for sure what type of interest rate you qualify for is to get approved for a loan before you even set foot on the car lot. However, The New York Times reports that if a car buyer shows up already approved for a loan, dealers will try to find some other way to make money off them. Dealers will try to sell window etchings and service contracts or disability and other insurance. They might even try to force buyers into these auto add-ons by implying that the add-ons are a condition of getting a loan or getting a good rate on one — which is illegal.

Don’t sign anything that says loan approval is a condition of the sale

The Times article mentions a tactic called the “yo-yo.” A buyer drives away in the new car only to get a call from the dealership a few days later saying the car loan wasn’t approved at the current interest rate and contract needs to be rewritten at a higher rate. This can be avoided by getting the loan beforehand. If not, says the buyer should ask the dealer to get finance approval from the lender first. It may mean a few extra days before driving away with new wheels, but it will be worth the wait.

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