Consumer Alert: You May Be Paying Too Much For Your Car Loan

By on October 27, 2021 0

Here’s the bad news for buyers. The prices are still astronomically high. For example, used car prices have increased by more than 24% compared to the same period last year. So while prices may drop a bit, don’t expect them to drop to pre-pandemic levels.

If you need a new car, now is the time to plan. There are six days of the year that are the best time to hit the new parking lot – from December 26 to New Year’s Eve. But before you do, I must share the results of a comprehensive survey conducted by Consumer Reports.

CR has researched 858,000 auto loans, and the nonprofit has found that sometimes the terms of your loan have little to do with your credit score. They illustrated the point by pointing the finger at Californian borrowers. They were almost identical. The two bought a Chevrolet Trax. Both financed about $ 18,000, had incomes between $ 60,000 and $ 66,000, and had prime credit scores – that is, between 660 and 719. A buyer got a loan with an APR of 4.9%. This means that during the life of the loan, he will pay $ 20,448.

But the other car buyer got a loan with a whopping 14.1% APR. It’s like buying a car with a credit card. And over the life of the loan, he pays $ 27,540. That’s about $ 7,100 more than the first buyer.

Ian Ayres, an economist and lawyer at Yale University who studies these issues, says it’s all too common. He said he’s even seen consumers with scores of 720 or higher pushed into subprime loans with high APRs.

So what gives?

Experts interviewed for this survey often say that the rate you get is not based on risk; instead, it can be based on what the lender or dealer thinks they can get away with. A quote from RJ Cross, a tax and budget lawyer for the Public Interest Research Group, really struck me.

He said, “The funding you get has a lot more to do with your readiness to fight when you walk into the showroom than your financial history.”

So, what should consumers remember? Knowledge is power. According to Consumer Reports, here’s what you need to know before you go, your credit score, your budget, and stick to it. And perhaps more importantly, the rate you can get from another lender. If you get pre-approved for a car loan from your bank or credit union before you go, you have a good starting point for negotiations.

Want more great advice from Consumer Reports? Click here.


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