Used Car Loan Legislation May Hurt Dealerships

May 19th, 2009 @ 4:27 PM by Alden Smith

In an interesting article on the News and Record of Greensboro, North Carolina, website, there is discussion on used car loans in financing.  Right now, with the way the economy is, getting a loan of any kind can be a tough proposition.  Getting a used car loans can be a nightmare experience. You have no way of knowing , really, if the deal that you’re getting on a car loan is the best that you can get.  Used car dealers shop loans for new and used cars to a variety of banks on a regular basis.  You have no way of knowing if you’re getting the very best in interest rates, because the car dealer has no obligation to tell you.

Finance companies can frequently offer a “dealer reserve”, which is an incentive to a car dealer to put you into a higher-priced loan.  Currently there is a bill sponsored by Representative Dan Blue, of Raleigh, North Carolina, Democrat, that’ll do away with these types of loans.

These questionable loan practices can cost car buyers hundreds of thousand dollars over the life of the loan.  Even if you have excellent credit, and qualify for a 0 percent interest rate, you often end up paying 2% for a used car loan.  If you have less than stellar credit, you can expect to pay anywhere from eight to 12 percent interest on a used car loan.

Car dealers are not happy with this new legislation.  It is well-known that Chrysler and GM are eliminating a lot of car dealerships, and the auto industry over all is in a world of trouble.  The argument on the part of the car dealers is that you are not required to use the dealers financing plans, but instead can go to the credit union or bank to get a loan.  Common sense would tell us that this is where we would go to begin with.

Some of the stipulations of the new legislation would require dealers to be more upfront with the cost of ancillary items that are sold with the vehicle, such as rustproofing and other warranties.  Dealers would also be required to take back any car and return to the customers their trade in if the final terms are different than what they were at time of signing.  Be wary of any dealer that makes a tentative deal and then allow you to drive the car off before the final processing is finished.

It’s common knowledge that car dealers are being increasingly squeezed in making less and less profit on the sale of their cars, changes in financing and other services could very well drive some dealers out of business.  But the bill’s chief author, Representative Blue, said that the provisions he has authored are not final, and was offered mainly to start a discussion on the practice of financing by car dealers.  Blue said that “we don’t want to hurt their business.  But we don’t want them to cheat people, either, and I think they understand that ultimately, we have to look out for the consumer interest.” In the final analysis, taking care of the consumer is a good thing.  With our economy the way that it is currently, they can no longer be “business as usual.”