Auto Loan Markups!

[MarvBear]

Auto loan markups: Bad rap or a bad buy?

Source: Detroit Free Press

 

December 6, 2004 - When a dealership sells you a car or truck, how much should it get for helping you find the right loan and taking care of the paperwork? Is $26,000 over the life of the loan -- on top of the price of the new vehicle -- too much? How about $10,000, $5,000, or even $1,000, for that matter? This is a question that consumer groups, lawmakers and regulators in several states are now pondering after lawsuits against big auto lenders revealed that dealers secretly, and sometimes dramatically, boost the interest rates on loans they arrange for consumers, especially minority buyers. That has led critics to demand that such markups be capped or that dealers charge everyone the same flat fee for finding and processing a loan… http://www.freep.com/money/autonews/markups6e_20041206.htm

 

another

 

4 Out of 5 Dealers Say Flat Fees Are Inevitable

Source: F & I Magazine

 

Dec 7, 2004 -A new study says that 80 percent of dealers think lenders will adopt flat-fee policies within the next five years. The Rikess Group, an auto industry consulting firm, conducted the study along with accounting firm Dixon Hughes to gauge dealers´ attitudes toward a flat-fee dealer reserve. The companies surveyed 25 dealers and general managers and 12 finance managers, representing more than 230 franchised dealerships. According to the study, 80 percent of dealers consider flat fees between $350 and $600 to be fair to all parties… http://www.fandimag.com/t_inside.cfm?actio...k&storyID=14899

[aiken]

That is just another deceptive practice that too few people know about--and all the more reason to have your financing in place before you negotiate the deal--they cant scrw you then!

[Q]

That is just another deceptive practice that too few people know about--and all the more reason to have your financing in place before you negotiate the deal--they cant scrw you then!

<{POST_SNAPBACK}>

 

Exactly, I usually find the car I want look at the price, decide how much I want to pay for it, and call my bank and get the loan with check in hand. If they don't like it, then I get up and leave. I hate even stepping into a finance office at a dealership. Always turns into a squeezing a lemon contest.

[mk_378]

Commissions of various amounts are common from mortgage lenders to brokers. These are also not disclosed to the consumer. The amount relative to the amount of the loan is considerably smaller though. Also it seems that mortgage consumers are more acutely aware of APR and it's implications. It seems many car buyers don't pay attention to any terms other than the monthly payment. That is the real problem, not the way that commissions are paid.

 

Even with a flat fee system there will still be incentives for dealers to foist excessive APR's on unaware buyers. For example a lender could offer to approve a risky application if the dealer bundles it with another applicant who is well-qualified. The well-qualified customer would be charged a high APR. To the lender, the overqualified customer paying the high APR will subsidize the higher risk on the poorly qualified account. The dealer now gets to sell two cars instead of just one, so he has a strong incentive to do it.