ATLANTA — Channel 2 Consumer Adviser Clark Howard warns that not shopping for financing before shopping for a vehicle could harm your financial future.
We spoke to a Lawrenceville woman who knows all too well the danger of financing at the dealership.
“The payoff amount is $100 more five years later than what I purchased the car for,” she told Channel 2 Action News. The bank told her that’s what she’d signed up for.
Channel 2 looked at her contract. The loan is held by Santander Consumer USA. Her interest rate is 26.76% for 72 months, and the total amount financed was $15,100. At the bottom of the document in the fine print she also agreed to pay 26.76% interest per annum, which mean Santander was able to tack thousands more onto her loan each year.
“I think they’re crooks. I think they’re absolute crooks,” she said. “I think it’s unfortunate that they have to do the consumer like that in order to, you know, to stay in business.”
We reached out to Santander about her loan and were sent the following statement.
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“While privacy laws prevent us from discussing this account in detail, we can tell you that every Santander Consumer customer receives fair disclosures that meet all regulatory requirements and outline the customer’s loan terms, including the amount financed, the total monthly payment, the Annual Percentage Rate of interest, finance charges and total number of payments.”
In May, Santander settled a $550 million lawsuit with 34 states including Georgia. The lawsuit claimed Santander violated consumer protection laws by approving loans that put the consumer at a high-level risk of default.
According to a 2019 FICO survey, 63% of U.S. car buyers apply for financing at the dealership.
Clark said always shop for financing before you ever set foot on a car lot.
Michelle Corson agrees. Corson founded the Dallas, Texas nonprofit “On The Road Lending” to help people avoid high interest rates.
“We’ve seen interest rates as high as 28%,” Corson said.
On The Road is a character-based lending service, which means instead of looking at the individual’s credit score, they instead look at their finances and help them budget for the car they can afford. Every loan is funded at 9.75%.
Corson told Channel 2 that’s about 60% below market value for what their clients would normally face.
On the Road is available in Georgia, Texas, Alabama and Mississippi. All loans are funded through grants. Applicants must take a series of online financial courses before approval.
“They also have to agree to work with our financial coaches. And that involves telling their story that involves reviewing their credit report helping to establish a budget and a monthly cash flow, when does money come in and when does it go out,” Corson explained.
Denise Bridges recently financed her 2019 Camry through On the Road. She said it wasn’t until she got older that she realized the importance of understanding her finances.
“I’m like, ‘Oh, I need no credit, you know,’ and then as I got older, well, I don’t have anything to show for what, what I’ve had or what I’ve gained,” she said.
Now she encourages others to stay on top of their money.
“As far as any bills, or anything that you have, always pay them on time if you can pay the full amount,” she said.
The Santander loan holder agrees, and told Channel 2 reading the fine print is key to avoiding situations like hers.
“Make sure you ask questions, make sure you weigh it out. And just be careful,” she said.
Clark agrees, but takes it a step further by encouraging consumers to pay for their vehicles with cash if their credit will not get them a loan they can afford.
“It’s not going to be a fancy vehicle, but you will own it and you’ll never find yourself in a situation where you’re upside-down paying forever and worried about the repo man,” Clark said. “I want you to be the boss of your own wallet and be really careful anytime you go shopping for a vehicle. If you don’t arrange that financing in advance, you’ve got a great chance you’re gonna get burned.”