Know Your Rights When It Comes to Auto Loans
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It’s no secret that people depend on reliable transportation to get to work, go grocery shopping, and run essential daily errands. Most often, reliable transportation means owning a car, and that nearly always requires a car loan.
Car loan lenders make a profit by charging interest on the money they loan. These payments can be overwhelming on top of car insurance costs.
Borrowers with good credit can find decent interest rates for loans, but those with poor credit are often given the highest rates. Whatever your credit score, it is important to read the fine print and know your rights before signing off on your car loan.
Predatory car loan companies can take advantage of low-income borrowers | Twenty20
Beware of predatory car loans
An NBC News report on car loan companies highlights the struggles of some borrowers trying to get back on their feet in the wake of the COVID-19 pandemic. They especially focused on subprime loan companies that specialize in loans for borrowers with poor credit.
One of the largest subprime loan companies, Credit Acceptance Corporation, is under investigation by the Consumer Finance Protection Bureau (CFPB) and 43 states for predatory lending and collection practices. Last year, Credit Acceptance generated $1.7 billion in revenue and provided $55 million in stock grants to seven top executives.
Credit Acceptance recently settled a lawsuit for similar claims in Massachusetts for $27.2 million. The lawsuit claimed that Credit Acceptance made up to eight collection calls per day to borrowers that fell behind on payments. This aggressive practice far exceeds the two collection calls per week allowed under Massachusetts law.
Credit Acceptance offered some pandemic relief on car loans
Credit Acceptance says it stopped reporting on credit reports, suspended late fees, and temporarily stopped collection efforts like phone calls and repossessions for 90 days. However, they did not offer any payment reduction or deferrals. Following the 90-day grace period, customers are expected to resume normal payment schedules to avoid late fees and repossessions.
As the pandemic swept the nation, many car loan companies offered affected borrowers some economic relief by deferring payments and waiving late fees. According to Jonathan Smoke, chief economist at Cox Automotive, this relief led to the lowest rate of car loan defaults in 15 years.
Student loans and mortgages saw similar programs as well. But since car loans aren’t federally regulated, it fell to each company to decide whether or not to offer assistance.
Know your rights before getting a car loan
There are a wide variety of car loan companies available to the average consumer. Borrowers with a good credit record will have the most options and better financing.
People with a poor credit record will have to pay more for a car loan to offset the risk of nonpayment taken on by the lender. This is a reasonable business practice, but you should not be subject to predatory and illegal collection practices.
Look out for hidden charges that inflate the cost of a vehicle when you are taking out a loan. As important as it is to shop around for reputable financing, it’s equally important to know your rights if you find yourself in default on your car loan.
Collection calls are regulated by the state you live in and are limited to a certain frequency, specific hours of the day, and what they’re allowed to say. If you feel like you’re being treated unfairly or harassed by collection calls, reach out to the National Consumer Law Center or the CFPB to discuss your rights.
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