Dealers Often Add Thousands in Undisclosed Interest to Auto Loans

Dealers often markup auto loans by 1-2% without disclosing this information to customers. This is not illegal but it often means you can get a better deal going right to a bank or credit union.

Watch out for loan fees when getting a car loan from a dealer The NY Times just published an informative article (Scrutiny Over Disparity in Loan Fees at Auto Dealerships by Rachel Abrams) that once again makes it clear that getting a loan from a dealer without shopping around first is a bad idea. Dealers offer convenience, but you often have to pay dearly for that feature if you are not careful.

When you get a loan from a dealer, the dealer has the ability to mark up the interest rate in order take a cut for himself or herself. This markup can often be in the form of an additional 1-2.5% in the loan rate. So, while the original loan might be quite low, the markup can add thousands of dollars to the cost of the loan.

Borrowers with lower credit scores are often the ones most vulnerable to higher fees and markups. Often, the borrower isn't even aware that they are being charged a mark-up as it is not clearly disclosed in the lending documentation and dealers are not required to disclose it as part of the loan process.

“Individual consumers usually don’t even know that they’ve been marked up,” said Rosemary Shahan, the president of Consumers for Auto Reliability and Safety, a nonprofit consumer advocacy group.

The article ends with what is common sense to regular users of BestCashCow:

"Mr. Metrey and consumer advocates do agree on one thing: Consumers should shop around for loans before they walk into a dealership.

'The main defense for someone is to come in with multiple offers,' Mr. Kukla said. 'And even then, it’s not foolproof.'"

Consumers should not only question the dealer offer and be sure to read the fine print and legalesse, but do a bit of research beforehand. BestCashCow data shows that credit unions often have very competitive interest rates and provide a low stress way of investigating the car loan process. Because credit unions are not profit driven, they also strive to make sure their members get the right loan at the right rate for their needs.

Compare auto loan rates from banks and credit unions in your area.

Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee

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