Most people have to finance a car when they purchase one because few have cash to buy one outright. That said, be very careful with subprime auto loans as there are a lot of unscrupulous practices.
Bank voted worst in Britain
According to MSNBC, Banco Santander S.A., the largest bank in Europe, is currently facing a number of class-action lawsuits for allegedly illegal actions in dealing with people whose subprime auto loans were purchased by the bank.
People whose car loans were bought by Santander have reported a number of horror stories. Besides abusive debt collection practices, Santander allegedly bought people’s loans from other lenders and then retroactively charged them for late fees that were already incurred and paid, assessing interest and cascading the fees until the bill reached thousands of dollars.
One man was never notified of Santander buying his auto loan and he kept sending payments to the original lender. Santander claimed it never received them. The bank repossessed and auctioned off the man’s car. Santander received more consumer complaints than any other bank in Britain and its native Spain. It was voted the “worst bank in Britain.”
Careful when getting auto loans
Many auto lenders, including typical banks and credit unions, are perfectly legitimate. However, there are corrupt practices within the auto and auto lending industry, especially when it comes to subprime loans. Subprime auto loans are often high interest, lent to people with bad credit and almost always for used cars.
What many people don’t understand, according to Jalopnik, is that auto dealers and auto loan lenders make deals to split profits on loans; if a salesperson can talk a person into a higher interest rate than they qualify for, the lender and dealership split the profits. Consumers are estimated to lose $20 billion per year to this trick. It’s illegal for mortgage lenders.
There’s also a trick called the “yo-yo.” The yo-yo is where a dealer sells a car and then calls the buyer within a few days, saying the loan fell through. Once the customer returns the vehicle the dealership, the dealer will offer a much higher rate on the loan. Victims of this scam often are told their trade-in has been sold, leaving them without transportation.
Big market segment
According to Time Magazine, credit reporting bureau Experian found that more than 36 percent of auto loans were subprime in 2009. By this year, according to MarketWatch, it has dropped to 22 percent.
People with poor credit who are looking for an auto loan should not stand for abuse. If any of the above things occur, they should discuss it with a lawyer.
Buyers should try to finance car loans with their own banks before going through the dealer. Banks and credit unions usually have more reasonable rates than dealerships.