Vehicles

Buying a Vehicle

Purchasing a vehicle can be an overwhelming task. There are some things you should do before you arrive at a dealership. Do some research:

• Determine how much you can afford to finance and spend on a monthly payment.
  
• Get a copy of your credit report so you are aware of what creditors will see. A free copy of your credit report is available at www.annualcreditreport.com or you can call toll free: 1-877-322-8228 or for hearing impaired consumers, TDD service at 1-877-730-4104]. Errors or accurate negative information can impact your ability to get credit and/or your finance rate.
  
• Don' t spend more than you can afford. It is easy to get carried away.
  
• Know how much your trade is worth (if you have one) and know the value of the vehicle you are purchasing. Information can be found in auto buying guides, the Internet, your bank, and other sources.
  
• Compare current finance rates being offered by contacting various banks, credit unions or other lenders. Compare bank quotes and dealer quotes and know any limitations on the rate (e.g., only available on late model cars)
  

When Visiting the Dealership:

• Stay within the price range that you can afford.
  
• Negotiate your finance or lease arrangements and terms.
• Consider carefully whether the transaction is best for your budget and transportation needs.
  
• Understand the value and cost of optional products such as an extended service contract, credit insurance or guaranteed auto protection, if you agree to purchase. If you don' t want these products, don' t sign for them.
  
• Don' t feel pressured to make a decision. Ask to take the paperwork home to review.
  
• Always check the vehicle' s history before buying.
  
• Read the contract carefully before you sign. Don' t sign if it contains any blank spaces.
  
• Take a copy of the contract and all documents you signed with you when you leave.
  
• If you decide to consider dealer financing, get copies of the financing documents before you sign so that you can comparison shop for financing from other sources.
• If the financing terms change after you agree, you have the right to walk away from the deal without penalty. Yo-Yo Sales Information.

SPECIAL CONSIDERATIONS WHEN BUYING A USED VEHICLE

Buying a used car is a way to get a good car at a reduced price. However, since the car has had a previous owner, a smart consumer should pay close attention to the history of the car and be aware of the possibility of extra repair expenses.

Buyer' s Guide and Previous Damage Buyer Notification Form
When purchasing a used car, federal law requires that a used-car dealer post a Buyer' s Guide on the window of the car. The purpose of the Buyer' s Guide is to tell consumers if the car is sold " as is" (that is, sold with all defects, known or unknown) or if the car comes with a warranty. While an individual who sells a single car is not required to post a Buyer' s Guide, dealers who sell six or more cars a year are required to do so by law.

In addition, if the vehicle has ever sustained more than 70% damage (" totaled" or " salvaged" ), the vehicle must be titled with a " Damaged Title" and if rebuilt, it must be marked " Previous Damage" and the seller must include a Previous Damage Buyer Notification Form. See Damaged Title Laws.

Important Buying Tips

• Check to see if the car comes with a warranty and, if so, what the specific protections are that the dealer or seller will provide. Remember, if you buy a car " as is" and have problems with it, you must pay for any repairs yourself.
  
• Ask to have the car inspected by an independent mechanic, or arrange an inspection yourself before you agree to a purchase.
  
• Contrary to popular myth, neither state nor federal law gives consumers a right to cancel a car purchase.
  
• Make sure you get any promises made by the dealer or seller in writing (for example, to replace a broken tail light). Verbal promises are difficult to enforce.
• Ask whether or not the dealer or seller offers an extended warranty or service contract. If you decide to purchase a service contract, make sure you understand what it covers and how long it will last.
  
• Inquire about any prior damage to the car and its repair history. Don' t automatically accept the seller' s response as accurate.
  
• Always test drive the vehicle.

Odometer Rollbacks
It is illegal to disconnect, reset, or replace an odometer for the purpose of changing the number of miles on it. Both federal and state laws give protection to consumers who suspect that they have purchased a car with a rolled-back odometer.

What is the Law?
It is illegal to tamper with an odometer. It is also illegal to sell, use, or advertise any device for tampering with an odometer. Additionally, it is unlawful to operate a vehicle with a disconnected or non-functional odometer with the intent to defraud.

When a vehicle is sold, the seller must give the buyer a written odometer statement disclosing the following information: the vehicle' s true mileage at the time of transfer; the date of transfer; the buyer' s and seller' s names and addresses; the vehicle' s make, year, body type; and the vehicle identification number. If the seller knows that the mileage has exceeded the mechanical limit of 99,999 miles, he or she must provide that information to the buyer.

Financing a New Vehicle
Most consumers need financing to purchase a vehicle. Some buyers obtain a loan directly from a finance company, bank or credit union. In that situation, the buyer deals directly with the lender, agrees to pay the amount financed, plus an agreed-upon finance charge, over a period of time. Once a buyer and a vehicle dealership enter into a contract, the direct lender pays the dealership for the vehicle.

Often dealers encourage buyers to use " dealership financing." In this arrangement, the dealership presents the buyer with the terms of the financing agreement. The dealership may retain the contract, but usually sells it to an assignee (such as a bank, finance company or credit union), which services the account and collects the payments.

Information and Tips on Auto Financing at the Dealership

If you, like many people, buy a new or used vehicle and decide to finance your purchase through the dealership, you might end up paying more than necessary for the loan. Even though your credit history may qualify you for a lower interest rate from a lender, dealers may mark up interest rates and profit from the increased rate. In those instances, buyers are seldom told that the lender actually approved financing at a lower rate.

What Is The Problem?

Car buyers in Arkansas who finance their new or used vehicles through auto dealerships can be unwitting victims of unfair and discriminatory financing practices.

You might be paying more than you have to for auto financing, as much as several thousand dollars more. Even though you qualify for a lower interest rate from the lender, auto dealers may increase the rate, charging you more - often without telling you.

The practice occurs when you arrange financing through some auto dealerships. Using your credit report, the dealer contacts a lender and obtains an interest rate - this is known as the Buy Rate. This is the rate at which you are approved for a loan based solely on your creditworthiness. In many instances, the dealer then adds a markup to the Buy Rate originally offered by the lender and quotes that higher rate to the buyer. The dealer typically receives 70 to 75 percent of the markup as an additional payment from the lender.

When this happens, the car buyer is led to believe he or she is getting the best rate, based solely on credit history and that the dealership is searching for the best rate for the consumer. But what' s really happening is that the dealership is searching for the best deal for the dealer and the buyer is paying a higher interest rate imposed by the dealer, instead of the rate offered by the lender.

Because the law does not require the Buy Rate or hidden markup to be disclosed to the car buyer, dealers rarely provide this information to the consumer.

THE MAKING OF A HIDDEN MARKUP

1. Carla Carbuyer decides to purchase an SUV from a dealership, Markup Motors, for $25,000.
   
2. Carla Carbuyer opts to finance the SUV through Markup Motors who then contacts a lender to review Carla' s loan application.
   
3. Based on Carla' s credit history, the lender tells the dealer it will provide a 72- month loan at 8%. This lender approved interest rate is known as the Buy Rate.
   
4. Without telling Carla, Markup Motors increases the interest rate by an additional 4%.
   
5. Then Markup Motors tells Carla that 12% (Buy Rate + the dealer markup) is the best interest rate she can receive.
6. Markup Motors never tells Carla that she actually qualifies for a much lower interest rate. And Carla never learns of the hidden markup that ultimately will cost her an additional $50.42 per month and a total of $5,780.11 additional in finance charges over the life of the loan.
   
7. Markup Motors receives 70-75% of the hidden markup as a kickback from the lender. So, this scheme results in $2,513.17 to $2,692.68 of pure profit for Markup Motors
   
8. Extra Cost to Consumer: $3,590.24

WHO DOES THIS HAPPEN TO?

Unfortunately, it can happen to anyone. National studies have found about one in four consumers who get loans through a vehicle dealer are victims of this practice (Consumer Federation of America).

CONSUMER TIPS FOR FINANCING YOUR VEHICLE PURCHASE

• Take the time to Shop for the Lowest Finance Source before you Shop for a Vehicle.
  

You should get financing quotes from your local bank, credit union, and even Internet-based lenders. Get a free copy of your report by calling (877) 322-8228 or applying online at www.annualcreditreport.com and know your credit worthiness. By obtaining your credit reports and shopping for the lowest financing sources, you can protect yourself from being charged an unreasonable and unnecessarily high interest rate.

• Dealer Arranged Financing - Get the Buy Rate

When a dealer arranges financing, the interest rate can include hidden markups that are not based on your credit-worthiness.

Some dealers will never disclose the lowest rate for which you qualify, known as the Buy Rate, or the amount of money the dealership is making for arranging financing. Ask the dealership to disclose to you, in writing, both the Buy Rate and the markup.

• Compare Available Rates

You should compare the dealer-quoted interest rate with financing quotes from your local banks, credit unions, and the Internet, and choose the lowest annual percentage rate and the lowest number of payments you can afford.

Other Federal Laws may protect you.

Truth in Lending Act - requires that, before you sign the agreement, creditors give you written disclosure of important terms of the credit agreement such as APR, total finance charges, monthly payment amount, payment due dates, total amount being financed, length of the credit agreement and any charges for late payment.

Equal Credit Opportunity Act - prohibits discrimination related to credit because of your gender, race, color, marital status, religion, national origin or age. It also prohibits discrimination related to credit based on the fact that you are receiving public assistance or that you have exercised your rights under the federal Consumer Credit Protection Act.

Leasing A Vehicle

If you are considering leasing or entering into what is often called a Smart Buy, you should fully understand the terms of the contract.

For information on leasing, see

http://www.ftc.gov/bcp/conline/pubs/alerts/lease.htm and
http://www.federalreserve.gov/pubs/leasing.