Auto Loans: All You Need To Know From Consumer Reports’ Investigation
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- Consumer Reports investigation into auto loans reveals that borrowers are overcharged for their auto loans.
- The average new car loan payment is $600 per month, up 25% from $450 ten years ago.
Consumer Reports (CR) launched a year-long investigation into auto loans and the findings are bad news to any current and prospective borrower. A terrifying number of people are significantly overcharged for their car loans and Consumer Reports has factual data to back this up.
Increasing Car Prices Lead To increased Auto Loans
It is given that the price of both new and used cards has increased significantly over the last 10 years, particularly in the last 18 months due the effects of the Covid-19 pandemic. Therefore, as vehicles become more expensive, car buyers are force to take auto loans and lenders are ready to charge an arm and a leg for the money.
According the CR October 27 report, the auto loan industry is wilder than ever. Here is what you need to know:
- Most lenders do not have concrete guidelines that they follow before approving auto loans. Therefore, you may end up with higher costs and rates despite having an excellent credit score. CR gathered CR gathered its information approximately 858,000 auto loans from 17 lenders, as well as borrower data such as income and employment status, and credit scores. Its findings reveal that all borrowers were likely to end up with costly loans. It didn’t matter whether you were a subprime, prime or super-prime borrower. All borrowers received APR loan rages ranged between 0 and 25%. The report reveals that roughly 3% super-prime borrowers still ended up with expensive auto loans with an interest rate of 10% or more attached to them.
- Customers are not aware that they can negotiate the terms of their car loans with their lenders before signing up for it, or that they can even shop around for other lenders with better rates.
- A significant number of borrowers are spending more that 10% of their income on car loan repayment. Budget experts advise against this. 50% of subprime borrowers use as much as 10% of their income to repay auto loans. This is partly attributed to lack of underwriting standards, CR reports.
- Lenders verify the client’s income to confirm their ability to repay the auto loan only 4% of the time. This is a low verification rate because when lenders don’t do their due diligence about the customer’s creditworthiness, dealers end up with increasing repossession rates.
- The average new car loan payment is $600 per month, up 25% from $450 tens years ago. These figures are likely to increase, as the supply crisis of new and used cars leaves buyers more eager to own a car, in mean time, the lenders and car dealers will continue to benefit.
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