Oct 22 2008
Were you told that you had to pay a higher interest rate because your credit was bad?
Most consumers know that people with bad credit are generally charged a higher interest rate for financing. However, a surprisingly large percentage of consumers, including many auto customers, have no idea what their credit report looks like.
This lack of knowledge facilitates fraud. While most dealerships will deal honestly with customers, some dealerships will defraud customers by (falsely) telling them that their credit is terrible – as a way of justifying exorbitant interest rates. The scam makes sense: people are willing to accept interest rates if they think that the rate is based on their credit. Unfortunately, this is not always the case. In the last few years, various class actions have been brought (both nationally and in California) alleging that minorities pay significantly higher financing, even when the numbers are adjusted to statistically account for differences in credit. In short, minorities with equally good credit often pay more.
If you’re thinking of financing a vehicle through a dealership, you should consider taking the following steps:
(1) Obtain a copy of your credit report and be familiar with both your score and your credit history.
(2) Compare financing rates at local banks and credit unions. Many will offer competitive rates much lower than dealerships.
(3) Write down your expenses, go through your budget, and be clear on what you can afford.
(4) Go in knowing what interest rate is fair based on your credit history, the age of the car, and how long you are looking to finance.
(5) If the dealership makes any statements about your credit that you believe are questionable, ask to see your credit report.
(6) Remember that interest rates are negotiable, and that the rate quoted to you by the dealership probably includes a discretionary markup. Feel free to negotiate.
