Reminiscent of the housing crisis, some car dealers in the U.S. appear to be fudging financial details to get borrowers approved. According to a recent article in The Wall Street Journal, inflating borrowers’ incomes so they can qualify for a car loan is a growing trend across the country resulting in some dealerships being sued by state and federal authorities.
It’s not just a matter of turning a blind eye when borrowers fib about earnings, but a proactive approach on the part of dealerships who concoct income numbers without ever tipping off customers who, more often than not, trust the dealer to dot the I’s and cross the T’s when submitting an application. Even borrowers who sense the numbers are not quite adding up – that the approval process is just too good to be true – might just bite their collective tongues in hopes of getting a needed car to get back and forth to work.
Of course, driving off the lot is one thing, but keeping up with payments that exceed a borrower’s means is another. Those taking out loans based on more income than they have often default on their loans within months of getting a car, subjecting them to car repossession and destroying their credit.
Why would a dealer sell a car to someone who cannot afford to make the payments? It seems to defy logic, but today, dealerships make their money arranging financing – taking a meaty chunk of the interest and fee pie. If a borrower defaults on a loan, it’s not the dealership on the hook, but the lender who can repossess the car and sell it again while taking the consumer to collections. Any uncollectible balances can be written off as a loss on taxes. A win-win for dealerships and the lenders, but not so much for the borrower who now has no car, garnished wages, and a black eye on their credit report.
Knowledge is power and it can help consumers avoid the financial trap. Because over-extension often starts with a borrower not really thinking about what they can afford when shopping for a car, compounded by eager dealers trying to make it work, it is important to know what you can and cannot afford before setting foot on a dealership lot. Pay close attention to all details of the loan application, contacting the lender directly if you have questions. Take your time, control the conversation, so you can find the right fit.
For those already in a tight spot, who are at risk of losing their only means of transportation to car repossession, it may be worthwhile to consider bankruptcy protection to turn the table on aggressive car loan collection and provide a means to continue car payments. If you are in a difficult financial situation and are facing the prospect of car repossession, do not wait to seek help. Getting the information is the first step to decide if bankruptcy protection is a good financial strategy for you and your family. Contact Peoria bankruptcy lawyer Charles E. Covey for immediate assistance today at 309-674-8125.