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CFPB Unveils New Know Before You Owe Auto Loan Shopping Sheet
Monday, June 13, 2016 6:40 AM

Online Guide and Shopping Sheet Help Consumers Evaluate Costs and Shop for Auto Loans

The Consumer Financial Protection Bureau said it is unveiling an “auto loan shopping sheet,” a step-by-step guide and additional online resources as part of a new Know Before You Owe initiative aimed at helping consumers shop for an auto loan. The shopping sheet helps consumers see the total cost of a loan and make apples-to-apples comparisons among loan products.

The Know Before You Owe auto loan initiative also walks consumers through each step of the auto finance process to help them decide how much they can afford to borrow and what options are right for them.

“Consumers should feel like they are in the driver’s seat when it comes to financing their car or truck,” said CFPB Director Richard Cordray. “The CFPB’s auto loan shopping sheet provides a roadmap for consumers to navigate the complexities of a loan. Consumers should know before they owe when it comes to the total cost, not just the monthly payments.”

Review the Know Before You Owe auto loan initiative.

Automobile loans are the third largest category of household debt for American consumers, behind mortgages and student loans, with almost 100 million auto loans outstanding totaling more than $1 trillion. For consumers who do not purchase a home, an automobile loan may be the largest debt they will ever have to pay back. More than 90 percent of American households have a vehicle. And consumers obtain financing to purchase 86 percent of new vehicles and 55 percent of used vehicles.

Typically, consumers have obtained auto loans with 60-month repayment plans, but the length of the loans, and indebtedness, are increasing. Meanwhile, the average length of ownership of a vehicle by U.S. consumers is approximately 8 years. This means the auto budgeting and financing process is being regularly repeated by many consumers, with consumers still owing on loans after they are no longer driving the vehicle.

There are two primary methods of arranging financing for a vehicle purchase, often called “direct” and “indirect” lending. Direct lending is when consumers obtain financing from a bank, credit union, or other lender. Consumers using direct lending will usually get an interest rate quote or conditional commitment letter from the bank or credit union before going to the dealership to buy the car.

With indirect lending, also called dealer-arranged financing, consumers obtain lender financing through the auto dealership where they purchase the vehicle. The dealership usually collects information from the consumer and forwards that information to auto lenders. After the deal is finalized with the consumer, the loan may then be sold to the lender, which has already indicated its willingness to extend credit to the applicant on established terms. Indirect financing constitutes the majority of auto finance transactions. Independent research indicates that too few consumers comparison shop and only half of consumers who finance through an auto dealership negotiate the terms of their loan.

The CFPB’s auto loan shopping sheet can be printed out and used when talking to lenders. It helps consumers understand loan factors, compare loans apples-to-apples, and get the financing that is right for their budget. Specifically, the shopping sheet allows consumers to:

  • Understand the total cost of the loan, not just the monthly payment.
  • Comparison shop.
  • Watch out for financing features and add-ons that could lead to costly surprises down the road.

Review and Download the Know Before You Owe Auto Loan Shopping Sheet.

The auto loan shopping sheet is part of the CFPB’s suite of resources aimed at helping consumers shop for an auto loan. The CFPB’s additional Know Before You Owe auto loan resources include a step-by-step guide, tips, and red flags.

The Know Before You Owe initiative is aimed at educating consumers about the costs and risks of financial products so that they understand the terms of the deal and can comparison shop for the option that works best for them. The CFPB has also launched Know Before You Owe initiatives on mortgages, student loans, and prepaid financial products.