These days, consumers seem far more eager to take on new credit than they were even a few years ago, and this seems to be particularly true with regard to auto loans. As such, the federal watchdog agency in charge of protecting consumers from problematic practices recently announced it was stepping up enforcement of rules related to how lenders extend this kind of credit.
Today, the average auto loan for a new car is up to $26,691, meaning that consumers seeking a vehicle are likely to take on a significant amount of credit to cover the cost, and the U.S. Consumer Financial Protection Bureau is now doing more to protect borrowers from discriminatory lending practices, according to a report from the agency. This is true because of the trend in which auto dealerships connect customers with third-party lenders, such as nonbank institutions.
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This type of lending, known as “indirect auto financing” usually involves an applicant turning over a significant amount of personal and financial data, which is then assessed for risk, the report said. That, in turn, is used to set the interest rate the borrower would pay over the life of the loan.
However, the CFPB has discovered that some of these lenders use some information discriminatorily — meaning that they might take into account information like the race, religion, immigration status, sex, marriage status, and even whether a buyer receives income from government programs — when making a decision about the interest rates they set, the report said. This is a violation of the Equal Credit Opportunity Act, and those who engage in such practices may now be subject to heavy regulation from the agency itself.
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It may also be helpful for consumers who are in the market for a new car to do a little shopping around when it comes to finding the most affordable financing available. Checking not only with what a dealer offers for loan terms, but also those from banks, credit unions, and more can help to give an idea of what a reasonable rate is for a person with their credit standing, and also help to identify the best possible deal available to them at the time. This will, in turn, help to make the financing more affordable over the entire life of the loan.
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