Cheap auto financing

Automobiles are the most common nonfinancial assets held by American households.1 For most American households, car ownership is not a luxury, but a prerequisite to opportunity. Cars not only provide transportation, but also options for where to work and live, and how we interact with our community. As a result, both the affordability and sustainability of auto financing are central concerns for American families.
A car purchase can be a complicated endeavor. Negotiations on the sales price, trade-in value, and financing are all separate transactions. Any of these transactions can have a significant influence on the vehicle’s overall cost. Unfortunately, not all of these transactions are transparent to consumers. In particular, on loans made through the dealership, the dealer can markup the interest rate above what the consumer’s credit would qualify for. This interest rate markup, also known as “dealer reserve” or “dealer participation,” is described by dealers as the way they are compensated for time spent putting a financing deal together. However, since consumers usually do not know what they can actually qualify for, the markup is often a hidden cost to the consumer.
This site takes a look at markups, evaluates how they are used, and identifies their potential consequences. Our research concludes that interest rate markups from dealerships lead to more expensive loans and higher odds for default and repossession for subprime borrowers. Based on an analysis of automobile asset-backed securities (ABS), data from 25 auto finance companies representing a combined 1.7 million accounts at year-end 2009, and other information from industry sources.

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