For most buyers, driving away in the new vehicle isn’t a problem. But some unscrupulous dealers use spot deliveries as a device to hook unwary customers in an unsavory auto loans scam. And a new report from the Center for Responsible Lending (CRL) reveals that this practice is more common than you may think.

What is a Yo-Yo scam?

Herb Weisbaum described how the scam works on MSNBC on Apr. 12. He told the two completely separate stories of Leslie Hurst of Ludlow, Ky. and Carolyn Edwards of Wellington, Fla., both of whom bought cars at their local dealerships. They signed all the documentation, and drove the vehicles home. A full three weeks after their purchases, salespeople called each woman to tell them that their auto loans had fallen through. Both were shocked, because they believed they had finalized binding deals. Hurst caved and returned her car, suddenly finding herself without transportation. Edwards stuck to her guns, but ended up suffering the added trauma of seeing hers repossessed.

These stories are in some ways typical of Yo-Yo scams. The salesperson “forgets” to tell the buyer that the sale is conditional upon the dealership being able to place the finance on terms it likes, and that days, weeks or even months later the company can cancel the agreement. But in other ways the experiences of the two women are not at all typical.

That’s because often the dealership’s intention is to reel back in the buyer and persuade them to sign a new finance contract at a higher rate. Indeed, in more than 60 percent of the cases examined by the CRL study, consumers ended up agreeing to higher rates. And you can see why they thought they had little choice, given the tactics their dealers used:

• 59.3 percent of customers were told their trade-ins could not be returned or had already been sold.
• 53.6 percent were told their down-payments were nonrefundable.
• 32.7 percent told their payments for tax, title and fees couldn’t be refunded.

Auto loans illegally manipulated

The National Automobile Dealers Association argues against further regulation, claiming, according to the trade journal Automotive News, “They occur only rarely. For example, yo-yo financing. Consumer-advocate groups see this as a sneaky tactic to get more money. The industry sees it as a mistake most dealers probably prefer to avoid.” Believe that if you will.

Meanwhile, many consumer lawyers contend that yo-yo scams are illegal. One, quoted by the CRL, told a Federal Trade Commission “roundtable” last year:

In no other area of our commerce can someone sign on the dotted line, deliver the product, and then cancel the transaction and insist on the product being returned because the final credit transaction did not produce the hoped-for income.

However, that seems to cut little ice with those dealers that continue to practise these cons, and you need to ask yourself how you would feel — and what you would do — if you were to become a victim.

Comparison shopping for auto loans online

The easiest way to avoid getting into that position is to arrange your finance elsewhere. Talk to your bank or credit union, and find competitive quotes for auto loans online.

Auto loans that dealers pay down. Or not

Both The Washington Post and The Washington Times reported on the FTC’s initiative concerning what the latter describes as “car-loan flimflams.” Here’s how the Post described this latest scam:

Using dollar figures, the FTC explains how this practice works. Say you want to trade in your car for a newer model. But you still owe $18,000 on your loan. Your car is only worth $15,000. This means you are upside-down, or have negative equity, of $3,000, which has to be paid if you want to trade your vehicle. Although some dealers might promise to pay off the $3,000, they will add the amount to the loan for your new car, deduct it from your down payment or do both.

Of course, cars depreciate, which makes upside-down auto loans a pretty common phenomenon. So it’s no surprise that many cash-strapped buyers respond eagerly to advertisements that appear to offer a dealer incentive that wipes the slate clean. In a press release, the FTC quoted a number of misleading ads that it has now banned, including:

• Uncle Frank wants to pay [your trade] off in full, no matter how much you owe.
• I want your trade no matter how much you owe or what you’re driving. In fact I’ll pay off your trade when you upgrade to a nicer, newer vehicle.

Auto loans and shopping around

Perhaps the best way of avoiding most dealer scams is to shop around for auto loans, finding competitive quotes online and through your bank or credit union before you set foot on the lot. That way you can directly compare what the salesperson offers you with what’s more widely available.

Oddly, many consumers are pessimistic about their chances of being approved for auto loans. On Mar. 16, FreeScore.com published the results of a February survey that found that: “Nearly 66 percent of U.S. consumers think it will be just as difficult, or even harder, to obtain an auto loan in 2012 versus 2011.” Amazingly, twice as many respondents thought that it would be harder to get approved this year than thought it would be easier.

Easier to find auto loans

Of course, generally speaking, the reverse is true. Also on Mar. 16, Fitch, a ratings agency, reported that originations of auto loans and leases have been increasing, not least because “most auto lenders ended 2011 by reporting their lowest delinquency and charge-offs in a decade.” And the company went on to predict:

1. A stable outlook for the auto finance industry.
2. A rise in the volume of loans.
3. “Credit performance to outperform historical levels in 2012.”

So by all means go ahead and make your loan application. Just be sure to do your comparison shopping first, and not to trust your dealer further than you can throw the vehicle he or she is trying to sell you.

Why you might be searching for auto loans

1. You’re fed up with seeing phone numbers on gas pumps every time you fill up, and want to find a modern, fuel-efficient vehicle that could get you from home to work and back — sometimes via your kids’ schools — without spending the sorts of sums that could get Greece out of trouble.
2. You want to be able to open your car’s back doors without mountains of food and drink containers cascading onto the sidewalk. But you know that neither you nor your spouse is ever going to find time to clean the car, and your only way forward is to change it.
3. You’re shifting from carefree single or married status to expectant mom/dad, and need the sort of vehicle that doesn’t invariably decapitate an infant every time it’s involved in a fender-bender.
4. You just discovered that you and your partner have previously unsuspected depths of fecundity. This requires you to change your current capacious car for something that can accommodate a small tribe.
5. The last of your kids has finally left home, and you at last have the chance to buy that two-seater roadster that you always promised your mid-life crisis. This is a purchase you make in hope, rather than expectation. Because, statistically, you know that one or more of your beloved offspring are likely to be permanently occupying your “spare” bedroom (and the theoretical back seat of your car) months before you’ve perfected the technique for putting down the hood.

Oh, yes. You can think of a million reasons why you should change your car now. Here are two more.

Auto loans that can buy you reliability

Are you as exasperated as many drivers are by older vehicles that let you down on critical commutes, school runs, shopping trips and social occasions? If so, you may be interested in new data from J.D. Power and Associates, revealed on Feb. 15. They’re the latest findings on the reliability of used vehicles from this specialist in auto data.

They reveal that, overall, cars, SUVs and light trucks built in 2009 were significantly more reliable than those made earlier. Indeed, vehicles built that year were, on average, 13 percent more dependable than those made in 2008. That’s a big difference, and one that might prompt you to move on from your current scrapyard candidate.

Auto loans that can buy you… the unspeakable

We have to be delicate here. Because — for some inexplicable reason — BodyShopBids recently asked participants in a survey whether they’d ever had sex in a car. And a massive 60 percent said Yes. If you’re one of them, you may well believe that your chances of successful vehicular seduction could be boosted by a cooler ride.

Maybe that 60 percent isn’t all that surprising, but responses to another of the survey’s questions were. They revealed that 45.5 percent admitted to performing some sex act or another (or being the recipient of such a performance) WHILE THE VEHICLE WAS MOVING.

Auto loans that… get you a good deal

Let’s not dwell on that. The point of this blog is that, whatever your reason for wanting to change cars, you stand a better chance of getting great, affordable quotes for auto loans now than you have for some years.

Those who have lived through difficulties and have seen the dark days of desperation know that the only way to get through them is by finding the values that are important in life; rediscovering a sense of belonging to a project, a community, a nation; embracing hope; looking ahead; and taking your destiny into your own hands.

Those stirring words were delivered recently to an appreciative audience, and, before the speaker left the stage, he had, according to The New York Times, broken down in tears. So who was he addressing? Cancer patients in remission? The long-term unemployed? The homeless? The bankrupt?

Nope. The speaker was Sergio Marchionne, CEO of Chrysler, and the people he was addressing, in a plush Las Vegas conference hall, were… car dealers. Really? The ones who had seen the dark days of desperation were car dealers? Get a grip.

Dealers who hate decency

Some of those listening to Marchionne are likely to have come from Florida, and may well be supporting a new bill that’s just been introduced into the Sunshine State’s legislature. This will provide protection for car dealers from… the existing law that protects consumers from them.

They presumably are outraged by the way in which their businesses are regulated. After all, how are you supposed to turn an honest penny if you’re prevented from lying about the cars you’re selling, or turning back their odometers, or increasing the price of a vehicle after a contract’s been agreed? As Bill Bielecky of Talahassee.com put it:

Florida car dealers are at it again. Hardly an endangered species, and already one of the most protected industries in the state, they now seek protection from the very statute that regulates their conduct in auto sales.

Auto loans the biggest dealer con?

Regular readers will know that many dealers are already, in Marchionne’s words, taking their destiny in their own hands and “finding the values that are important in life” by running various scams surrounding auto loans. The Center for Responsible Lending (CRL) calculates that just one of these, interest rate markups, “adds an estimated $25.8 billion to the cost of car loans, raising the chance of default and repossession…”

Here’s how it works. You’ve found the car you want, and the salesperson sets about arranging finance. He’s already asked you what you can afford in monthly payments by the time he goes off to get finance quotes from lenders. So he adds more (on average, an extra 2.47 percent, according to the CRL, but it could be 5 percent or more for some subprime borrowers) to the low rate to which your entitled. Sometimes, the dealership gets to keep all the mark up, and sometimes it splits it with the lender. And those mark ups alone add up to $25.8 billion. Some dark days of desperation.

Auto loans without the dealers

If you don’t share Sergio Marchionne’s inclination to shed tears for car dealers, you may want to arrange your car finance before you set foot on your local one’s lot. Try your bank or credit union, but first find competitive quotes for auto loans online.

That’s probably not actually true, but the only thing more likely to put delegates off attending working sessions than scheduling a convention over a Super Bowl weekend is hosting it in Las Vegas. And guess where NADA located its shindig.

Delighted dealers

One thing’s for sure, the people attending were likely to be in a party mood. The Detroit News sent along a journalist, who peppered his report with words like upbeat, confidence, and good outlook. A few of the points it contained included:

1. Between 2008 and 2011, new car prices leaped to $28,341 from $25,500.
2. Over the same period, the value of incentives fell to $2,680 from $3,018.
3. The average credit scores of those being approved for new-car auto loans declined last year, as lenders have rushed to welcome people with poorer credit.
4. There were 17,538 dealerships nationwide at the end of 2011, down from 17,698 a year before, about 25,000 in 1988, and and 47,500 in 1950.

The News also quoted industry insiders who expected auto sales to jump this year to something between 13.5 and 14 million units. This was borne out by The Wall Street Journal on Feb. 5 when it quoted NADA chief economist Paul Taylor as predicting 13.9 million unit sales in 2012, broken down as seven million trucks and SUVs and 6.9 million cars. That 13.9 million total is up from 12.7 million last year, a rise of very nearly 10 percent.

Auto loans have an Ally?

As observed on this blog recently, there’s little doubt that many of these additional sales result from the wider availability of cheap auto loans. If you don’t believe that, just think back a couple of years to when the scarcity of finance so seriously undermined light vehicle sales.

One company that’s among today’s pacesetters for vehicle lending is Ally Financial, and on Feb. 3 it issued a press release that boasted about the remarkable growth during 2011 in the loans it wrote. One nugget contained in that document was the revival of the used car market. That year, the number of new cars, trucks and SUVs that Ally financed jumped 27 percent, while the number of auto loans it approved for used vehicles soared by 90 percent.

Auto loans a good bet — for lenders and borrowers

Much of the reason for the growth in the businesses of companies like Ally is the much better behavior of consumers when it comes to making payments. At the end of last month, Equifax, which is one of the big credit bureaus, released data that showed that the rate of auto loans that are 60 or more days past due plummeted by 19 percent last year.

If you’re planning to join the growing number of people who are changing their cars, be sure to do yourself one favor: before you visit your dealer, check out quotes for cheap auto loans online.

Auto loans putting American car makers back on top

That easier availability of auto loans must surely be an important factor is the bullish sentiments that currently surround U.S. car makers. On Jan. 30, The Chicago Tribune ran a story under the headline “Why 2012 Could Be the Year of the U.S. Auto Industry,” which explored how the industry had not just turned itself around, but now looks set to regain its global dominance.

The Tribune attributed much of the recovery to two factors:

1. Pent-up demand
2. Available and cheap auto loans

That pent-up demand is clearly important. During and after the credit crunch, it became incredibly difficult even for highly creditworthy people to finance vehicle purchases. Those with less than stellar credit scores stood almost no chance. As a result, the number of cars on America’s roads dropped from about 80 per hundred people in 2007 to the low 70s in 2010. Right now, there are about 77, says The Tribune, quoting figures from R.L. Polk & Co.

This has, of course, driven up the median age of of cars in this country, which is now standing at 10.8 years, an all-time high. No wonder trade-in values are so high, and people are so keen to trade up.

Americans are buying American

On Jan 25, TrueCar.com published data that showed how this pent-up demand is impacting on auto sales. These suggested that:

• January’s sales of new light vehicles would top 874,481 units, up 6.7 percent over the same month in 2011.
• At 2,166,466 units, used car sales looked set to be 8.0 percent higher that month than in January 2011.

Also in January 2012, both GM and Ford beat Toyota in unit sales by wide margins. Meanwhile, Chrysler, which occupied the number-four slot, had seen its sales rocket 33.8 percent year-on-year. Jesse Toprak, a TrueCar.com vice president, commented in a press release:

The underlying consumer demand for new vehicles continues to improve at a steady pace. For the first time in several years, we are starting the year off with a warm and fuzzy feeling of the good-old-days where the industry and the consumers are once again focused on the excitement of the new cars -and not which car company is going to survive. The positive momentum from the end of 2011 and a reasonable January 2012 sales rate will likely take industry sales very close to 14 million units this year

Quotes for auto loans

If you, in Jesse Toprak’s words, “are starting the year off with a warm and fuzzy feeling of the good-old-days” you may decide to join the rush to dealers’ lots. Before you do, just make sure that you arm yourself with competitive quotes for auto loans. You might just save yourself hundreds or even thousands of dollars.

1. Do everything you can to manage your credit score proactively so that you qualify for the best deal possible.
2. Shop around for the best rates from many different lenders.

Cheap auto loans and credit scores

On Jan. 22, Susan Tompor (Yes, she was mentioned in last week’s article too. And, no, your blogger isn’t Ms Tompor’s stalker.) told in the Erie Times-News the story of Keith Meintjes of Waterford, Mich. This model citizen had a credit score of over 800 when he bought a new Chevrolet Malibu in March last year, and consequently got a pretty amazing deal on his lease. Come November, when he went to get another car, this time for his son, he was surprised to find that he no longer qualified for the best rates.

Indeed, his credit score had tumbled to somewhere around 750, which was good, but not good enough to qualify him for the best deals on auto loans. Indeed, his new, lower score would, had he gone ahead, have cost him an additional $1,548 over the lifetime of the loan.

He hadn’t missed or been late with any payments, and he always zeroed his credit card balances each month. He was mystified. What had gone wrong? Well, he’d changed jobs, and his new work required him to travel much more. So he’d signed up for two new credit cards that would allow him to earn more rewards. That’s it! The new lines of credit that those cards represented dinged his score, presumably because some people acquire new cards when they anticipate personal financial trouble ahead.

The moral of this story? If you want to pay as little as possible for your auto loans, make sure you actively manage your credit score. Just getting new credit can harm it.

Improving your credit score

On Jan. 20, The Boston Globe ran a feature that suggested three key ways of improving your credit score prior to making any finance applications, including those for auto loans:

1. Get a copy of your credit report (you’re entitled to one free one annually from annualcreditreport.com). Check it carefully. That should allow you to correct any errors that appear on it, and to get a feel for the scale of the problems (if any) you face.
2. Resolve to pay every single one of your bills on time, even if you’re making only minimum payments.
3. Reduce your “credit utilization ratio” by paying down balances — particularly on credit cards — as quickly as you can.

FICO is the company behind America’s most widely used credit-scoring system, and its website reveals the weighting that it places on the different aspects of your financial behavior. In order of importance, these five are:

1. Payment history (35 percent) — Paying on time is the single most important influence on your score.
2. Amounts owed (30 percent) — This includes that key credit utilization ratio. Try to keep the balance on each credit card below 30 percent of its credit limit.
3. Length of credit history (15 percent) — The longer the better.
4. New credit (10 percent) — How many accounts you’ve opened (and how many credit inquiries about you have been made) recently. Having too many of these is is presumably what tripped up Keith Meintjes.
5. Types of credit (10 percent) — Your score’s likely to be better if you’ve a good mix of different types of credit. FICO lists “credit cards, retail accounts, installment loans, mortgage, consumer finance accounts” as examples.

Cheap auto loans

It can take a lot of work, commitment and sacrifice to repair a seriously damaged credit score. But having a healthy one can save you many thousands of dollars, so it’s well worth the effort. Just make sure that, having gone through all that, you don’t blow some of those hard-earned savings by signing up for the first finance package your car dealer offers you. Shop around first for the best quotes for auto loans, both here online, and through your bank or credit union. Only then talk to your dealer.

Cheaper auto loans — and easier to get

Anyway, on Jan. 12, Tompor wrote a Free Press piece predicting two important 2012 trends concerning auto loans:

1. Rates are now at record lows, and are likely to remain highly affordable.
2. It could become even easier to get approved for auto loans.

Both of these should be music to the ears of anyone who’s planning to finance a car this year. But what’s the probability of the predictions coming true?

Auto loans accessible

The second (easy approval) is already true, and there seems little reason to expect that trend to change. Indeed, the Federal Reserve’s latest consumer credit figures, which were published on Jan. 9 and cover the month of November 2011, suggest that approvals may have been getting easier for up to two years.

The Fed doesn’t look at home-related financing in this particular analysis, and divides consumer credit into only two categories: “revolving,” which is nearly all credit card debt; and “nonrevolving,” which is mostly auto loans and student loans, but includes a few other much smaller categories. Nonrevolving credit has fallen only once in recent years, by 1.2 percent in 2009. It grew 1.5 percent in 2010, but in recent months has been much stronger. In November, it jumped at an annualized rate of 10.7 percent. Even if there were many student and other loans approved that month, that’s highly likely to include a whole lot of car financing.

And that’s almost certainly a very good thing. Reporting the Fed’s data on Jan. 9, Bloomberg Businessweek explained why:

With more jobs and better pay, consumers could step up spending even further. That could lead more companies to add workers, which ultimately drives more spending and more hiring. Economists call that a virtuous cycle.

Auto loan interest rates less predictable

As reported on this blog recently (see Buying cars getting less affordable. Sign for auto loans now?), some experts believe the average overall cost of buying a car is already increasing, in spite of Tompor’s claim that “car loan rates are at record lows.” That may be partly because there are fewer promotions and bargains on dealers’ lots, but also because only those with stellar credit can access those ultra-low rates. And the situation could be set to get worse.

Right now, the Fed is holding its rates at record lows in order to breathe life into the economy. But as soon as growth seems certain, it may be forced to increase those rates — possibly very quickly — to smother pent-up inflation. So you could see the current situation of low rates and high approvals as a window of opportunity. And how long it is going to stay open is anybody’s guess.

If you’re persuaded that you should act now to avoid the possibility of that window slamming shut, be sure of one thing: that you shop around for the very best auto loan quotes from both online and offline sources.

Auto makers optimistic

The Financial Times of Jan. 8, identified three reasons why car makers are so upbeat:

1. This year, the U.S. is likely to be a world leader when it comes to demand for new cars.
2. American sales of light vehicles grew 10 percent in 2011, and are expected to increase by nearly 9 percent this year. That’s 13.8 million units, down on pre-recession highs, but very healthy compared with recent years.
3. Demand for SUVs and pick-up trucks is likely to be particularly strong, and those are the types of vehicles that American manufacturers excel at producing.

If there’s a fly in the ointment, it’s that the strength in demand in this country is drawing foreign motor manufacturers here. On Jan. 4, The New York Times published a piece under the headline “Good Year for Autos, but a Test Waits in ‘12.” It warned that American car makers “will be hard-pressed” to keep in 2012 the 47 percent of market share they held last year.

In addition to foreign manufacturers targeting the U.S. market, another contributory factor that could challenge Detroit’s market dominance is that Japanese companies lost some share last year as a result of supply problems stemming from its tsunami.

Auto loans now more available to those with troubled mortgages

Clearly, much of the industry’s recent success is a result of the increased availability of auto loans. And a Jan. 5 report in The Wall Street Journal suggests that that availability is continuing to widen.

When times were hard, any one who had suffered a foreclosure or who had recently been 60 days or longer behind with their mortgage payments was highly unlikely to see their application for a car loan succeed. However, the Journal quotes recent data from Experian, one of the big-three credit bureaus, that suggest that’s changing fast.

Even before the credit crunch, a poor mortgage repayment record was likely to count badly against you if you were applying for auto loans. For example, during the first three quarters of 2006, only about 80,000 people in that position had their applications approved. However, during the same period in 2011, that number increased dramatically: up to 205,000 loans. The Journal appears to expect this trend to continue, allowing more with troubled financial histories to borrow to replace their cars.

Auto loans for you

Whether or not you’ve had problems with your mortgage or other forms of credit in the past, you probably stand a better chance of being approved for car finance now that at any time for some years. Just be sure to shop around for the best deal, starting with online quotes for auto loans.