- Office of Consumer Affairs and Business Regulation
Many consumers need a loan to purchase a used vehicle. Consumers with poor or no credit will often seek financing from the dealer they are buying a car from. This financing is commonly referred to as “Buy Here Pay Here,” and it lets dealers extend high interest rate loans to buyers through retail installment contracts.
Although dealers are required to provide a clear disclosure detailing the terms of the loan, including the annual percentage rate, finance charges, payment schedule, total number of payments, total sales price, any late fees, credit insurance, optional products, default of contract conditions, and other contract requirements, there are many risks associated with this type of financing. Very often used cars are offered at significantly higher prices than their book values. Interest rates tend to be on the high end of what’s allowed under Massachusetts law. Payment plans can be bi-weekly and car buyers that get behind on payments often see their cars get repossessed.
Before You Sign –
- Both state and federally chartered banks and credit unions typically offer auto loans. Consumers are encouraged to consult with their bank during the process of shopping for an auto loan to compare rates and terms. Banks and credit unions may offer more competitive rates and/or terms.
- Verify your credit history independently prior to shopping for a car to ensure it is accurate. Consumers are entitled to one free copy of their credit report per calendar year from each of the three major credit reporting bureaus.
- Verify that the dealership is licensed by the Division of Banks to lend through retail installment contracts. Massachusetts law requires a motor vehicle dealer who sells motor vehicles under or subject to a retail installment contract and holds the retail installment contract to obtain a license as a “sales finance company.” A list of licensees may be found at www.mass.gov/dob by clicking on “Download a List of Approved Licensees” or you may verify a specific company’s license status by name on www.nmlsconsumeraccess.org
- Know the true value of the car to avoid paying more than it’s worth. Use resources such as NADA, Edmunds or Kelley Blue Book to get a sense of the value of the car. If the dealer’s price is significantly higher, ask why.
- Be sure you can afford the payments. If you can’t, don’t buy the car. Massachusetts law caps the interest rate for all loans at 21 percent, but that rate, combined with late fees, can add up quickly.
- Careful thought and consideration should be given when making an investment such as buying a car. If the dealer is pressuring or using other stressful tactics to make the sale, walk away.
After you sign –
- If you can’t make the payments, the dealer may attempt to repossess the vehicle. Massachusetts is a “Right to Cure” state, meaning the borrower is protected from repossession during a certain period of time.
- The day a motor vehicle loan contract is in default the Right to Cure process begins; 10 days or later the lender must send a Right to Cure Notice to the borrower. The Right to Cure Notice provides the borrower a 21 day period to make the loan current. If the consumer successfully “cures the loan,” then servicing continues as normal without repossession.
- If you don’t pay within the Right to Cure period, the dealer may repossess the vehicle used as collateral on the loan. The dealer may also activate a GPS ignition interrupt device upon the expiration of the Right to Cure period. This device will prevent you from starting the car.
Consumers with questions or in need of assistance with a finance company can contact the Division of Banks Consumer Assistance Unit at (617) 956-1501. Additional information on motor vehicle financing, including how to file a complaint, is located on the Division’s website.
The Consumer Financial Protection Bureau also offers resources to consumers looking for auto financing. Consumers are advised to review their “Know Before you Owe Auto” and “Take Control of your Auto Loan” pages.
