Considering a Car Loan? Vehicle Sales Regulator Provides Tips to Consumers as Charges Against Dealers Continue
Wednesday, August 2, 2017
Ontario’s vehicle sales regulator is providing educational information and tips to consumers who are financing their next car-purchase. “Traditionally the most common source of complaints received by OMVIC relate to vehicle condition or contract cancellation” explained John Carmichael, OMVIC CEO and Registrar. “However we are noticing an increase in complaints specific to finance agreements; and in the past few years, this has led to a number of dealers facing charges or licence revocation.”
Charges, Convictions and Revocations
In May 2017, Ryen A. Maxwell, a once-registered salesperson at an Oshawa dealership, was convicted of falsifying information and furnishing false information in violation of Ontario’s Motor Vehicle Dealers Act (MVDA) and of committing an unfair business practice contrary to the Consumer Protection Act (CPA). The charges were laid after an OMVIC investigation found Maxwell falsified employment information on a credit application for a vulnerable consumer, without the consumer’s knowledge. Sentencing is scheduled for August 24th. Note: Maxwell’s salesperson registration was revoked by OMVIC in 2016.
In March 2015, Canada Motor Car Inc. pled guilty to engaging in an unfair practice in violation of the CPA. OMVIC charged the Scarborough dealer after receiving consumer complaints about a credit rebuilding program offered by the dealer. The dealer acknowledged representations about the plan were exaggerated or ambiguous and was fined $8,000. The dealership was also ordered to pay $10,000 in restitution to be divided equally amongst 13 consumers.
Car Solutions Canada Inc., Elie Vidal, Angela Vidal and Charlene Douglas were charged by OMVIC in April, 2016 with furnishing false information contrary to the MVDA.
The charges allege the Toronto dealer, Vidal, Vidal and Douglas assisted in furnishing, or induced or counseled another person to furnish, false or deceptive information and documents related to the trade (financing) of a motor vehicle. The charges are currently before the court; a trial will be held in October.
Considerations, Questions and Tips when Arranging Auto Financing
The majority of consumers borrow money for a vehicle purchase. Some choose to use a personal line of credit or arrange financing at their own financial institution but many have the dealer arrange the financing.
Having the dealer arrange financing often makes sense—dealers have access to numerous lenders that may provide terms or rates unavailable elsewhere. But this doesn’t mean consumers shouldn’t carefully consider what is being offered and take steps to ensure they are getting the best possible finance rate and terms.
Understanding Your Creditworthiness
The terms and rates available to a vehicle-buyer will be based largely on the vehicle being purchased and the buyer’s creditworthiness (credit score). Individuals with a good credit score are typically offered, or can negotiate, the best rate/terms available. Before applying for a loan, consumers should learn their credit score by contacting a credit bureau.
Two commonly used agencies (credit bureaus) in Canada are:
Before visiting the dealership, consumers are advised to contact their bank/financial institution and inquire about the terms and interest rates it can offer (they can vary between lenders). This allows consumers to comparison shop with the financing available at the dealership.
Are All Credit Offers the Same?
If the dealer is arranging financing, he/she may submit the consumer’s loan application to one or more financial institutions or lenders; therefore, a consumer could be approved by multiple lenders, potentially on different terms or at different interest rates.
Consumers should ensure they know who their application was submitted to. If the application was submitted to multiple lenders, consumers should enquire about each lender’s offered terms/rate. Important note: multiple credit applications can negatively affect a borrower’s credit score.
It is also important to understand that dealers are commonly paid a fee by lenders for arranging financing —fees that can vary significantly. Consumers need to ensure they are getting the best financing rate and terms possible, not necessarily the rate/terms that provides the dealer with the most lucrative fee.
Credit Applications – Verify the Information’s Accuracy
Credit applications at dealerships are usually completed electronically. It is important that the information provided in the application be accurate. There have been instances of dealers (and/or consumers) inflating incomes or minimizing debts in an effort to ensure an application is approved. This is not only unethical, it is illegal. Consumers should therefore ask to carefully review the information on the application before allowing the dealer to submit it. Consumers should also request a copy of the loan application.
Many consumers mistakenly shop for a vehicle based on a low monthly payment rather than the actual price. Often referred to as monthly payment junkies, some of these consumers find themselves financing a vehicle over extended terms (84-96-108 months).
Before agreeing to an extended-term car-loan consumers should consider:
- How long do they usually keep a vehicle? Do they often trade-in a vehicle before paying it off? If so, this can lead to “negative equity” (when more is owed for the vehicle than it is worth). To learn more about negative equity click here.
- What is the overall cost of a loan? Longer terms may mean lower monthly payments but they also usually mean higher overall costs of borrowing.
- Do they have cash for a down payment or is the entire purchase price being financed? How much will a down payment reduce the monthly payments?
- What would happen if the vehicle was stolen or destroyed and there was negative equity involved? Insurance companies will reimburse what the vehicle was worth, not necessarily the outstanding loan balance. Note: some dealers sell “Gap” insurance that may cover the negative equity in these situations.
It is common to sign the actual loan agreement/contract when taking delivery of the vehicle. Consumers should carefully read the entire agreement and ensure the stated terms and rate on the contract match what was promised.
If a dealer or salesperson makes a verbal promise (e.g. if all payments are made for the first 12 months the loan term/rate can be renegotiated), GET IT IN WRITNG! This provides transparency and protection.
An Educated Consumer is a Protected Consumer
“The vast majority of dealers do a great job making financing options available to their customers,” noted Carmichael. “But consumers still have to be diligent; they need to get educated and ask questions—not just about the car, but about all aspects of the transaction including financing. This helps to ensure transparency and provides protection”.
Consumers who have questions about the buying process can contact OMVIC’s Complaints and Inquiries team for assistance at 1-800-943-6002x3942 or firstname.lastname@example.org. This free service is available to all Ontarians before or after a vehicle purchase.
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