Hispanic Americans Pay Higher Used Car Loan Rates

A Consumer Federation
of America (CFA) analysis of the most recent Federal Reserve Board Survey
of Consumer Finances reveals that Latinos pay much higher used car loan
rates than do other Americans. Slightly more than half of all automobile
loans taken out by Latinos were for used cars.

On 2004 loans for used car purchases, Hispanic-Americans paid a typical
(median) rate of 9.0 percent compared to a typical rate of 7.5 percent for
all borrowers. Moreover, a far higher percentage of Latinos, than other
Americans, were likely to pay used car loan rates of at least 15 percent –
18.5 percent of Latino borrowers compared to only 9.2 percent of all
Americans.

There were not, however, large disparities in typical loan rates for
new cars — 5.5 percent for Hispanic-Americans vs. 5.0 percent for all
Americans. And the percentage of these loans over 15% for both groups was
small and nearly the same — 1.8 percent for Latinos and 2.2 percent for
all Americans.

“One could speculate that recent immigrants with low incomes and little
experience negotiating low loan rates almost always purchase used cars,”
said Stephen Brobeck, Executive Director of the Consumer Federation of
America (CFA), which oversees the Hispanic America Saves campaign. “That
could help account for the loan rate gap for used car purchases, which does
not exist for new car purchases.”

“We’ve seen recent immigrants struggle with high-interest car loans,
and in the worst cases it can decimate their finances. But at the same
time, owning a car provides access to jobs and opportunities. That’s why we
work to provide consumers with advice and support on smart car buying, so
buying a car can be a stepping stone to financial stability, not a
barrier,” said Angelo Gonzalez, director of the Economic Independence
project at the Cuban American National Council (CNC). Gonzalez also
coordinates the Miami Saves campaign.

Latino Car Purchasers Can Take Measures to Ensure the Lowest Possible
Car Loan Rates

“One of the most important step Hispanic Americans can take to lower
auto loan rates is to call or visit their credit union for a rate quote
before going to the car dealer,” said Patty Briotta, public relations
manager for the National Association of Federal Credit Unions (NAFCU). “By
doing their research upfront and perhaps even securing pre-approval through
their credit union, they can compare finance rates and improve their
negotiating ability tremendously.”

Detailed research by academics earlier this decade of data on millions
of auto loans revealed that minorities were far more likely to have their
auto loan rates marked up than non-minorities. As a result, courts ordered
most major car finance companies to cap rates, usually at 2-3 percentage
points above the buy rates, and provide funds for minority-related consumer
education.

Beyond two-stop comparison shopping (your bank/credit union and a car
dealer/finance company), Latinos can reduce their auto loan rates and
expenses by taking steps to raise their credit scores, the key measure of
credit-worthiness. Most importantly:

– Make all loan payments on time. Making payments 60, or even 30, days
late can significantly lower one’s credit scores and raise one’s interest
cost.

– Don’t take on more debt than you can handle. Most importantly, don’t
borrow on many credit cards and don’t use more than half of the credit
lines available on these cards.

An even more effective way to reduce auto loan interest expenses is to
borrow less money over a shorter period of time. Consider purchasing a used
rather than a new car or consider purchasing a less expensive new car. Take
out a loan over a shorter period of time, say, 4 years rather than 5 or 6.
Shorter loans will also reduce the chances of negative amortization — or
being “upside-down” on your loans — which is when you owe more than your
car is worth.

CFA’s Hispanic America Saves campaign works to educate and assist
car-buyers

Since 2004, CFA’s Hispanic America Saves campaign has worked to help
car buyers make the smartest possible purchases, through educating them on

whether and when to buy, and how to research car options, shop for a loan and negotiate the purchase.

Working with local Saves efforts and partner organizations, the
campaign offers workshops for potential buyers and bilingual educational
material including brochures, flyers and videos. Since the beginning of the
year, the campaign has provided a new set of educational material
(http://www.americasaves.org/strategies/auto/Bilingual_Car_Materials.asp)
to over 300 community-based organizations. The campaign has reached tens of
thousands of individuals through the workshops and the internet.

Hispanic America Saves, managed by the Consumer Federation of America
(CFA), is a national initiative in which hundreds of organizations
encourage and assist Hispanic Americans, especially lower-income households
in the community, to save and build wealth. http://www.americasaves.org/national.
A Spanish language press release is available at
http://www.americasaves.org/press.

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