From January 2008 through May 2009, JPMorgan Chase sales staff steered consumers into purchasing credit protection, which drove up their monthly notes. The Office of the Controller of Currency alleged that the bank's sales staff used high-pressure tactics such as using a script provided by the bank to include rebuttals for when customers balked at purchasing credit insurance.
The bank would usually make their money off of the credit protection when unemployment or death occurred with the borrower.
JPMorgan Chase is not the only institution that's guilty of such deceptive practices. They just happened to get caught. Ed Voyles Honda in Atlanta refused to give a customer with excellent credit a low-interest rate that was being offered by the automaker. The finance manager made more money off of the deal by stretching out the loan and offering a higher rate. Now while this gave the customer a lower monthly payment, consequently, it drove up the overall cost of the loan by approximately $800.
And Delta Credit Union based in Atlanta allowed a customer with great credit to skip close to a year's worth payments, which are also known as payment holidays, over the seven-year term of the loan. Thus, now that the customer is ready to trade-in their that gas-guzzling SUV for a fuel-friendly crossover, a car-based utility vehicle, they find that they are upside-down, owing more than what the vehicle is worth, by close to $20,000. While you can't really faught the credit union, the customer should have been warned of the risk of the payment holidays and the seven-year loan. (Read "A New Trend in Auto Financing: Car Mortgages?")
So as you can see, banks and credit unions may not actually be working in your best interest. In order to avoid being steered in the wrong directions, here's what we recommend:
- Get Pre-Approved using a bank, credit union or online auto finance tools that can be found on our website -- before heading to a dealership. Just like you shop around for the best price on a vehicle, you should also shop around for the best financing terms and interest rates. Read "Who Should Provide Your Auto Financing?
- Pull your credit score. Your credit score drives your rate.
- Avoid stretching your payment out to six or seven years. Not only do you put yourself in an upside-down situation, but aren't you really buying more vehicle than what you can really afford?
- Stick to your guns. Don't allow the finance manager (lender) to stretch you beyond what you can afford. Get the interest rate you know you qualify for. Even with questionable credit, you should rate shop. The difference is that you should be bringing some money to the table to help put you in the driver's seat.