Hispanics Pay Higher Interest Rates on Used-Car Loans
WASHINGTON, D.C. — The Consumer Federation of America analyzed the most recent Federal Reserve Board Survey of Consumer Finances and reported that Latinos pay much higher used-car loan rates than do other Americans.
Basically, slightly more than half of all auto loans taken out by Latinos were for used cars, according to the federation.
For 2004 loans for used-car purchases, Hispanic-Americans paid a median rate of 9 percent compared to a 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 with only 9.2 percent of all Americans.
There were not, however, large disparities in typical loan rates for new cars, officials indicated. This figure came in at 5.5 percent for Hispanic-Americans versus 5 percent for all Americans.
And the percentage of these loans over 15 percent for both groups was small and nearly the same at 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," explained Stephen Brobeck, executive director of the Consumer Federation of America, 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."
Angelo Gonzalez, director of the Economic Independence project at the Cuban American National Council, added, "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." Gonzalez also coordinates the Miami Saves campaign.
"One of the most important steps 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," noted Patty Briotta, public relations manager for the National Association of Federal Credit Unions.
"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," she added.
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, which is a key measure of credit-worthiness, officials indicated.
An even more effective way to reduce auto loan interest expenses is to borrow less money over a shorter period of time, according to the federation.
"Consider purchasing a used rather than a new car or consider purchasing a less expensive new car," executives suggested to Latinos. "Take out a loan over a shorter period of time, say four years rather than five or six. 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 is designed to educate and assist car-buyers.
Working with local Hispanic America Saves efforts and partner organizations, the campaign offers workshops for potential buyers and bilingual educational material including brochures, fliers and videos.
Since the beginning of the year, the campaign has provided a new set of educational material at www.americasaves.org/strategies/auto/Bilingual_Car_Materials.asp, to more 300 community-based organizations.