Auto Loan Financing Laws & Regulations
Auto loans are regulated by the federal and state governments to ensure consumers are not being taken advantage of by banks or car dealerships. A car loan will have several terms and conditions that the car buyer agrees to when signing the purchase contract. When financing a car, it is important for the car buyer to read all of these terms before signing, so that he or she is sure the loan abides by all federal laws and is a sound personal investment.
The vehicle finance industry is closely monitored by the federal government so consumers can usually breathe easy when negotiating with a dealership, bank, or local credit union over used or new car financing. Even bad credit car loans are protected by these laws so consumers are offered financing agreements that follow the rules and regulations set forth by the government. Informed consumers can use their knowledge to confirm that the loan offers they receive are legal and have their best interests in mind. The following are just a few of the federal rules currently enacted to protect consumers who are applying for a car loan.
Credit Practices Rule
This car finance law requires the creditor to inform any co-signer of their legal liability to the contract. Bad credit car loans are more likely to need a co-signer and he or she can be held accountable if the car buyer misses a payment or is consistently late with payments. When financing a car, if a co-signer is required, he or she will receive written notice to review the liability and responsibility due if the car buyer is late or refuses to make payments.
Fair Credit Reporting Act
For the lowest auto loan rates, a good credit score is essential. The current auto loan rates offered to car buyers depends upon this, and pulling a credit report to check the score is a crucial step to monitoring it. This law offers consumers the right to one free credit report annually from any one of the three main consumer reporting agencies available. Consumers can also easily call one toll free number to dispute a credit score or report a possible identity theft. For car loan interest rates, a dealership or bank must pull a credit report for a potential car buyer. Through this act, the creditor is required to show the car buyer his or her report so action can be made immediately if anything is inaccurate. If a car loan is rejected due to a car buyer’s credit score or report, the buyer can look at the report to ensure all information is reported accurately and is complete. If not, he or she can call to dispute any misinformation on the report or open an investigation into the findings.
Truth in Lending Act
When refinancing an auto loan or financing a car, there are usually terms and conditions that a car buyer will need to abide by. With the passing of this act, the creditor must present all these terms and conditions in a legible and accessible way for the car buyer. Auto loan interest rates, including any fees, or late payment penalty fees must be disclosed to the car buyer in accordance with this law. Car finance loan specifics, including the length of the agreement, total amount being financed, and the payment due dates must also be clearly spelled out for the car buyer due to this federally mandated act.
Equal Credit Opportunity Act
Creditors offering an auto finance deal to car buyers cannot discriminate due to features of race, gender, religion, marital status, age or nationality. When auto loan rates are presented, it is illegal for the creditor to discriminate against a car buyer based on the characteristics of his or her credit report, including the prerogative of the buyer to receive public assistance. If a car loan is denied by a creditor, this act requires the creditor to present a valid and legal reason for denying the loan.
Risk-Based Pricing Rule
For used car loan rates and general auto loan rates, the potential buyer’s credit score must be obtained. This federal rule forces creditors to also give the car buyer information on how his or her credit score compares to the average consumer. With this rule in place, consumers find it easier to understand their credit score, where it falls in regards to the average score, and how it’s calculated. Providing this information assists car buyers in learning why a specific interest rate may have been presented and how they can improve their credit to get a lower rate.
Vehicle finance can be a complex process, but with the help of the federal government, car buyers’ rights are protected. Knowing the rules and regulations set forth by the federal and state government can give a car buyer the upper hand to ensure the creditor is doing business legally and properly. Obtaining a car loan through a dealership, bank, or credit union with these acts and rules in place can give a buyer peace of mind throughout the transaction.