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SALT LAKE CITY — Many people have heard of "lemon" cars, but experts are now warning car buyers about "lemon" loans that come with overpriced rates that damage credit scores.
Car Salesman, J-P Bo, said he is very optimistic about his job. New car sales in August were at their highest level in six years, and credit bureau Experian reported that nearly 85-percent of new cars sold between April and June were bought on a loan or lease.
"I just feel very optimistic about the business right now," Bo said. "Now they're loosening up and coming in with these great rates."
However, many individuals are finding that the rates are not great for everyone. Some consumer advocates call the cycle "yo-yo financing." AAA Credit Foundation representative, Preston Cochrane, said he has had clients who have been victims of the high loan rates, and involved in schemes where they are allowed to drive away from the dealership before the financing was finished.
"I wouldn't say it happens all the time," Cochrane said. "I would say it does happen. They'll say, 'Take the car home, drive it over the weekend, I just need you to sign here.' Come to find out, they've signed a loan document. That car is theirs. And they'll call back on a Monday morning and say, 'I'm sorry, Mr. Smith, your car loan didn't go through, so we need to bring the car back.' "
That process results in the buyer ending up with a more expensive loan that will eventually process, especially when they didn't qualify for the original loan.
Yo-yo financing is illegal, and Cochrane said the Utah Division of Consumer Protection or the Utah Auto Dealers association might be able to help reduce the problem.
"In many cases, they can help mediate and mitigate some losses on the borrower's end, obviously, they want to do what's right," Cochrane said.
If you wind up with a loan you can't afford, Cochran has a quote on his office wall for that: "If you think nobody cares if you're alive, try missing a couple of car payments."
