Buying a Car: Some Dealerships Inflate Borrowers' Income
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What is the main topic discussed in this episode?
Here's your money briefing. I'm J.R. Whalen at The Wall Street Journal in New York. Having a shiny new car sounds nice, but imagine driving off the lot with a new car you know you can't afford.
What practice did the Wall Street Journal uncover about dealerships inflating borrowers' income?
Unbeknownst to car buyers, some car dealerships are using fuzzy math and inflating customers' income on financing applications in order to close the deal.
Without financing, car sales can't happen. Most cars, especially most new cars that are sold, are sold with financing. So the problem that the dealerships are facing is they need to keep car sales going. They need to keep that volume moving. And how do you do that if the person sitting across from you doesn't have the income to qualify?
That's Wall Street Journal reporter Anna Maria Andriotis. She and reporter Ben Eisen will tell us how some car buyers are being duped, and in some cases defaulting on their loans within months as a result. That's coming up.
Shopping for a new car can be fun, and it can be tricky. It's hard for buyers not to be lured in by that new car smell, and dealers will do all they can to help them afford a new set of wheels with all the extra features. But it may be trickier than you think, especially when buyers rely on car dealers and loaned financiers to make sure the numbers add up for monthly car payments. Wall Street Journal reporters Ben Eisen and Ana Maria Andriotis have been looking into it, and they're here to discuss. So, Ben and Ana Maria, sometimes car buyers or borrowers, they don't tell the full truth about their income, but do they ever know that in some cases the dealer could be inflating their numbers?
Well, what we're finding is that this is a practice that can happen without the buyer really ever knowing anything about it. What happens when you buy a car and apply for a car loan to go with it is that the dealer is oftentimes the one filling out the application. You give them the information, they fill it out, and you sign it before it goes off to the lenders for approval. But You know, there's just such a lack of information about how this all plays out that sometimes when the buyer doesn't have enough income to buy the car, it does get fudged by the dealer.
How do dealerships and lenders collaborate to get loan approvals for car buyers?
Can you tell me about the woman in North Carolina who bought a Kia Sportage?
So I spoke with this woman, Baxter Hansen, who lives in North Carolina, and she received a loan to buy a Kia Sportage two years ago. Now, Baxter didn't really have much income, but she was told that she was approved for a loan and that the loan amount was about $28,000, that her monthly payment would be $493,000.
She's a stay-at-home mom for a long time.
So she's 67 years old, but she was a stay-at-home mom for much of her life. So she doesn't really have much retirement income coming in from Social Security or elsewhere. So I said to Baxter, well, didn't that create a red flag for you that you were just approved for a loan with a monthly payment of nearly $500 and yet you don't have much income? And she said, well, I figured they did their due diligence and figured out that I could afford this.
They gave you the keys to a car.
But even more interesting, when she raised concerns about the monthly payment and she said, I don't know if I can afford this, because she did have that conversation with the dealership. She said that the dealership told her, well, you know, don't worry about it. Pay the loan for the first few months and come back to us after the sixth month or so of paying the loan. We will refinance this loan. We will lower the interest rate and we will give you a lower monthly payment. So the idea here for people who don't know consumer lending, the ins and outs of how it works, it could make sense to someone that, you know, oh, right, I'll be paying my loan for a few months. And then my credit score will probably rise because I'll have these on-time payments.
And then I'll be able to get a lower interest rate and a lower monthly payment. So Baxter is married, right? So there was the idea of maybe she could lean a little bit on her husband's income.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:05–0:16
2
What practice did the Wall Street Journal uncover about dealerships inflating borrowers' income?
0:16–2:19
3
How do dealerships and lenders collaborate to get loan approvals for car buyers?
2:19–8:08
4
How can a buyer sign an application without noticing inflated income figures?
8:08–10:26
5
What happened to Baxter Hansen after being approved for a loan she couldn’t afford?
10:26–12:31
Speakers
3 identifiedMore from WSJ Your Money Briefing
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