Why Some Car Dealers Tell Borrowers to Stop Making Payments
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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. A car loan is among the biggest monthly expenses for most Americans. And for some, paying it off can be a struggle. Some car dealers have a surprising solution.
What tactic are some car dealers recommending to borrowers struggling with payments?
They tell the owner to stop making payments.
So they say, you know what, we'll sell you a new car. We'll make the sale. But this car that you're trying to trade in or that you're having difficulty with the loan payments on, we're not going to buy this car back. Instead, why don't you just sort of call the lender associated with that car and sort of get it off your plate and just tell them to come and repossess it.
That's Wall Street Journal reporter Anna Maria Andriotis. She and reporter Ben Eisen will explain why car dealers are recommending this, and if you take the advice, how it could affect your credit score. That's next.
Back in December, we told you about how some car dealers were inflating borrowers' reported income to help them secure a car loan. Well, now Wall Street Journal reporters Anna Maria Andriotis and Ben Eisen are back to discuss more tactics being used by car dealers. This time, they're encouraging struggling borrowers to stop making their payments altogether. So, Anna Maria and Ben, this seems very counterintuitive. Why would a car dealer recommend this?
So car dealers are obviously in the business of selling cars. That's the bottom line for them. There are many times when dealers just don't want to take a car back. What does that mean? Unless you're buying a car for the first time and they don't have an existing one, oftentimes consumers will look to maybe buy a car when they already have one. And it's sort of this trade-in process that is pretty common in the industry. I have a car. dealer, I want to buy another car, will you take my car and I'll buy another car in place of it, the trade-in. There are some reasons why dealers won't want to take back that car. Oftentimes it boils down to the car won't essentially result in a profit for the dealership.
So they say, you know what, we'll sell you a new car, we'll make the sale, but this car that you're trying to trade in or that you're having difficulty with the loan payments on, we're not going to buy this car back. Instead, why don't you just sort of call the lender associated with that car and sort of get it off your plate and just tell them to come and repossess it? So it sounds complicated.
Repossess it.
Repossess it. So we'll get into all of this. It sounds complicated. But the bottom line is that dealerships can choose which cars they will take back and which ones they won't. And if a dealership finds that the car for some reason would be unprofitable or undesirable for them to take back, the solution that they'll give to the consumer is to Just call up the lender who you're paying that loan on that car for and just tell them to come take it back.
So the customer stops making payments. The car is repossessed. Wouldn't this hack away at their credit rating?
So this is where Ben and I found the story to be really interesting, because the strategy that's being used is a very, on some levels, a very smart one if a dealership is just looking to make another sale. When the dealer tells the consumer, just kick this car back to your lender, tell them to come repossess it, before the consumer actually does that, the day that the consumer is in the dealership, They're told, okay, we're not going to do this trade-in, but today we will sell you a new car with a new loan. And after we've done all of that, call the lender on your original car and tell them to repossess it. It's kind of genius in some ways, right? Because here's how it works. The dealership will go forward with the loan application process for that car that they're trying to sell you, right?
The lenders that are reviewing your credit report, your credit score, guess what? That repossession hasn't happened yet. It's not reflected on your credit report. So all that a lender will see when you are applying for the loan for that new car that you're buying is that you have an outstanding loan with a different lender.
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