Automotive Loans: What Laws Protect Car Buyers?

by Amy Lillard

(2/7/2013) When shopping for a car and an auto loan, it can often feel like you're on your own. And when negotiating with dealers, it can often feel like you're at their mercy.

But there are federal and state laws in place to protect you through the shopping and purchasing process. While state laws will vary, key federal laws govern every dealership and every transaction:

• Truth in Lending Act. Whether you're obtaining a loan from a dealership or online, this law requires that lenders provide written disclosures of all important terms to ensure you know exactly what you're agreeing to. This includes interest rate, total finance charges over time, monthly payment amount, due dates, length of the loan, and charges for late payment.

• Consumer Leasing Act. When leasing a car, this requires the dealership or other leasing agent to provide key information before signing. This includes amount due at signing, number and amount of monthly payments, fees charged, late payment fees, mileage allowances and fees, termination terms, and price of purchase at the end of the lease.

• Credit Practices Rule. If you need a cosigner on a loan due to your credit, this law protects these individuals. Lenders are required to provide written warnings to cosigners with full details on what happens if the purchaser fails to pay. This also prohibits late charges on cosigners without this written warning.

• Equal Credit Opportunity Act. This law ensures that all consumers are treated equally when it comes to car loans. Individuals cannot be refused credit due to gender, race, age, religion, marital status, national origin, or the use of public assistance and credit protection. Lenders can only make lending decisions based on credit history, monthly income, and other directly relevant financial factors.

• Fair Credit Reporting Act. This powerful law allows consumers to know, understand, and control their credit, which in turn improves their ability to obtain good loans. Under this law, consumers can obtain one free credit report per year, and have a simplified method of notifying credit reporting agencies and credit card companies about credit report errors or identify theft.

To learn more about your federal rights when it comes to car buying and auto loans, visit the Federal Trade Commission. To learn about the additional laws that protect you in your state, visit your state's attorney general's site.

A frequent contributor to ERATE® since 2006, Amy Lillard is a freelance writer specializing in turning complex information into useful tips and tricks for readers. For questions or topic suggestions, contact Amy at [email protected].

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