Your Rights As a Borrower - Consumer Tips | Fall... On The Road Special Section

Financing 411
Your Rights As a Borrower

As vehicle costs continue to escalate, buyers still appear very fond of financing. Financing allows buyers to acquire a new vehicle without paying for it all at once. Instead they obtain a loan that enables them to make monthly installments, after the last of which they will officially own the vehicle.

In general, buyers have two options with respect to financing a vehicle. Buyers can use direct lending, in which they will obtain a loan directly from a lending institution, be it a bank, credit union or finance company. In such an agreement, the buyer agrees to pay the amount financed (the price of the vehicle minus the down payment) and the agreed-upon finance charge over a period of time. That period of time depends on the agreement, but common terms are anywhere from 36 to 72 months.

Another type of financing is dealership financing, in which the buyer and dealer enter into a contract similar in principle to the one mentioned above. However, the dealer can retain the contract or sell it to an assignee, be it a bank, credit union or finance company. Both options are very similar, but one involves the dealer more in financing while the other goes directly to the bank or other lending institution.

While some people are wary of financing and intimidated by dealing with lending institutions and dealerships, there are several federal laws in place to protect buyers. Though laws vary from state to state, the following federal laws protect buyers across the country.

* Truth in Lending Act: This act requires that, prior to signing any agreement, creditors give buyers written disclosure of important terms of the credit agreement, including APR, total finance charges, monthly payment amount, payment due dates, total amount being financed, length of the credit agreement and any charges for late payment. Buyers new to financing should read over these terms carefully before signing, particularly the portions listing monthly payment amount and late fees. Sticker shock at the first payment due notice or late fee could start the agreement off on a very bad foot.

* Credit Practices Rule: This requires creditors to provide a written notice to potential co-signers about their liability if the other person fails to pay and even prohibits late charges in some situations. It also prohibits creditors from using certain contract provisions that the government has deemed unfair to consumers. Parents are often the ones most invested in this rule, as Mom and Dad commonly co-sign for their children's car loans. Parents should familiarize themselves with their own liability to determine if co-signing is worth the risk.

* Equal Credit Opportunity Act: This prohibits discrimination related to credit because of a host of individual factors. Those factors include age, race, gender, color, religion, marital status, or national origin. In addition, this act prohibits discrimination related to credit based on whether or not an individual is receiving public assistance or has exercised their rights under the federal Consumer Credit Protection Act.

* Fair Credit Reporting Act: Consumers have many rights, including the right to one free credit report each year. Consumers can simply call one number to notify credit reporting agencies and credit card companies of identify theft. It also provides consumers with a process to dispute information in their credit file that they believe is inaccurate or incomplete. This is valuable should an individual with a strong payment history see any mistakes on their report, such as a missed or late car payment. Lenders are not perfect, and mistakes can happen. This act enables buyers to determine if any mistakes have happened with respect to their account and provides an avenue by which to correct those mistakes.

For more information on consumer rights, visit the Federal Trade Commission at