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Hispanic-Americans Pay More For Used Car Loans

Interest rates 1.5 percent higher than national average

By Joseph S. Enoch
ConsumerAffairs.com

September 22, 2008

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Hispanic-Americans pay higher interest rates for used car loans than other Americans, according to a Federal Reserve Board report on consumer loan trends.

Consumer advocacy groups looked at the report and found that on average, Hispanics paid interest of nine percent for used car loans compared to the national average of 7.5 percent. The Consumer Federation of America (CFA) also found that 18.5 percent of Latinos paid interest rates of 15 percent or higher, compared to 9.2 percent for the national average.

"One could speculate that recent immigrants with low incomes and little experience negotiating low loan rates almost always purchase used cars," Stephen Brock, executive director of the CFA, said in a teleconference.

Angelo Gonzalez, director of the Economic Independence project at the Cuban American National Council in Miami, said public transportation in many cities, including Miami, is so spotty that Latinos need a vehicle to provide access to jobs and other opportunities.

"We've seen recent immigrants struggle with high-interest car loans, and in the worst cases it can decimate their finances," Gonzalez said. "Hispanics are often relegated to purchasing used cars from dealers who push their financing on-site."

The report found that Hispanics paid nearly the same interest rates for new car loans as the national average.

Brock said the best way for consumers of any background to lower their car loan interest rate was to seek quotes from their local banks and credit unions before going to the dealer. If the dealer offers financing on-site, the consumer can then negotiate a lower rate or go with best quote from the financial institution.

A press release on the CFA's Web site offers these other tips for consumers purchasing vehicles:

• Make all loan payments on time. Making payments 60, or even 30, days late can significantly lower one's credit scores and raise one's interest cost.

• Don't take on more debt than you can handle. Most importantly, don't borrow on many credit cards and don't use more than half of the credit lines available on these cards.

• Take out a loan over a shorter period of time. Shorter loans will reduce the chances of negative amortization -- or being "upside-down" on your loans -- which is when you owe more than your car is worth.

• Consider purchasing a used rather than a new car or consider purchasing a less expensive new car.

Car purchasers should visit the automotive page of ConsumerAffairs.com to read more extensive used and new car buying guides and dealer and vehicle complaints.

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