Then again, maybe they aren’t -- at least not at some car dealerships.
In a recent report, The Wall Street Journal claimed that some dealers are falsifying buyers’ applications by inflating incomes to match the requirements to qualify for an auto loan. If that sounds familiar, that’s what was happening more than a decade ago in the housing market, when mortgage brokers approved loans for houses the buyers clearly couldn’t afford.
When the chickens came home to roost around 2008, there was a wave of mortgage defaults that nearly brought down the world’s financial system. The Journal warns the same thing is happening in auto financing, though on a smaller scale.
It’s the buyer who loses
With false auto loan applications, it’s mostly the buyer who loses. When the buyer can’t make the payments, the finance company repossesses the vehicle and resells it.
If the resale doesn’t generate enough cash to pay off the loan, the company writes off the difference but usually turns it over to collections. So the buyer who lost their car still finds themselves in debt.
This sort of thing happens more than you might think, with buyers sometimes exaggerating their income because they want the vehicle and dealers looking the other way. A Journal analysis found that auto dealers only verified income for about 7 percent of car buyers since 2017.
‘Can’t turn fact into fiction’
In 2018, the Federal Trade Commission (FTC) charged a group of auto dealers in Arizona and New Mexico with falsifying consumers’ income and down payment information on vehicle financing applications and misrepresenting important financial terms in vehicle advertisements.
“Buying a car is one of the biggest purchases consumers make,” Andrew Smith, director of the FTC’s Bureau of Consumer Protection, said at the time. “When consumers tell an auto dealer how much they make and how much they can pay upfront, the dealer can’t turn those facts into fiction.”
Car buyers should understand what is at stake and be alert to application fraud. Before signing any papers, check the section that lists income to make sure it reflects reality.
It should go without saying that buyers should always be honest in providing income information to a dealer or finance company. If you can’t really afford that shiny new car or truck, you won’t have it for long and will be left with a severely damaged credit score and even calls from debt collectors.