Car Loans and Bankruptcy: Who’s at Fault?

By Jerry Reynolds
August 18, 2014

A lot of people have asked me about an editorial that recently ran in the New York Times. It was entitled “When A Car Loan Means Bankruptcy”. Essentially, the editorial said that car dealers should be held responsible in cases where a car loan causes someone to file bankruptcy. They go on to say that it is the dealership’s obligation to make sure a car buyer has the ability to repay their car loan. I say that is bunk.

First, car dealers do not lend money. Furthermore, they don’t make decisions on whether a loan is approved, declined, or if it is conditionally approved. Just so you know, a conditional approval is when a lender agrees to approve a loan, but with stipulations such as more down payment, a shorter term, proof of income, etc. Dealers wish they had control of loan approvals. In some cases, their business would double overnight.

Second, as a potential car buyer, do you want a car dealer delving into your personal expenses? Today, they get basic information from a customer on a credit application. They are required to get certain information to submit to their lenders. The information includes income, time on the job, mortgage or rent amounts, last car financed, a couple of references, other loans the buyer may have with balances, previous addresses, and they have to ask if you are obligated to make alimony or child support payments.

Lenders have a right to know this information; after all it is their money they are loaning. I maintain it is not the dealership’s job to go through every buyer’s household budget and tell him or her how much they can afford.

What has happened to personal responsibility? Shouldn’t the buyer know what he or she can afford? Is it any different than when you buy a home? To represent that a car dealer is somehow responsible if people get in over their head is ludicrous. It makes no more sense than a realtor being responsible if someone’s home is foreclosed.

In my many years in the retail automobile business, I cannot count how many times someone rushed in to buy a car fully knowing they were about to file bankruptcy. He or she knew getting a loan after the fact would be difficult.

Dealership finance offices are often an area of customer dissatisfaction. To dive into a customer’s personal life in order to secure a loan would make the process even worse. Does anybody want to tell a stranger in a car dealership how much you spend on prescriptions, alcohol, groceries, eating out, clothing and so on? I know I don’t.

Dealers arrange loans for customers, and they have a darned good reason to help potential buyers get a loan. Without a loan approval, they don’t have a car sale and they have wasted hours of their own time, and that of the buyer.

If you are going to make a major purchase like a car, budgeting should be done in advance, in the privacy of your own home, and done as family if you are married. If you get in over your head, or your situation changes with job loss or a cut in pay, that is sad, and we’ve seen a lot of this over the past five years. It is true that often bad things happen to good people. In other cases, people just don’t plan very well.
To suggest a car dealer is somehow monetarily responsible in cases like these makes the New York Times editorial writer ignorant of the way business works out in the real world.

– Jerry Reynolds, The Car Pro


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