A couple from British Columbia is trapped in a dealer-arranged bank auto loan which will eventually cost them more than double the amount they originally borrowed.
Angie Hauser told the CBC News that they are paying $21,000 for the loan, which was set up by a local dealership through TD Bank, and $23,000 in interest.
She said that the monthly payment consumes a quarter of her net income.
Her husband, Enzo Gamarra, feels like they have been robbed. “Why would I want to pay $44,000 for a car that’s now only worth $15,000?” he told CBC News.
The car he was referring to is a 2010 Dodge Avenger which the dealership chose for and sold them at 25 percent annual percentage rate. Gamarra and his wife were looking at a cheaper model at the time but could not get to choose.
“I’ve been lied to,” Hauser said as she shared that the dealership assured her that she could get a lower interest rate after a year by refinancing the loan if they make payments faithfully. The couple never missed a payment for more than two years now but they still have the same high interest rate.
“We worked so hard to make these perfect payments so we could get refinanced,” said Gamarra.
After a year in the loan, the couple went back to the dealership and even to a local TD Canada Trust Bank to claim the promised lower rate. But they were always denied refinancing because of their bankruptcy record.
“How can you deny me refinancing when I’ve been in bankruptcy when you gave me a loan in bankruptcy? It doesn’t make sense,” said Hauser.
Hauser and Gamarra filed for bankruptcy in 2010 because of credit card debt. They are part of the increasing number of Canadians with bad credit who are placed by car dealers into subprime bank loans.
Of all the auto loans arranged by dealerships, approximately 25 percent are subprime, according to Canadian Auto World magazine.
The loan officer Hauser spoke to at the TD branch could not believe TD made a loan with a ridiculously high interest rate.
“We are talking about a big Canadian bank. And I mean for them to do that to us … that just makes me angry,” Gamarra told CBC.
The couple tried to get another loan on trade-in from a different dealership. The latter was willing to finance at 15 percent interest in a shorter term, but the couple could not afford the higher monthly payments. They have no choice but to pay off the 25-percent auto loan in at least seven years.
The auto finance division of TD Bank, one of the largest banks in the U.S. and Canada, has more than $14 billion in indirect loans, which is three percent more compared last year.
Indirect loans refer to financing provided by lenders through a third party, such as a car dealership. Dealers take a chop by marking up the interest rate.
“Banks only lend to those who they believe can pay the money back, and the numbers back this up,” Kate Payne, spokeswoman of Canadian Banker’s Association, told CBC News.
The government assured that it will continue to monitor financial products and services including those related to the automotive industry.
But Hauser believes the subprime market needs stricter regulation. “I think that the government should regulate these loans or regulate these banks and watch what they are doing a little closely. Because the banks don’t even know what’s going on with their own loans.”
According to CBC News, the dealership called the couple several times, since the broadcasting company got involved in the couple’s case, and has offered a new loan for a new car at less than five percent interest.