Service members, especially young ones, are sometimes targets of unscrupulous businesses — including some used car lots.
Here's a new twist on car financing spotted by Michael Archer, regional legal assistance officer for Marine Corps Installations East: A Marine goes into a car dealership and doesn't qualify for a loan, so the salesman asks him to make a down payment. The Marine doesn't have it, so right there at the salesman's desk, they go to an online lender and apply for a loan for a couple of thousand dollars — at an interest rate as high as 34 percent. With the down payment, and a large monthly payment, the Marine now qualifies for the loan.
Another common problem is the "yo-yo sale": A service member thinks he has a loan from the dealer and drives off the lot with the car. "He gets yanked back and is told the loan fell through," said Archer, a retired Marine judge advocate. But then the salesman offers him a different deal. If the service member balks, the salesman may not give him back the car he traded in, or he may not refund the down payment.
The military services include car buying and financing classes in their financial education, but "there are still documented cases of service members falling victim to predatory practices and prohibitively expensive products," wrote Clifford Stanley, undersecretary of defense for personnel and readiness, in a Feb. 26 letter to the Treasury Department, responding to that department's request for information.
Defense officials put out a call for data on the problem, and 72 percent of the 659 personal financial counselors and legal assistance attorneys who responded said they had counseled service members in the previous six months on some predatory practices involving auto financing.
What could be done to address this on a national level? Archer has some ideas, such as providing more education to service members. "We provide preventative education to our Marines, but it's something we should do more of. It's difficult, particularly with Marines who move around a lot," he said.
If you're reading this, you may already be aware of some basic car-buying principles. But you may have friends or colleagues talking about buying a car, and you can do them a big favor by providing some pointers.
• There are plenty of reputable car dealers around military bases. At Marine Corps Air Station Cherry Point, N.C., Vicki Wilson, director of the Navy-Marine Corps Relief Society office, says her office advises service members to do research before ever visiting a car salesman — on cars as well as dealers. Check with your fellow service members for their recommendations.
And go online, she said. Always check the http://www.bbb.org/">Better Business Bureau online listings for reports. Search the Internet for the dealer's name to see what complaints might turn up.
• Before you sign any contract, take it to your legal assistance office or financial readiness office for review. If the dealer protests or says the deal is for that day only, walk away. That's a red flag.
• Wilson also encourages service members to come into the relief society's office, or a personal financial management office, for a budgeting session to see how much car they can afford.
• If you can't pay cash for the car, shop around for financing before you darken a dealer's door. Start with your financial institution, such as a military bank or a credit union. If you're approved for a loan beforehand, you have better negotiating power, said Ana Hernandez, personal financial readiness specialist at Fort Bliss, Texas, Army Community Services.
"If it's your first vehicle, you may have to pay a higher interest rate," she said. The reality for young service members is that the loan may cost more because they have no credit history. If their credit history is tarnished, the interest rate could be even higher.
As you pay off that car on time, it helps your credit score. Service members "can get the loan refinanced after a year of good payment history" at a better interest rate, Hernandez said.
• Your car costs — payments plus insurance — should be no more than 15 percent of your pay, Hernandez said. For some, the cost of insurance might be higher than the car payment, she warned.
• Research car prices and value at http://www.edmunds.com/">Edmunds and http://www.kbb.com/">Kelley Blue Book. If you're buying a used car, get a vehicle history report (at http://www.carfax.com/">Carfax, or ask the dealer for the report) before you buy. Take the car to a trusted mechanic to check out.
Buying a car is a big financial commitment. We may never be completely protected from scam artists. But we can arm ourselves with knowledge and help from military experts to fend them off.