June 26 2008 by Ellen Roseman
A new car costs almost as much as what a home cost 30 years ago. So, affordability is an issue for many Canadians, especially those buying a first vehicle.
Car dealers love to advertise low rates or zero per cent financing, but that assumes you have good credit. What if you have dodgy credit? What if you’re young or a newcomer to Canada and you have no credit history to speak of?
I’ve been trying to help AF, a 20-year-old who ran into big problems with a Toronto car dealer. Despite the intervention of the Ontario Motor Vehicle Industry Council (OMVIC) and Leasebusters, she’s stuck with a vehicle that’s financed at a high 20 per cent interest rate.
She admits she trusted the salesperson and signed contract papers she didn’t understand. (Why don’t young people consult lawyers — or even their parents — before doing such things?) Her only option is to sue. But she’s not sure if she can keep making the payments until her day in small claims court comes up.
Her case is not unusual, according to a recent article in the National Post. It’s a win-win situation for the financing companies:
The pair who got the loan — one with no credit history and the other with a bad credit rating– only qualified for a subprime loan at 18.5%. If all went well, the financing company, Wells Fargo, was set to earn more than $16,000 in interest over six years.
If things unravelled — as they often do in the rapidly growing subprime car loan business — Wells Fargo would be fine. The company would repossess the car, resell it and send a final invoice to the customer for the difference.
Sounds to me as if the U.S. subprime mortgage lending pattern is alive and well in Canada — among car dealers. And as the National Post points out, the Big Five banks have been buying up the second-chance car lending institutions.
See the comments below that describe AF’s dilemma and what others I consulted said about it. If you have any advice for her, you’re welcome to add your opinion.