I hate it when a client comes in with a problem I can’t solve.<\/p>\n
Just the other day I met a women I’ll call Irene, who was desperate for me to find a way to relieve her from an agreement to buy a car.\u00a0\u00a0 Irene’s not an impetuous kid.\u00a0 She is retired from a professional career,\u00a0 living on a fixed income.\u00a0 Here is her story.<\/p>\n
Irene’s old car was dying.\u00a0\u00a0\u00a0She went to the showroom of a large franchise dealer in new and used cars, explaining that she desperately needed to replace her old clunker so she could get a part-time job.\u00a0 The salesman asked if she could afford $65 a week, showed her a midsize sedan that was almost new, and said he’d give her $2500 for her trade-in.\u00a0 That sounded good to Irene.\u00a0 She drove the new sedan home that same day.\u00a0 Two days later she went back to sign the paperwork. \u00a0 As promised, there was a $2500 credit for her trade, the interest rate was a reasonable 5% from a credit union, and the monthly payment was not too much over $300.<\/p>\n
But it didn’t take long for Irene to realize she really couldn’t afford the payment.\u00a0 That was when she read over the installment sales agreement and saw that she was committed to 75 payments (6 years + 3 months); also,\u00a0 the dealer had tacked some extras onto the car’s price, including an extended service contract for $1700 and “gap” insurance for $700.\u00a0\u00a0 (Later, Irene tried, but couldn’t explain to me what gap insurance was.)<\/p>\n
She went back to the dealership and asked if they could\u00a0 modify the contract or substitute something cheaper.\u00a0 The dealer obligingly produced an entry-level compact with 40,000 miles on it and offered to let her defer the first payment for a few months so she could find a job in the meantime.\u00a0\u00a0 Within an hour or two Irene had signed a new Retail Installment Sales Agreement.\u00a0 She was trading in the newer, larger car for a credit of about two thousand dollars.\u00a0 The interest rate was now a few points higher.\u00a0 The first monthly payment was deferred by a few months, but then it would be just a few dollars cheaper… and the term of the agreement was up to 78 months.\u00a0 And the price of the extended service contract, curiously, had increased by almost a thousand dollars.<\/p>\n
I studied the two contracts.\u00a0 You know, I said, the total amount you will be paying, over the next 6-1\/2 years,\u00a0 is three thousand dollars more<\/em> than under the previous contract\u00a0 — for a much less valuable car.\u00a0 I pointed to the part of the contract that said, in rather large type:\u00a0 “No Cooling Off Period.”\u00a0 Unless the dealer agreed to rescind this contract, which was unlikely, Irene was stuck with it.<\/p>\n What could she have done to prevent herself from getting into this trap?<\/p>\n In future posts I’ll talk about how to read sales contracts, especially installments sales contracts for cars, and about other tricks and traps in\u00a0 dealer-arranged car financing.<\/p>\n But here’s a sneak preview:\u00a0 It’s a jungle out there.\u00a0 There are almost no limits on what a car dealer can charge for a car, for add-ons, or for the cost of credit.\u00a0\u00a0\u00a0 There are laws to protect you… but mostly by requiring that key terms of a deal be disclosed in a way you can understand before<\/em> you sign your name to a contract.\u00a0\u00a0 The key law is called the Truth in Lending Act, and it only helps if you use it.<\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" I hate it when a client comes in with a problem I can’t solve. Just the other day I met a women I’ll call Irene, who was desperate for me to find a way to relieve her from an agreement … Continue reading