Nearly 85% of new car buyers in the second quarter took out a loan or lease to finance their purchase, according to data released this week by the Experian credit bureau. This is the highest level since he started tracking the industry in 2006. Auto dealerships are driving the boom with incentives that include low-interest financing for local borrowers. more creditworthy, but experts warn shady lending practices remain in the market, including interest rates. or monthly payments that end up being higher on the loan documents than what the lender and borrower have agreed to verbally, and argue for costly additions (like extended warranties and rust protection) that increase the payments. “There are still some unscrupulous dealers, guys who won’t keep their promises,” says Alec Gutierrez, senior market analyst at Kelley Blue Book.

While consumers have secured new protections for credit cards and mortgages in the wake of the economic downturn, auto dealers are largely exempt from these financial reforms. They have access to a pool of lenders including banks and often the auto manufacturer’s finance arm. Unlike banks that provide auto loans, most auto dealerships are outside the jurisdiction of the Consumer Financial Protection Bureau. Experts also warn that borrowers will find less transparency with dealerships than with traditional lenders: for example, when car dealerships approve borrowers for financing, they often increase the interest rate actually offered by the lender and pocket. the difference – a practice that doesn’t have to be disclosed to the consumer, says Jack Gillis, spokesperson for the Consumer Federation of America, a consumer advocacy group.

For their part, car dealers say that surcharges are often made to cover their operating costs and that protections exist. The National Automobile Dealers Association has said consumers who are victims of questionable lending practices should contact the Federal Trade Commission (which controls this industry) and their state’s attorney general. The association adds that it is “important to distinguish the limited number of … fraudulent transactions from the millions of legitimate transactions” that occur each year.

Experts say consumers should shop around for loan approval before arriving at dealerships. Gutierrez recommends that consumers find out the interest rate they would receive on a car loan from their local banks and credit unions. Borrowers can also cast a wider net for lenders by looking at websites like LendingTree.com and Bankrate.com. They can then compare these loans with the terms offered by the car dealership. The dealership could still offer the lowest rate, but borrowers should look for the following pitfalls before signing on the dotted line.

Bait and switch:

Even after buyers and dealers agree on the loan interest rate, borrowers should review the rate (or monthly payment, if applicable) on the documents before signing.

KBB’s Gutierrez says that even though the industry has improved in recent years, there are still cases where borrowers are finding higher rates and monthly payments in writing than they agreed in their discussions with the car dealership. .

Yo-yo financing:

Buyers should make sure they have completed the loan transaction before leaving the lot. In some cases, dealers will allow borrowers to leave before the financing is complete, remind them a few days later at the dealership telling them the deal was unsuccessful and placing them on a more expensive loan – a tactic known as a yo-yo. funding. NADA says it condemns these “fraudulent transactions” and that they are limited in number.

Expensive add-ons:

Before finalizing a car loan, dealerships often offer additional services, including extended warranties, protective coating for a car’s leather interior, and additional insurance, which can drive a borrower’s monthly payment up to. ‘at $ 100, explains Gutierrez. NADA says these products are still optional. Consumers who think they will want such extras should consider purchasing them elsewhere (for example, by contacting their insurance company for policy quotes) before arriving at the dealership.