Arm yourself with knowledge when shopping for an auto loan

Servicemembers should take precautions when entering auto loan agreements. This is the third post for our blog series on auto loans.

As a servicemember, you may face challenges when shopping for an auto loan. Frequent moves are a part of military life, but  the urgent need to have a vehicle after moving to a new location – to travel to and from work, bring the kids to school, or simply run errands –  may mean that you don’t have the time to get the best loan to finance your vehicle. You may rely on the lender or auto dealer to explain what your loan terms mean, but they may not clearly explain the extent of the financial obligation you’re taking on.  As a result, you may struggle to repay the loan, especially if the monthly payments are higher than you believed they would be.  Unfortunately, we hear from a lot of military families who didn’t fully realize the high interest, unaffordable terms of their auto loan when they signed the contract.

As part of our efforts to empower consumers to make better financial decisions, we’ve created new resources to help you take control of your auto loan, and help put you in the driver’s seat when negotiating for an auto loan. Our resources could have helped this servicemember who submitted a complaint to us:



“The [company] even knew how much I made as a [soldier]. I will be paying over [XX] when I'm done paying this car. I have a family that I need to support, and this is unfair and unjust. I didn't know that I was going to pay over [XX] what the vehicle is worth. They never explained the APR percent or how much I'd end up losing, and I feel really taken advantage of. I've been [location removed] for over five years. When I return home, I get taken advantage of with no mercy. This always happens simply because I am a [servicemember], and I live near a base, so all these businesses set up and sell their products advertising 'we do military finance.' They reel us in like fishes.”



Companies, such as dealerships or other lenders, may offer military rates or discounts to bring you into the showroom, but that doesn’t mean the financing offer is the best one you can get.  We’ve also heard that some companies may inaccurately promise benefits under the Servicemembers Civil Relief Act (SCRA) to military customers. If you move and need a vehicle right away, your circumstances may mean that you  make a rushed decision and not shop around for the best financing.  The next time you are shopping for a new or used car, take our new Auto Loan Worksheet with you to shop for financing and understand the total cost of the loan. Also, here are three things for servicemembers to know about before signing on the dotted line:

  1. Reductions of interest rate under the Servicemembers Civil Relief Act. We’ve heard from servicemembers who were led to believe it was okay to sign for a loan with a high interest rate since they were active-duty and therefore, the SCRA would drop the interest rate to 6 percent. Unfortunately, that  is not true. If you take out a loan to buy a vehicle after going on active duty, the SCRA interest rate cap will not apply – that cap is only for pre-service loans. You can find out more about your rights under the SCRA here
  2. Permission from your lender to take your vehicle overseas. If you think you might be assigned overseas, make sure before you sign the auto loan contract that your lender will allow your vehicle to be taken out of the country – many won’t.  If your lender has that restriction and will not waive it, then you should reconsider borrowing from them.  Shipping companies usually require your lender to write a letter of approval before they will accept your car for overseas shipment. Don’t be left with a big problem at the last minute because the fine print of your loan contract says you can’t take the vehicle with you.
  3. Special military interest rates or discounts. If you’re offered a rate or promotion based on being a member of the military and you decide it’s the best financing for you, make sure you receive that rate in the final paperwork. You shouldn’t agree to anything at signing that you didn’t agree to beforehand. If the company tries to change the loan terms at the last minute, you can refuse to sign the paperwork and continue to shop around for the best auto loan for you.  Remember, interest rates and terms are negotiable until the contract is signed.

If you’re struggling with a high interest auto loan payment, you may be able to refinance your loan for a lower rate by contacting your loan servicer.  If your current loan servicer can’t help you – shop around! Always remember to stay focused on the total cost when shopping. Lower monthly payments for a longer period can cost you thousands of dollars in interest. You can use our new worksheet  to keep track of your offers.

Take the first step in financing an auto loan by exploring our resources here: consumerfinance.gov/auto-loans


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