Clark Howard's Tips

Racial discrimination in the car loan field

August 24, 2007

When you use a car dealer to finance your auto loan, the dealer will mark it up as much as they can. But the average black customer buying a new car pays an interest rate that's 40 percent higher than the average white customer -- even after accounting for differences in credit scores.

Hispanics, meanwhile, pay almost the same as non-Hispanic whites, just slightly higher.

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In the used-car market, one in three blacks pay an interest rate that is above 15 percent, while the average rate for a white person is less than 10 percent. Clark thinks it's a shame that this residual racism is still around in 2007.

If you dig deeper into this story, you'll really find that anyone who doesn't get pre-qualified for a car loan will pay more than they should. So Clark advises anybody seeking an auto loan to get pre-qualified at a credit union, which will offer lower rates than a bank.

Think about it like this: You may have spent hours researching your car thoroughly, but you've got to do the same on the loan. Dealers are entitled to make money on a loan if you don't do your homework and get pre-qualified elsewhere. Historically, that mark-up had been about 10 percent points.

After all the legal settlements of the past few years, however, it now is usually three percent. That means if a bank offers you a car loan for 5 percent, the dealer will offer the same loan for 8 percent. So whether you're black or not, it pays to get pre-qualified for an auto loan.

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