Ever feel as though your truck dealer or lender is somewhat vague when it comes to the Annual Percentage Rate (APR)? Does your lender or dealer fully disclose the APR, or do you find yourself having to ask, or worse yet, do you not ask at all?
Instead of presenting you with some "what-if" scenarios of what might happen, as I have done in past issues, how about we look at what really happened. The time has come to put aside the "classroom" examples and take a look at a recent trucker's experience.
A few months ago I had the opportunity to meet with a trucker at OOIDA headquarters. This individual was interested in buying a new truck and wanted the "skinny" on OOIDA's finance program. Excited about the prospect of avoiding the F&I Manager at the dealership, he eagerly applied for the loan.
After completing the credit appplication and enduring my "soap box" spiel on how to avoid the common financing pitfalls, this trucker headed out to his rig and hit the road. The very next day his credit request was approved and the truck shopping began. Armed with an approval and loads of information, this trucker had it made, or so he thought.
While doing some routine follow-up, I found out that OOIDA had lost the deal to the dealer. Low and behold, it came down to the APR. The dealer beat OOIDA by .37 percent, plus the dealer claimed they would also match the "simple interest" method for early payoffs, just like the OOIDA program.
Sounds great, right? Well this trucker began to wonder if his deal was so great, because the OOIDA monthly payment at the higher rate was actually lower. Are you wondering how the dealer's APR could be lower? Well it can't, because the dealer did not charge a documentation fee and OOIDA structured the loan for equal monthly installments, which means there was no balloon payment. Only one thing could have caused the OOIDA payment to be lower: A higher APR at the dealer. The trucker contacted the finance company with whom the dealer placed the deal to inquire about the APR and interest calculation method. The lender informed the trucker that they would mail him an amortization schedule, which would contain the information he was seeking.
When the amortization schedule arrived in the mail, the interest calculation method was actually the "rule of 78s" method and not the "simple interest" method as the dealer had promised. Guess what – as for the APR, it was mysteriously absent from the schedule, so the trucker called me.
I ran the numbers for the trucker and unfortunately had to inform him that his APR is actually .24 percent higher than the OOIDA APR. Worse yet, his rate can actually end up even higher should he choose to trade or payoff his truck prior to the scheduled end of the note.
As you might imagine, this news turned the excitement of acquiring a new truck into an experience he would like to soon forget. That however will be unlikely, because his shiny new truck will be a constant reminder. Being lied to and taken advantage of is a hard pill to swallow.
The quest for the best APR clouded this trucker's judgment. Armed with the OOIDA APR, this trucker was thrilled to learn that the dealer would beat it, when in reality the dealer was actually higher. The dealer verbally quoted him a lower APR and since that's what he wanted to hear, he let his guard down and didn't verify what he was told.
As with most transportation lenders, the loan document did not disclose the interest calculation method or the APR. On a consumer loan, the APR legally must be disclosed, so if the loan document does not reflect what you were told, you will immediately know when the loan document is placed in front of you for your signature. Pretty nice safeguard, don't you think?
When it came time to sign his truck loan document, the APR was noticeably absent, but surely it must be what he was told. At this point feeling somewhat intimidated, he signed the loan and off he went. Some of you might think that you would not have signed that truck loan without questioning the absence of the APR, but remember that the only thing standing between this guy and his new truck was a quick signature. Plus, this guy really wanted to believe what he had been told.
Aside from the fact that a lender is not legally required to disclose the APR on most commercial loan transactions, what possible justification could there be or not disclosing it? Are these lenders not interested in fully informing their customers?
This practice of transacting business, using documentation which does not fully disclose essential information to the customer, can obviously lead to problems. Even if we give the dealer the benefit of the doubt and assume that this was not intentional, the trucker would have immediately noticed the APR was wrong if the lender used full disclosure loan documents.
The bottom line here is this: If in doubt, check it out. If your loan document does not fully disclose the APR, interest calculation method, prepayment penalty and additional fees in simple, easy to read language, you should be in doubt. When you sign a loan document, you have executed a legally binding agreement and that signature of yours tells the world that you agree with and understand all of its contents.