June 2016

Consumer Voices on 

Automobile Financing 
1 CONSUMER VOICES ON AUTOMOBILE FINANCING

About CFPB Research, Tools, and Resources for Financial 

Educators

An essential part of the mission of the Consumer Financial Protection Bureau (CFPB or Bureau) 

is to empower consumers to take more control over their financial lives. Since the Bureau 

opened its doors in 2011, we have worked to improve the financial literacy of consumers in the 

United States and to ensure access to tools, information, and opportunities for skill-building 

that they need to manage their finances. 

The Bureau’s principal financial education mandate is set forth in the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (Dodd-Frank Act). The Dodd-Frank Act created the 

Bureau and mandated the establishment of an Office of Financial Education to “be responsible 

for developing and implementing initiatives intended to educate and empower consumers to 

make better informed financial decisions.” 12 U.S.C. § 5493(d)(1). 

To better help consumers make well-informed financial decisions and achieve their own life 

goals, we at the CPPB have sought to increase understanding of three broad areas: consumer 

financial behavior, the financial education field, and effective practices in financial education. 

We conduct research in these areas to inform the CFPB's own financial education efforts and to 

share our insights with others who have a common interest in improving the financial wellbeing of consumers. 

The CPFB's goal for its financial education activities is to help consumers move towards 

financial well-being. In the CFPB's definition of financial well-being, consumers:

§ have control over day-to-day, month-to-month finances

§ have the capability to absorb a financial shock

§ are on track to meet financial goals, and

§ have the financial freedom to make choices that allow one to enjoy life

To learn more, visit the Resources for Financial Educators webpage at 

http://www.consumerfinance.gov/adult-financial-education

To get regular updates on CFPB research, tools, and resources for financial educators, sign up 

for the CFPB Financial Education Exchange (CFPB FinEx) by emailing CFPB_FinEx@cfpb.gov.
2 CONSUMER VOICES ON AUTOMOBILE FINANCING

Table of contents

About CFPB Research, Tools, and Resources ........................................................ 1

Table of contents......................................................................................................... 2

1. Introduction........................................................................................................... 3

2. Background on auto financing............................................................................ 5

2.1 Direct and indirect auto financing ............................................................5

2.2 Other sources of auto financing .............................................................. 12

2.3 The complexity of auto purchase and financing.......................................7

2.4 Shopping for an auto loan ........................................................................ 8

2.5 Implications for financial educators: Impact on financial capability and 

well-being ..................................................................................................9

3. About methodology............................................................................................ 11

3.1 Focus groups............................................................................................ 11

3.2 Consumer complaint data ....................................................................... 12

4. Consumer experience with automobile finance .............................................. 14

4.1 Focus group results ................................................................................. 14

4.2 Patterns in consumer auto purchase and financing ...............................18

3.4 Highlights from the consumer complaint data...................................... 22

5. Conclusions and implications........................................................................... 27
3 CONSUMER VOICES ON AUTOMOBILE FINANCING

1. Introduction

The automobile1 financing market makes up a significant share of the market for consumer 

financial products and services in America. Specifically, automobile lending is the third largest 

category of household debt for American consumers, behind mortgages and student loans, with 

almost 100 million auto loans totaling just over $1 trillion outstanding.2 For consumers who do 

not purchase a home, an automobile may be the largest purchase they will ever make. Taking 

out a loan to purchase an automobile can be a significant part of consumers’ financial lives. The 

decision to obtain auto financing includes many factors, including the source of financing, 

features of the loan, and issues related to down payment, trade-in, and add-ons.3

Because automobile loans are part of the financial lives of so many consumers, the Consumer 

Financial Protection Bureau (CFPB or Bureau) engaged in research about how consumers 

approach the auto financing decision, and what challenges they face in navigating the process.4 

 

1 In this paper, the term “automobile” or “auto” is used to describe cars, minivans, SUVs, and light trucks.

2 http://www.newyorkfed.org/householdcredit/2015-q4/data/pdf/HHDC_2015Q4.pdf

3 An add-on is an additional, typically optional feature or credit product that a dealer or lender may sell to consumers 

in addition to the auto and auto loan. This can mean car features such as alarm systems, tinting, special tires & 

wheels, rustproofing, and others. In the financing and insurance area, add-ons include GAP insurance, credit life 

insurance, and extended warranties. Consumers may also be able to purchase add-ons from banks, credit unions, 

and other entities after purchasing the vehicle. As with other aspects of the purchase and financing, comparison 

shopping may be beneficial.

4 There is other work ongoing in the important area of understanding how consumers make decisions in car financing. 

The Federal Trade Commission has begun the process of seeking OMB approval under the Paperwork Reduction 
4 CONSUMER VOICES ON AUTOMOBILE FINANCING

This report shares what we have learned to-date from the complaints submitted to the CPFB and 

from focus group research.5 

In our focus group research, we found that many consumers reported that they diligently 

research vehicles, consulting friends, family and the Internet. However, many consumers did 

not fully explore their options for auto loans, and did not shop around and negotiate as much for 

the financing as they did for the vehicle itself. Our examination of the consumer complaint data 

showed that consumers faced challenges in understanding loan features during negotiations on 

financing. The complaint data also highlighted some aspects of the auto financing process where 

consumers have reported troubling experiences.

This paper is intended to share with financial educators what the CFPB has learned from this 

research and from its work helping consumers prepare for and navigate the complex process of 

financing a vehicle. The research has also helped to inform the development of the CFPB’s Take 

Control of Your Auto Loan initiative.6 This initiative’s goal is to empower consumers to shop for 

and compare financing options when purchasing a vehicle (including bringing a financing offer 

to the dealership), look beyond the monthly payment and consider the total cost of financing 

when choosing an auto loan, and be aware of situations and financing features that could lead to 

costly surprises down the road. To see the Take Control of Your Auto Loan resources, go to 

consumerfinance.gov/auto-loans.

 

Act to interview consumers about consumer experiences in selecting, purchasing, and financing an automobile from 

a dealer (https://www.ftc.gov/news-events/press-releases/2015/12/ftc-seeks-public-comment-proposed-surveyconsumers-regarding).

5 The focus group research described in this report was funded by the CFPB under a competitive award to Abt 

Associates, contract number TPDCFPBPA130014 CALL0001.

6 This initiative is part of the CFPB Know Before You Owe effort, which has also focused on mortgages, credit cards 

and student loans.
5 CONSUMER VOICES ON AUTOMOBILE FINANCING

2. Background on auto 

financing

Most consumers who buy an auto take out a loan to pay for it. More than 90 percent of 

American households have a vehicle,7 and consumers finance 86.6 percent of new vehicle 

purchases and 55.3 percent of used vehicle purchases.8 

2.1 Direct and indirect auto financing

There are two primary methods of arranging for credit to buy a vehicle, often called “direct” and 

“indirect” lending. For direct lending, consumers go directly to a bank, credit union, or other 

lender and apply for and obtain a loan. Consumers using direct lending will commonly get an 

interest rate quote or a conditional commitment letter from these lenders before going to the 

dealership to buy an auto. 

In indirect lending, also called dealer-arranged financing, consumers obtain auto financing from 

a lender through a dealership. The dealership usually collects basic information regarding the 

 

7 http://www.umtri.umich.edu/what-were-doing/news/hitchin-ride-fewer-americans-have-their-own-vehicle

8 Melinda Zabritski, Experian Automotive State of the Automotive Finance Market, (Q3 2015) 

http://www.experian.com/assets/automotive/white-papers/experian-auto-2015-

q3.pdf?WT.srch=Auto_Q32015FinanceTrends_PDF. In 2014, 16.4 million new vehicles and 36 million used 

vehicles were sold. https://www.nada.org/WorkArea/DownloadAsset.aspx?id=21474839178; 

http://static.ed.edmunds-media.com/unversioned/img/industry-center/analysis/021715-used-market-report.pdf.
6 CONSUMER VOICES ON AUTOMOBILE FINANCING

applicant and forwards that information to one or more prospective auto lenders (banks, credit

unions, “captive” (manufacturer-affiliated) lenders, or finance companies). After evaluating the 

applicant, a lender may choose not to become involved in the transaction or it may choose to 

offer to finance the loan on certain minimum terms. After the deal is consummated with the 

consumer, the loan may then be sold to the lender, which has already indicated its willingness to 

extend credit to the applicant on established terms.

Many consumers who finance the purchase of their vehicle use indirect financing. While the 

precise percentage of consumers who use indirect financing is not known, industry sources 

suggest that indirect financing accounts for a majority of all auto finance transactions.

2.2 Other sources of auto financing

Another type of financing is offered by “Buy Here Pay Here” dealers, where financing is obtained 

directly from a dealer without the involvement of a financial institution, and is most often used 

by consumers with poor or no credit. The interest rate on loans from a Buy Here Pay Here 

dealer can be much higher than loans from banks, credit unions, captive lenders or other 

lenders.9 Buy Here Pay Here lenders tend to sell high-mileage used vehicles, charge higher than 

average interest rates, and may utilize starter interrupt and GPS devices to keep track of the 

vehicle after sale.

Consumers also have the option to lease an automobile. A lease is an agreement to use an auto 

for an agreed number of months. The consumer does not own the auto and returns it after the 

lease ends. Consumers may have the option to buy the vehicle at the end of the lease. In the 

third quarter of 2015, approximately 31 percent of new auto acquisitions were leases.10 

This report does not address Buy Here Pay Here financing or leasing.

 

9 Experian AutoCount, January 2015 – December 2015.

10 Experian State of the Automotive Finance Market Third Quarter 2015 at 7.
7 CONSUMER VOICES ON AUTOMOBILE FINANCING

2.3 The complexity of auto purchase and 

financing

In the automobile financing process, consumers need to make a series of choices, including, for 

example:

§ where to get financing

§ how much to finance

§ the duration of the loan

§ how much of a down payment to make (if applicable)

§ whether to trade in a vehicle, or sell it separately (if applicable)

§ whether to purchase add-ons such as extended warranties and whether to include those 

in the financing. 

All of these factors11 influence how much a consumer will pay for the loan, and therefore, the 

effective cost to the consumer of the vehicle transaction. 

The interest rate that consumers pay for an automobile loan may be negotiable, but generally is 

affected by the consumer’s credit score(s), the vehicle purchased, and the specific requirements 

of different lenders. Consumers with lower credit scores will generally pay higher rates due to 

the increased risk that they will not be able to pay off the loan in full. Consumers buying new 

vehicles pay lower rates compared to consumers buying used vehicles since the value of the 

collateral is generally both higher and easier to predict.

 

11 In addition, there are other choices related to the transaction that may affect financing and its costs, including spot 

deliveries, the choice of new versus used vehicles, whether the consumer plans to prepay (and if there are 

prepayment penalties), and whether the consumer owes money on the trade-in and plans to roll that balance into 

the new loan. Further, there are other factors outside of the actual transaction that relate to creditworthiness and 

will affect how much a consumer pays and the interest rate he or she can obtain, such as, past credit problems.
8 CONSUMER VOICES ON AUTOMOBILE FINANCING

One factor that adds to the complexity of auto financing is the growing availability of loans with 

terms longer than the traditional 60-month repayment length. The percentage of vehicle loans 

with terms of 73-84 months has grown steadily, reaching 28 percent of all new autos financed, 

and 16 percent of used autos financed in the third quarter of 2015.12 Consumers may not realize 

the extent to which the lower monthly payments from longer term loans can increase how much 

they will pay over the life of the loan. Consumers who take out longer loans run the risk of being 

“upside down” on their loans, in which they owe more on the loan than the auto is worth for a 

longer time, and also run the risk of simply paying more for their vehicle and loan.13 

The fact that a consumer has many choices to make about the vehicle purchased at the same 

time as the auto financing decision can compound the complexity of the process. Consumers 

may fail to focus on the loan as they consider the type of vehicle to purchase, the price of that 

vehicle, and the value of the trade-in. Consumers also need to consider other costs associated 

with auto ownership, such as taxes, titling fees, insurance, gas, and maintenance.

2.4 Shopping for an auto loan

Based on data from the National Financial Capability Survey, 50 percent of consumers report 

comparison-shopping for an auto loan.14 In addition, research by one nonprofit organization 

 

12 Experian State of the Automotive Finance Market Third Quarter 2015 at 26. 

13 Note that being upside down on an auto loan will likely also depend on the down payment, the agreed-upon 

purchase price, and other costs rolled into the financing, and may be affected by the choice to purchase a new car 

given the significant depreciation associated with driving a new vehicle off the lot.

14 FINRA Investor Education Fund, Financial Capability in the United State – National Survey Executive Summary 

(December 2009). This survey was also conducted in 2012, but the comparison shopping questions were not 

included in the 2012 survey. Recent research released by the Federal Reserve Board found a similar percentage (53 

percent) of consumers reporting that they had shopped for interest rates or loan terms (Board of Governors of the 

Federal Reserve System, Report on the Economic Well Being of US Households in 2015 (May 2016).
9 CONSUMER VOICES ON AUTOMOBILE FINANCING

suggests that approximately half of consumers who finance at the dealership do not negotiate 

the terms of their loan.15 

As with any situation in which the consumer has to make choices about both the purchase of 

product and the financing– for example, in the purchase of a home -- consumers may find it 

challenging to shop for and consider the financing separately from the choice of product. This 

situation can be particularly complicated in the vehicle purchasing and financing process, in 

which multiple terms and factors are considered simultaneously. Consumers may be unaware of 

the full costs of the transaction, their financing options, or the ability to negotiate terms. For 

example, consumers may negotiate on many of the aspects of the auto financing, such as interest 

rate, and term of loan – but this negotiation can be difficult when the impact of these loan terms 

are not immediately transparent, or can change during negotiations. A consumer may negotiate 

for a lower interest rate, but if the financing offer then has a longer loan duration, the total cost 

of the loan may not be lower.

If the lender or dealer emphasizes and the consumer focuses on primarily on the monthly 

payment, other important aspects that contribute to the overall cost of the auto loan may not be 

fully considered. Auto financing discussions generally come at the end of hours of shopping and 

negotiation. Consumers may feel pressure to accept financing terms so that they do not have to 

renegotiate the transaction.

2.5 Implications for financial educators: 

Impact on financial capability and wellbeing

The CFPB’s research on consumer financial well-being16 suggests that people who have higher 

levels of financial well-being, “Ask, Plan, and Act” when faced with a financial decision. The 

 

15 CNW Marketing Research, Document 1237: Haggle over new-vehicle price/trade-in value (CNW, 2010a).
10 CONSUMER VOICES ON AUTOMOBILE FINANCING

critical first step, “Ask,” refers to financial research that supports informed financial decisionmaking. Helping consumers adopt research and planning behavior through information and 

tools – one aspect of what the CFPB refers to as “Know Before You Owe” - can lead to good 

financial choices in the financing of their next auto purchase and for a lifetime of future financial 

decisions as well.

Making informed choices about automobile loans can contribute to a consumer’s financial wellbeing. As the terms for auto loans increasingly are longer than 60 months, these loans can 

constitute significant, long-term financial obligations that either help or hinder other financial 

and life goals. The average length of ownership of a vehicle by U.S. consumers is approximately 

8 years,17 so the auto budgeting and financing process is regularly repeated by many consumers. 

Because many consumers use auto financing throughout their lives, and because the financing 

can substantially affect the full cost of auto ownership, there is a great benefit in helping 

consumers learn to shop effectively for auto loans. 

 

16 Consumer Financial Protection Bureau. Financial Well-Being: The goal of financial education (February 2015).

17 https://www.experianplc.com/media/news/2014/analysis-shows-that-the-longer-consumers-hold-onto-vehicles/
11 CONSUMER VOICES ON AUTOMOBILE FINANCING

3. About methodology 

To gather information about consumer experiences related to auto budgeting and financing, we 

conducted a series of focus groups with consumers around their auto financing decisions. We 

also looked at data from complaints submitted to the CFPB in the “vehicle loan or lease” 

category.18

3.1 Focus groups

Focus groups can be a valuable way to understand common opinions, beliefs, and values that 

individuals hold, as well as how wide their experiences may range. Focus groups are not 

intended to give statistically significant data that can be generalized to all consumers. However, 

this method can yield rich qualitative information about what many consumers think and feel. 

In May and June 2014, the CFPB conducted a series of focus groups with 308 consumers in 

Boston, Massachusetts; St. Louis, Missouri; Atlanta, Georgia; and Seattle, Washington. The 

consumers were selected to represent a variety of experiences with automobile purchase and 

financing,19 and with financial decisions in general. Though the participants represented a 

 

18 While the CPFB does receive complaints about auto leasing, this report does not address leasing, as very few 

consumers in our focus groups had experience with leasing.

19 Not all consumers in the focus groups who purchased autos used financing. Some focus group participants paid for 

their vehicle with cash.
12 CONSUMER VOICES ON AUTOMOBILE FINANCING

demographically diverse group, they are not statistically representative of the overall 

population. 

Because the CFPB also screened for people who had significant experience with financial 

products and decisions, the consumers the Bureau talked to were generally more likely to have 

purchased a vehicle within the preceding 12 months and have more experience with and 

knowledge of the auto purchase and financing process than the general population.20 Thus, 

these focus groups provide insight into the views of certain types of consumers but should not be 

seen as representing the thoughts or experiences of all consumers. 

3.2 Consumer complaint data 

The Dodd-Frank Act established the handling of consumer complaints as an integral part of the 

CFPB’s work. The CFPB began accepting complaints in July 2011, and as of June 1, 2016, the 

CFPB has handled approximately 906,400 complaints. The Bureau currently accepts complaints 

on many consumer financial products, including credit cards, mortgages, bank accounts, 

student loans, auto loans, other consumer loans, credit reporting, money transfers, debt 

collection, payday loans, and virtual currency. 

The CFPB's Consumer Complaint Database is a public database of consumer financial 

complaints that includes basic, anonymous information about complaints received from 

individual consumers, including the date of submission, the consumer’s zip code, the relevant 

company, the product type, the issue the consumer is complaining about, and how the company 

handled the complaint. Starting in March 2015, the Bureau gave consumers the option to 

publicly share their stories when they submit complaints to the Bureau (“public narratives”). 

 

20 Specifically, 50 percent of the focus group participants had purchased a car within the previous 12 months, 45 

percent had purchased a car more than 12 months ago, and 5 percent had never purchased a car. According to 

recent research by the Federal Reserve Board, 24 percent of consumers surveyed had purchased a vehicle within the 

previous 12 months. (Board of Governors of the Federal Reserve System, Report on the Economic Well Being of US 

Households in 2015 (May 2016).
13 CONSUMER VOICES ON AUTOMOBILE FINANCING

Since this option became available, more than half of consumers submitting complaints to the 

CFPB website have opted in to share their accounts of what happened. 

In the public narratives of the Consumer Complaint Database, as of April 20, 2016, there were 

approximately 2400 narratives related to auto issues where consumers had opted to share their 

experiences publically. The CFPB reviewed the subset of these public narratives (approximately 

2000 narratives)21 that dealt with consumer complaints about vehicle financing, and then 

identified themes and areas of consumer concern or confusion, which are described below.22

The CFPB identified similar themes and areas of concern in both the focus group discussions 

and the complaints. While we cannot generalize these themes and areas of concern to the 

broader population, we have gained qualitative information about some consumers’ experiences 

and perceptions around auto financing. The information gathered is intended to provide 

financial education providers with more perspective on some of the issues consumers have 

experienced in auto financing.

 

21 The other approximately 400 public narratives on auto dealt with vehicle leasing and auto title loans.

22 For purposes of this study, we are focusing on the narratives of those who elected to make their complaints public, 

and that group may not be representative of complainants generally. However, the themes reflected here are 

generally similar in type and distribution to all complaints submitted to the CFPB on auto issues.
14 CONSUMER VOICES ON AUTOMOBILE FINANCING

4. Consumer experience with 

automobile finance

4.1 Focus group results

The consumers who participated in the focus group discussions generally viewed the process of 

automobile budgeting and financing as confusing and stressful. Most of these consumers said 

they negotiated some part of the purchase or loan, usually the amount of monthly payments or 

the total price of the automobile. Few consumers said that they negotiated interest rates or 

other financing terms.

Roughly one quarter of the focus group participants paid for their automobile purchase in cash. 

Approximately 70 percent financed a purchase (either new or used vehicle)23 and just over half 

of those did so through direct financing from a bank or credit union. A very small number of 

focus group consumers borrowed money from a friend or family member or used a Buy Here 

Pay Here dealer.24 

Some themes that emerged from the discussions with consumers are described below.

 

23 This is slightly higher than the national average. Approximately two-thirds of all auto purchases (combined new 

and used) are financed. (Calculation based on data from Experian State of the Automotive Finance Market Third 

Quarter 2015 and https://www.nada.org/WorkArea/DownloadAsset.aspx?id=21474839178).

24 We do not report on the findings related to consumers who borrowed from friends or family, or who went to a Buy 

Here Pay Here lot, due to the small numbers of both types of consumers in our focus groups.
15 CONSUMER VOICES ON AUTOMOBILE FINANCING

4.1.1 Consumers said the situations in which they 

purchased a vehicle matters

Consumers in the focus groups reported different types of situations that had led them to 

purchase a vehicle. The context in which consumers were making the purchase decision 

appeared to influence the amount of comparison shopping and research they felt they were able 

to do. Those situations were:

§ Urgent or immediate need. Many consumers in the focus groups described an 

urgent need for a vehicle due to an accident or breakdown of their vehicle. These 

consumers said they completed the automobile buying process within a day or two of the 

accident or breakdown. For these consumers, the search and purchase processes were 

compressed, and they were not able to thoroughly research either their purchase or how 

they financed it. Some consumers stated they relied on intuition because of the urgent 

nature of the decision-making process. Others discussed the heavy burden that the 

immediate need for a vehicle placed on their finances. 

§ Replacement in the near future. Some consumers in the focus groups said that they 

did not have an immediate need for a new vehicle, but knew that they would have to 

purchase one in the near future to replace their existing vehicle. These consumers 

reported having more time to research and make decisions. 

§ Transition in life. Some consumers in the focus groups said they bought a vehicle 

based on their transition into a new life stage, such as a move, retirement, or change in 

household. Their levels of focus on research and shopping were more varied.

4.1.2 Consumers said they seek information primarily about 

the vehicle (not the financing)

Most consumers reported doing some type of research before they purchased a vehicle. Nearly 

all of their research focused on the selection and price of the automobile, and not on the 

financing. Consumers in the focus groups consistently cited two sources of information they 

used during the auto purchase process: 

§ Immediate family. For consumers in the focus groups, the most common source of 

information cited was immediate family. Some reported receiving information from 
16 CONSUMER VOICES ON AUTOMOBILE FINANCING

family members that supplemented their own research, while others said they received 

hands-on assistance during the purchase process. 

§ Automotive websites. Consumers stated that they felt more knowledgeable and 

empowered after conducting online research. Some consumers said they used websites 

that include interest rate and auto loan calculators. Sources of online information 

mentioned included Consumer Reports, Kelly Blue Book, Edmunds, Auto Trader, and 

the National Automobile Dealers Association, among others.

4.1.3 Consumers said they used various negotiating tactics 

for purchasing vehicles

Some consumers reported negotiating during their automobile purchase experience, primarily 

on the price of the vehicle. These consumers discussed various tactics they used to negotiate, 

such as:

§ Relying on information resources like family members and automobile purchasing 

websites.

§ Shopping at specific times when consumers believe dealers are more likely to sell 

vehicles faster and at a lower price.

§ Negotiating between dealers for a lower purchase price on the same vehicle.

§ Using classified advertisement websites to negotiate between individuals and dealers for 

a lower purchase price on the same vehicle.

4.1.4 Few consumers reported focusing on the total cost of 

the financing

Consumers in the focus groups cited several economic decision factors when shopping for a 

vehicle. How they prioritized factors depended on the person, his or her financial situation, and 

his or her intentions for the vehicle. Most consumers in the focus groups focused on the monthly 

payments or price of the vehicle, and some expressed confusion about how changing financing 

terms could change the total cost of the auto and the underlying loan. A small number of 

consumers said they considered overall cost of ownership, including expenses like insurance, 

fuel, and maintenance. 
17 CONSUMER VOICES ON AUTOMOBILE FINANCING

The three primary decision factors mentioned by consumers in the focus groups were: 

§ Monthly payments. Many consumers reported focusing on the amount of the monthly 

payment and not on the terms of the financing or the total amount to be repaid over the 

term of the loan. Of these consumers, some did not appear to clearly understand that 

lower monthly payments extended over a longer period of time meant ultimately paying 

more than a higher payment over a shorter time frame.

§ Price. Some consumers reported that they paid attention primarily to the price of the 

vehicle, or the price of the vehicle plus the interest rate, though this was not as common 

as focusing on the monthly payment.

§ Value retention. Some focus group consumers said they placed weight on the present 

and future value of the vehicle. Many of these consumers said they thought buying a used 

auto was an advantage since the initial depreciation a new vehicle would face had already 

taken place. These consumers frequently mentioned that they traded in their vehicle 

when they went to the dealership. For these consumers, how well a vehicle retains its 

value appeared to be equally as important as the cost or monthly payment. 

4.1.5 Consumers reported they rarely negotiated financing 

details

Many consumers in the focus groups said they did not consider or attempt to negotiate financing 

terms or interest rates, and some expressed confusion about the difference between direct and 

indirect financing. Many of these consumers noted they believed financing offered by dealers 

and financial institutions would be essentially the same. Some consumers in the focus groups 

also indicated they were unaware that they could negotiate financing terms and interest rates.

Those who did research their financing options mentioned strategies such as:

§ Pre-qualifying for a direct loan through a bank or credit union in order to better 

negotiate indirect financing interest rates and terms. Some consumers reported that they 

prequalified for financing at a financial institution, then negotiated with the dealer and 

chose the loan with the lowest interest rate they could find, regardless of the source.

§ Checking their credit reports or scores to understand their own creditworthiness before 

going to the dealership, in order to better negotiate financing interest rates and terms. 
18 CONSUMER VOICES ON AUTOMOBILE FINANCING

4.1.6 Many consumers reported they purchased add-ons 

offered during the financing process

Many consumers in the focus groups had negative perceptions of the sales process for extended 

warranties and other add-ons, and sometimes of the add-ons themselves. Some consumers 

explained they experienced “decision fatigue” by the time they finalized their purchase, and 

feelings of being overwhelmed and scared were not uncommon. 

Notwithstanding these negative perceptions, the majority of consumers in the focus groups 

reported buying add-ons during the process of arranging financing. Some said they had planned 

on purchasing them for peace of mind. On the other hand, a roughly equal proportion reported 

that they had not intended to purchase these add-ons until they were at the dealer. The cost of 

these add-ons was typically added into the financing.

4.2 Patterns in consumer auto purchase 

and financing

The CFPB delved into consumer perceptions and motivations to identify patterns. These 

patterns may help financial educators and others interacting with consumers to better tailor 

information and resources to help consumers in managing their vehicle budgeting and 

financing. Note that because the focus group participants were not representative of the U.S. 

population as a whole, it was not possible to estimate the sizes of groups demonstrating these 

patterns. Common focus group responses suggest two major segments of auto buyers: those who 

finance and those who pay cash. 

4.2.1 Consumers who reported they financed their vehicles

The CFPB identified two types of consumers who financed the purchase of a vehicle: those who 

reported comparison shopping for direct and indirect financing, and those who said they sought 

indirect financing through a single dealership. 

The focus group consumers who said they comparison shopped for financing generally reported 

that they:
19 CONSUMER VOICES ON AUTOMOBILE FINANCING

§ investigated and shopped around for financing offers and terms, particularly interest 

rates, with multiple financial institutions before purchasing a vehicle. 

§ regularly used financial products and services and felt they possessed substantial 

knowledge about how credit works. 

§ were confident in their ability to get favorable credit terms and often had moderate to 

high credit scores, so they believed that shopping around for financing was worth the 

time and effort they invested. 

§ found pre-approval reassuring, as these individuals believed it was something that 

provided them leverage in negotiations.

§ tended to be younger and possessed more investable assets. They were more likely to be 

college graduates and to be employed full time. 

§ if they had poor credit scores, may have attempted to shop for direct financing, but were 

denied. If denied, they then used indirect financing or cash for their purchase. 

Implications for financial education: Because this segment of consumers reported they 

were already comparison shopping for auto loans, their financial education needs may not 

include focusing specifically on the value of comparison shopping and negotiating. Consumers 

in this segment may benefit from tools and information to help prepare for and manage their 

automobile financing search, from more information on the overall process, and from 

reinforcement of the need to look at the total cost of the loan.

The consumers who said that they sought financing only through a dealer generally:

§ liked the convenience of indirect financing, and many believed that dealers and other 

financial institutions offer equivalent terms and interest rates.

§ if they had low credit scores, reported that they used indirect financing because they 

believed direct lenders would deny their credit applications.

§ tended to negotiate the price of the vehicle, but not features of the auto loan (such as 

interest rate and duration of loan).

Implications for financial education: This consumer segment could benefit from more 

information and decision-making tools related to the auto finance process to increase their 
20 CONSUMER VOICES ON AUTOMOBILE FINANCING

comparison shopping for auto loans and to negotiate for better loan terms. They could also 

benefit from an understanding of the value of focusing on the total cost of the loan.

4.2.2 Consumers who reported they bought their vehicles 

with cash

Cash buyers were individuals who told us they paid cash for the purchase of a vehicle instead of 

obtaining financing. Compared with those who said they financed, cash buyers in the focus 

groups tended to be less well-off financially: they reported earning less money and having fewer 

investable assets. They also reported being more likely to rent than own a home and less likely to 

be working toward paying down debt. Cash buyers said that they tended to buy used vehicles 

and spent less than those who financed the purchase. 

Most cash buyers said they shopped for vehicles online, and many focused their search on online 

ads. In general, these individuals said they perceived the automobile-buying process as less 

stressful and attributed this fact to using cash. They also mentioned they felt more prepared for 

the purchasing situation because they did not have to exert the time and effort required to 

coordinate financing, and used this preparedness as leverage in negotiating a better price.

The focus groups identified two motivations among those who purchased an automobile with 

cash: those who reported paying cash on principle and those who said they did not believe that 

they could secure financing.

The consumers who told us they chose to purchase with cash on principle generally:

§ were motivated by a strong opposition to debt.

§ had learned lessons about taking on debt, and in some cases, said they were motivated to 

pay cash in order to recover from previous negative financial experiences.

§ tended to be less well-off financially and believed they possess less knowledge about 

things like credit files and management of finances. 

§ tended to check their credit report less and were especially unlikely to check before 

shopping for a vehicle, as they knew that they would pay with cash. 

§ seemed wary of the financial system, and were pessimistic about employment prospects 

and the economy as a whole.
21 CONSUMER VOICES ON AUTOMOBILE FINANCING

§ may have felt that freedom from the stressful financing application process and unclear 

financing contracts were benefits to paying cash.

The consumers who purchased vehicles with cash and who told us that they believed financing 

was unavailable for them tended to:

§ believe that poor credit likely limits their financing options, and as a result they said they 

felt constrained to a cash purchase. 

§ be more likely to be young, single, college students or recent college graduates, and 

people of color. 

§ feel that existing debt is an important constraint.

§ hold optimistic views about their financial future and believe their poor credit situation

is temporary.

§ believe that they were taking positive financial actions, like establishing savings and 

charging purchases to credit cards only in emergencies.

Implications for financial education: The consumer segments in the focus groups who buy 

vehicles with cash could potentially benefit from financial education efforts to help them budget 

and save for vehicle purchases, improve their credit profiles (for those who have poor or no 

credit), and understand financing options if they seek to finance a vehicle in the future.
22 CONSUMER VOICES ON AUTOMOBILE FINANCING

4.3 Highlights from the Consumer 

Complaint Data 

This report reviewed the approximately 2000 public narratives in the CFPB's Consumer 

Complaint Database related to vehicle financing issues as of April 20, 2016.25 A number of 

themes appeared in multiple narratives and suggest particular challenges that consumers face in 

navigating the auto financing process. 

Note that while we observed these themes, we do not have data on how frequently consumers 

encounter these particular situations. Like the consumers in the focus groups, the people who 

submit complaints to the CFPB and who opt in to permit their complaints to be placed in the 

public database are not a statistically representative sample of the population as a whole. These 

themes provide a sense of the broad types of issues some consumers encounter that can provide 

insights for consumer educators. The themes also generally reinforce the findings from the 

focus groups described above.

The themes we identified in the Consumer Complaint Database public narratives are described 

below. 

4.3.1 Lack of comparison shopping

Some consumers expressed they didn’t understand the potential financing options available, or 

they did not feel confident in exploring options other than what was offered to them. For 

example, one consumer noted that he/she has assumed that the interest rate would be the same 

whether the loan was obtained from a dealer, an online lender, or a bank branch. 

 

25 There were a total of approximately 2400 public narratives on auto issues as of that date. Approximately 2000 

public narratives related to vehicle loans. The other approximately 400 public narratives dealt with vehicle leasing 

and auto title loans.
23 CONSUMER VOICES ON AUTOMOBILE FINANCING

4.3.2 Challenges in understanding and negotiating on 

vehicle loan terms

Consumers reported they found the terms of their vehicle financing options confusing. They 

also reported that they did not fully understand some terms or aspects of the loan (for example, 

loan term, interest rate, or lender) during the negotiating process or until after the process was 

complete. Consumers also complained about fees that they did not fully understand until later.

For example, some consumers reported that they did not fully understand the level of the 

interest rate they were paying until they started making payments. Some did not realize that the 

interest on their auto loan was compounding daily. Others were surprised when they realized 

that the cost of the financing would more than double the total cost of the vehicle purchase.

4.3.3 Promises of refinancing or better terms in the future

In some cases, consumers reported knowing they were not getting a good deal, but said that they 

were told they could refinance for better loan terms (such as a lower interest rate) at a later 

point. Some consumers reported they were told their payments would go down, or that the loan 

would be transferred to another lender with better interest rates after the purchase was 

finalized. Consumers reported that when they tried to follow up on these options, they found 

these options were not available. 

For example, some consumers reported that they were unable to find a lender to refinance their 

vehicle because they were "upside down," i.e., the value of the vehicle was less than the amount 

owed. Some consumers also reported that they had been planning on lower monthly payments 

via refinancing and were concerned that they would default on their loans when they were 

unable to refinance.

4.3.4 Loans that last beyond the life of the vehicle

Some consumers reported that they faced challenges with their vehicles or loans that led to the 

loss of the vehicle, but consumers still owed money on their auto loan. In some cases, 

consumers believed that they could return the vehicle to the dealer but were not able to get the 

loan cancelled when they did. In other cases, the vehicles were repossessed and then sold, or 

were damaged or unrepairable. The consumers would be left with auto loans they had difficulty 
24 CONSUMER VOICES ON AUTOMOBILE FINANCING

paying, but no access to a reliable vehicle. Some consumers indicated they were discouraged 

when very little of the loan principal had been paid off after several years of payments.

4.3.5 Problems with add-ons

Consumers reported paying for add-ons they had not wanted. In addition, some consumers 

reported that lenders insisted that the purchase of add-ons were necessary for the loan to be 

approved. For example, in some cases, consumers said that they agreed to buy add-ons in order 

to complete the deal and go home. Consumers also reported that they discovered the add-ons 

they had purchased were difficult or impossible to use when needed. For example, some 

consumers reported that the GAP insurance they had purchased did not fully cover the balance 

of the loan after their vehicle was damaged or stolen.

4.3.6 Loan applications without permission and unexpected 

credit inquiries

Some consumers reported that dealers submitted loan applications to lenders without the 

consumers’ permission, or added co-signers to loans without permission. For example, some 

consumers said after visiting a car lot or test-driving a car, they received letters approving or 

denying auto loans that they had not applied for. In some cases, consumers agreed to a loan 

with one lender but discovered a different lender listed in the final paperwork.

Consumers also reported that when they visited one or more dealers, there were multiple credit 

inquiries related to shopping for automobile loans. These consumers expressed concern that this 

had damaged their credit scores. However, many commonly-used credit scoring models count 

credit checks -- the industry calls them “inquiries”-- for an auto loan within a time span ranging 

from 14 days to 45 days, depending on the credit scoring model used, as a single inquiry. Thus, 

shopping around for a loan during that time will count the same as applying for just one loan. 

4.3.7 Implications for financial education

While some of the themes mentioned above are not primarily related to lack of consumer 

knowledge, it is important for consumers to “Know Before You Owe” by understanding the 

different components of the auto financing transactions and which components are negotiable 

or optional. Consumers can also benefit by knowing that they can voice complaints (if 

appropriate) when challenges arise. It is also important that consumers feel empowered to 
25 CONSUMER VOICES ON AUTOMOBILE FINANCING

comparison shop in advance, to examine documents, and to know they can walk away if they 

suspect the loan is not in their best interest. This suggests the need for financial education 

initiatives designed to help consumers navigate the automobile financing process and watch out 

for potential problems.

In their own words

Consumer narratives from the CFPB Consumer Complaint database

“I assumed....that [the lender] would offer a competitive rate regardless of how it was 

obtained (i.e., online, branch, or auto dealer).”

“I purchased this vehicle at a high rate under the impression that I would be able to afford it 

after a very short time [by refinancing].”

“[The dealer] subsequently applied for a legitimate loan without my consent or knowledge.”

“I recently purchased a car from [a dealer] and gave my permission to have my credit ran 

ONCE.... Since my application was approved my credit has been ran a total of [multiple] 

other times since without my permission. This has significantly brought down my credit 

score due to hard inquiries which were made fraudulently and without my permission.”

4.3.8 Special consumer segments

Similar to the findings in the focus groups discussed above, we identified consumer segments in 

the complaint narratives that reported particular challenges in navigating the financing process. 

Specifically, two segments that had difficulty with the automobile financing process stood out in 

the consumer narratives:

§ First-time automobile buyers. Some consumers noted they were first-time auto 

buyers, and they reported that their lack of experience with the process resulted in 

confusion about the loan terms and unfavorable loan terms.

§ Consumers with an urgent need for an automobile. Some consumers mentioned 

they needed an auto immediately, and this limited their ability to shop around and 

negotiate for a better deal.
26 CONSUMER VOICES ON AUTOMOBILE FINANCING

Both of these consumer segments could potentially benefit from financial education efforts to 

help them understand and navigate the automobile financing process. 
27 CONSUMER VOICES ON AUTOMOBILE FINANCING

5. Conclusions and implications

The diversity of consumer perceptions, attitudes, and behaviors in the focus groups and 

consumer complaint data brought to the surface some broad challenges and themes related to 

the experiences and struggles of some consumers navigating the auto financing process.

As part of the CPFB's interest in helping consumers to "Know Before You Owe," the CFPB wants 

to help consumers make informed choices around automobile financing. The CFPB encourages 

consumers to do three things: 

§ Shop for and compare financing options when purchasing an auto, including bringing a 

financing offer to the dealership;

§ Look beyond the monthly payment and consider total cost of financing when choosing an 

auto loan; and

§ Be aware of situations and financing features that could lead to costly surprises down the 

road.

Comparison shopping for financing can have important economic benefits for consumers and 

can help them be more financially empowered to make the best decision for themselves and 

their families. Elements of comparison shopping may include, for example, acquiring preapproval for an auto loan at a bank or credit union – and using the information and tools noted 

below to help navigate the process. 

To help consumers understand what they are borrowing and receive the best loan for their 

situation, the CFPB encourages consumers to look beyond the monthly payment when 

comparing financing offers. Consumers can benefit from using the total cost of the loan --

meaning the full cost of interest and principal over the life of an auto loan --- in comparing 

offers. Looking at total cost, not just vehicle price or monthly payment or another single aspect, 
28 CONSUMER VOICES ON AUTOMOBILE FINANCING

can assist consumers to keep track of multiple factors that may be in flux during negotiations for 

an auto loan, and help them ensure that they obtain the best financing for their situation. 

To help consumers navigate the process of obtaining an auto loan, the CFPB has developed 

resources that financial educators may also find useful. These resources can be found at 

consumerfinance.gov/auto-loans:

§ The Auto Loan Worksheet, which can help consumers look beyond monthly 

payments by keeping track of and comparing different automobile financing options. 

§ Take Control of Your Auto Loan: A step-by-step guide, an auto loan guide to help 

consumers understand and navigate the auto financing process, at. 

§ The Take Control of Your Auto Loan website, which presents information from the 

worksheet and guide in a web-friendly format at www.consumerfinance.gov/auto-loans.

§ Ask CFPB. The CFPB answers consumer questions about auto budgeting and financing 

as part of the Ask CFPB website at consumerfinance.gov/askcfpb/.

§ Submit a complaint. Consumers who have complaints about their vehicle loans can 

submit complaints online at consumerfinance.gov/complaint or by phone at (855) 411-

2372.

These focus group results and consumer complaint themes can inform the work of financial 

educators and others who help consumers navigate their financial lives. We encourage the broad 

array of stakeholders who work with consumers to incorporate messages and information 

around automobile financing into their work with consumers.