The Washington times., 1923-08-30
Al 7 OS
ON TIME IS
COSTLY
Banks and Finance Companies
Exact Fat Interest and
Bonus From Purchasers.
BY w. s. COUSINS.
Copyright. 1923. by Cosmopolitan
News Servicel

BY w. 8. COUSINS.
Copyright. 1923. by Cosmopolitan
News Service.1
NEW YORK. Aug. 30.--A toll Of
at least $15O.OO0,O00 annually above
the legal rate of interest is being
exacted Of that portion Of the
American public which is buying au-
tomobiles on time payments, accord
ing to facts revealed in an investf
cation completed today.
Many banks and loan agencies
organized especially to finance au-
tomobile purchases are charging as
high as "a per cent interest. An
interest charge Of Is per cent is
not at all unusual on loans adj
vanced for partial-payment purchase
| of automobiles, while some firms
are able to get more than "a per
cent interest where the risk is
greater or where the buyer Is
classed as "easy picking"
A nationwide network Of "auto.
mobile loan" concerns, some Of
them affiliated with or operated by
the auto manufacturers themselves,
is taking In all a toll Of not less
sY6EV1VVUSVWV
allto-buying public, allowing 6 per
cent interest. This sum Is In addi.
ton to the selling price Of the cars.
Mostly Bought on Time.
The Automobile Chamber Of Com
merce estimates this years auto
mobile output at 100000 vehicles.
the aggregate selling price Of which
win be more than $4,000, 600, 900.
- ~
sales, 1t is estimated by large dis
| tributors OF cars, will be financed
on the Acknowledgements plan. This
will necessitate the borrowing Of
| 81, SOC, O0O, 900, at rates averaging 10
| per cent above the legal charge pre-
scribed for banking institutions.
More than 100 special financing
agencies, the survey discloses, have
sprung up in recent years. The
buyer of an automobile, whether he
deals with these agencies or with e
bank, pays down one-third to one.
half Of the purchase price in cash
and then attaches his signature to
a series Of notes for the balance,
agreeing to pay one note monthly
over q period Of from six to twelve
months until the debt IL nquidated.
It is here that the banker, or
L
notes Of themselves, In many cases,
bear no interest, but calculations
are made for the>whole period and
the amount Is included in the total
| indebtedness shown on the notes.
The buyer thereby Is tricked into
| paying a higher charge for the
loan than the legal rate Of interest.
Moreover, in such cases he pays
interest on the money actually re-
paid to the bank. Thus the usury
law is evaded and the purchaser
pays from IL to "a per cent inter-
est.
One large auto manufacturing
concern, which has cash assets, runs
ming into millions of dollNrs, and
therefore Is independent Of out
side financing, explained that it's
interest and service charge for
loans, which was above the legal
rate, was due to the risk encount-
cred in making sales, and expenses
entailed In collections.
Losses Are Small.
However, one Of the largest motor
concerns. which maintains it's own
financing department, known as the
General Motors Acceptance Cor
poration, reported losses on only
one-fourth of / per cent Of its
outstanding credit paper. Official
records Of other credit companies
show that the loss on Automobile
paper" last year was about one
half Of per cent. ...
In a circular issued by a banking
institution operating under the
Jurisdiction Of the New York State
banking department, the regulations
Of which strictly limit the legal
interest rate to 6 per cent, the
schedule Of charges for automobile
borrowing is given as follows:
On q 5000 car, with 5000 paid
down and $500 borrowed, the bank
makes $34 charge for one year.
1t does not call 1t interest, for that
would be against the law. At 6
per cent the interest on this sum,
calculated on amortization tables
Of monthly payments, Is exactly
$13. The banks rate Is Is per
cent.
On a $1,000 car, with one.third
paid, charges for borrowing the
! balance are SIT for one year. At 6
per cent the interest would be $21.64.
The interest charges in excess of
the legal rate In this case are II
per cent. ...-
On a $4,000 machine, on which two
thirds Of the purchase price Is Dor.
rowed, the bank charges $142 in in
terest. At per cent the same
amount would cost the borrower
$43.35. The banks charge is 20 per
!cent.
One of the few lines Of business
! which did not lose money in 1921
was the auto industry. Since that
year the auto industry has been
hoOvN0fNrop ~
Obviously credit agencies, in charg-
ing as high as "a per cent and more
for automobile loans, are, in the
face Of statistics showing losses of
less than per cent, allowing plenty
of leeway for "risk," in the opinion
of impartial observers.