Auto dealer's loan advice nearly doubled truck cost, customer says

An Edmonton man believes he was sweet-talked into agreeing to a loan with an interest rate three times higher than necessary on a Dodge Ram 1500 pick-up truck.

John Rudolph, 26, says McEwan Motors of Leduc, Alta., told him that because of his limitedcredit history,his only option was a sub-prime loan at 18.5 per cent interest.

Rudolph said the dealership told him the high-interest loan was the best way to improve his credit rating and that he could trade in the truck a year later to lower his interest rate.

A leading credit expert says hes heard the argument many times and that dealers who give that advice put young buyers at risk.

Had Rudolph made all the scheduled monthly payments, the interest on the loan for the 2014 Dodge half-ton pickup would total nearly $30,000pushing the trucks final price to over $70,000.

Thats a lot of money, $70,000, for a truck you see advertised on TV (for less than) half that price, said Rudolph.

Rudolph agreed to the terms, made a $6,000 down payment, and drove to Cold Lake where he says he parked the truck and went to a work camp.

For three weeks,McEwan Motors and Rudolph exchanged a series of texts with the dealer asking repeatedly for the registration so it could finalize the loan, or to have truck back.

Rudolph said at the end of those three weeks another dealer told him hed paid too much.

Because the loan hadnt been finalized he could return the truck, they said, and the other dealer would sell him a nearly identical pickup at 6.24 per cent interest.

All he needed was a cosigner.

Rudolph told McEwan Motors hed found a better deal.

The dealers finance officer, Michelle Plihal, sent Rudolph a text saying the company was keeping his $6,000 down payment.

When Rudolph replied it was better than $30,000 interest, Plihal texted Thats logical ... fools and their money soon part.

"Who likes to be called a fool? Its kind of a shock to the self-esteem, Rudolph said.

Needed truck in a hurry

Rudolph said he went to McEwan Motors because it was advertising a 2007 Dodge one-ton pickup with a 5.9 litre diesel engine for about $16,000.

He said he needed a truck in a hurry because he had to return to work near Cold Lake, and the truck he brought from Nova Scotia wouldnt pass the out-of-province safety inspection.

Rudolph said McEwan staff told him he should buy something newer than 2007.

They settled on the 2014 Dodgewith a list price of $42,995.

Based on his credit, he needed to get something newer before he could even think about buying a diesel in the future, Plihal said.

Rudolph said he believed them when the dealer told him he would have to pay sub-prime rates.

This is my first time buying anything from a dealership. I always bought my used cars from farmers and stuff.

Rudolph said Plihal told him not to worry about the 18.5 per cent because it would be temporary.

They said the interest rate doesnt matter because you are only going to be doing it for a year. You can trade it in and your interest rate will go down, Rudolph said.

High interest would rebuild credit, dealer says

McEwan Motors insists it was helping Rudolph by getting him into a sub-prime loan.

He had a limited credit history, was a moderate risk, and had been rejected by conventional lenders, the company said.

Plihal said TD Auto Finance did approve Rudolph for a loan at just 4.99 per cent provided he could get a parent to co-sign, but he didnt have a cosigner.

She said she also told Rudolph, as she does other young buyers, that co-signed loans arent a good idea.

Plihal said it could mean Rudolph would need co-signers for the rest of his life.

Much better, she said, to take the sub-prime loan in his own name, then trade in the truck in a years time and get a lower rate on the next one.

Credit counsellor troubled by dealers advice

Scott Hannah, president and CEO of the Credit Counselling Society, said hes heard that argument before, but its false.

He said many young people, particularly in Alberta, have taken on unsustainable levels of debt believing they were helping improve their credit rating.

Weve certainly heard it from thousands of consumers who have approached our organization over the years.

Hannah who for 11 years was an assistant vice-president at credit rating agency Equifax said its not true that having a co-signer can negatively affect a persons credit rating.

He said the loan Rudolph later signed, and had his father cosign, will build his credit ratingas long he makes payments on time.

Hannah said dealers who suggest high-interest loans to young people are setting them up to fail.

Why would they steer him away from getting a co-signer at 4.99 per cent interest rate to a loan of 18 per cent? Im troubled by that, Hannah said.

Thats a 13 per cent spread in charges and that is going to substantially add to the length of time its going to take this person to pay it back and the interest that persons going to pay over the lifetime of that loan.

Hannah said Rudolph should have borrowed less money and bought the seven-year-old truck he was looking for in the first place.

Hannah said people looking to improve their credit score should try to pay off debts early and not apply for credit they dont really need.

Always prefers lower interest loans, dealer says

Dealership owner Alex McEwan said the companys first choice is always to arrange lower interest loans if a customer is eligible, because his business makes more money from prime loans.

Banks and other lenders pay a commission to car dealers when they arrange a loan, and McEwan said the commission he makes on a prime loan is higher than a sub-prime.

Theres no reason under the sun that we would take someone who could qualify for a low-interest loan and put them into a (sub-prime loan), McEwan said.

Even with sub-prime loans, however, the greater the amount borrowed the bigger the commission paid to the dealer.

Lower rate shaved years and thousand of dollars off loan

Rudolph maintains McEwan talked him into a truck that was newer than he wanted and that they never offered the lower interest rate.

The loan he agreed to with the second dealer reduced his payments by almost $200 a month and shortened the payback time by two years.

Rudolph said McEwan got its truck back but kept his $6,000 down payment.

McEwan wont return the money, saying Rudolph had the truck for three weeks, put 3,000 kilometres on it and returned it dirty and damaged.

Rudolph, however, disputes the damage claim and the number of kilometres.

He complained about his experience to the Alberta Motor Vehicle Industry Council, the industry regulator. It found no breach of law or sufficient grounds to continue an investigation.

This is just a guy who bought a vehicle, changed his mind, went somewhere else and talked his dad into co-signing. And now he wants somebody to go and get his money back, McEwan said.

Rudolph said the experience has been stressful.

I dont make tons of money, Rudolph said. I just cant burn that stuff. Ive got bills to pay.