Smart Money: Top Consumer Complaints, Car Shopping

Welcome to NerdWallet’s Good Cash podcast, the place we reply your real-world cash questions.

This week’s episode begins with a dialog in regards to the points and suppliers that buyers are complaining about essentially the most.

Then we pivot to this week’s cash query from Jim:

“I’m a fan of the podcast and wish to say thanks to the NerdWallet group that put this podcast collectively week in and week out.

In 2023, I’ve a purpose to purchase a brand new automobile. My query is round automobile financing. My present automobile is sort of 20 years outdated, and I get to the purpose the place repairing the automobile is not value the associated fee. Since I’ve had the automobile for therefore lengthy, I’ve had time to construct up a financial savings bucket the place I may pay all money for the brand new automobile I’m interested by buying.

My query is with the present market situations and excessive inflation, am I higher to pay for the automobile in money or finance the automobile for 24-36 months?

Some extra background info: I’m grateful to have a 6-month emergency fund and I contribute to an IRA and 401(ok). I’ve a very good credit score rating and consider I can get a automobile mortgage with a 4%-5% rate of interest. I wish to hear your recommendation on paying in money versus the chance price of financing the automobile and investing the opposite cash in a brokerage account.

Take a look at this episode on both of those platforms:

Liz Weston: Hey, Sean. Have you ever ever had an issue along with your credit score report?

Sean Pyles: I imply, there was one time in my 20s that I found I had a collections account on my credit score report from a utility invoice that I forgot to pay in school, however that is about it. What about you, Liz?

Liz Weston: There might or might not have been an unreturned library e book that snowballed into a group account. I actually want I may blame that on any person else. But it surely seems a number of customers are having points with their credit score experiences, and so they’re making their complaints heard loud and clear.

Welcome to the NerdWallet Good Cash podcast, the place you ship us your cash questions and we reply them with the assistance of our genius Nerds. I am Liz Weston.

Sean Pyles: And I am Sean Pyles. Listeners, keep in mind to ship us your cash questions. Take a second, be happy to pause the podcast if that you must, and suppose. I do know, controversial. Pause the podcast for a second and simply think about what’s the challenge along with your cash which you could’t appear to work by way of. Possibly your funds all the time feels too tight and also you wish to save extra money, or you’ve a bunch of associates’ weddings arising and also you wish to determine learn how to make them extra inexpensive with out being a cheapskate.

Liz Weston: Sure. Nicely, no matter your query, go away us a voicemail or textual content us on the Nerd hotline at 901-730-6373. That is 901-730-NERD. You may also e mail us at [email protected]

Sean Pyles: On this episode’s cash query phase, co-host Sara Rathner and I reply a listener’s query about automobile shopping for in 2023. However first, Liz and I are going to speak in regards to the greatest grievance customers have proper now, which is points with credit score reporting companies and their credit score experiences.

Liz Weston: Three quarters of the complaints that buyers made to the Client Monetary Safety Bureau final 12 months needed to do with credit score reporting companies, and the common month-to-month variety of complaints that the CFPB acquired in 2022 practically doubled from the 12 months earlier than.

Sean Pyles: Yikes. I imply, I do not know if I needs to be apprehensive that people have so many complaints or slightly relieved that buyers really know what the Client Monetary Safety Bureau is. And that it’s a authorities company that may take their complaints. Nicely, anyway, let’s dig into what’s taking place right here. As Liz talked about, there are a number of complaints round credit score reporting, and the commonest grievance was incorrect info on a credit score report. That was 38% of complaints.

Among the many issues have been destructive info on the experiences that wasn’t correct. Not like Liz’s not-returned library e book that was correct, it is also an account that did not belong to the patron however was nonetheless on their credit score report. One other challenge is improper use of credit score experiences, like credit score inquiries that folks did not acknowledge. That could possibly be an indication of fraud, like if somebody is utilizing your private info to use for a bank card or a mortgage. And likewise it could possibly be present collectors checking your credit score, which is allowed and actually widespread.

Liz Weston: Yeah. Generally folks have bother determining who’s checking their credit score as a result of the identify of the entity is not fairly one thing that they acknowledge. However both means, you wish to know who’s checking your credit score report and why they’re doing it to just be sure you solely have legit credit score inquiries in your experiences. And a few errors, like an outdated deal with or an outdated employer, these do not have an effect on your credit score in any respect; however an account that exhibits as late or despatched to collections can actually slam your scores.

Sean Pyles: And that may additionally make it tougher or dearer to get a mortgage, to hire an condo or get insured, amongst different issues.

Liz Weston: Shoppers additionally had complaints about having bother putting or lifting credit score freezes — and we’re huge followers of credit score freezes at NerdWallet as a result of they supply fairly sturdy safety towards somebody opening bogus bank cards or different accounts in your identify. However like every thing else related to your credit score, credit score freezes will not be error-free.

Sean Pyles: And that additionally goes on the human facet of issues. Make it possible for, if you are going to apply for a brand new line of credit score, that you simply really quickly carry the credit score freeze. In any other case, you might discover that you’re routinely denied that new line of credit score — one thing that occurred to me lately.

Liz Weston: Sure, we had this dialogue and that was one of many first questions I requested. Did you’ve a credit score freeze?

Sean Pyles: Sure. I imply, I utilized for credit score so sparingly. I had virtually forgotten that I froze my credit score in any respect three bureaus. However anyway, neither right here nor there. What customers ought to do in the event that they wish to ensure that their credit score is in nice form and there are no errors on there, is often test all three of your credit score experiences for errors. You are able to do this weekly without cost for now. Go straight to annualcreditreport.com. Do not Google “credit score report.” Simply go to annualcreditreport.com to be sure to’re not going to any rip-off websites.

Liz Weston: Sure. Or lookalike websites.

Sean Pyles: Sure. For those who do discover any points, you may dispute critical errors. And when you discover that you simply’re having bother with a credit score freeze or getting your credit score report within the first place, you may contact the bureau concerned immediately. You will have to mail in numerous proofs of who you might be, like a duplicate of your driver’s license, however simply getting that resolved might be value it, I promise.

Liz Weston: Sure. And attain out to the CFPB when you’re nonetheless having bother. That is what they’re there for.

Sean Pyles: One other huge supply of complaints is debt assortment. The most typical grievance round this was being pursued for a debt that the individual did not owe. Federal legal guidelines defend customers from this and a number of different shady and doubtlessly harassing debt assortment ways. We’ll embody a hyperlink in our present notes to assets that may assist you to battle again towards aggressive debt collectors.

Liz Weston: And rounding out the highest three sore spots with customers was bank cards, most actually because there is a drawback with the acquisition on their assertion. Once more, there are federal legal guidelines and issuer insurance policies that can defend you, and we’ll hyperlink to these within the present notes.

Sean Pyles: And at last, complaints about credit score restore corporations have been means down on the listing when it comes to the variety of complaints — about 2,000 out of over 1 million complaints. However the CFPB mentioned that the quantity practically doubled from 2021 to 2022. Credit score restore corporations will be actually problematic, and so they cannot do something for you that you simply can not do for your self without cost. For those who need assistance cleansing up your credit score, come to NerdWallet as a result of we’ve tons of articles and different assets that may assist.

Nicely with that, let’s get on to my cash query dialog with my different co-host, Sara Rathner.

This episode’s cash query comes from Jim, who despatched us an e mail. We had NerdWallet author Spencer Tierney learn the query.

Spencer Tierney: So this 12 months I’ve a purpose to purchase a brand new automobile. My query is round automobile financing. My present automobile is sort of 20 years outdated. I do know it is outdated, and I am attending to the purpose the place repairing it is not value the associated fee. Since I’ve had the automobile for therefore lengthy, I’ve had time to construct up a financial savings bucket so I may pay all money for a brand new automobile. My query is: With the present market situations and excessive inflation, wouldn’t it be higher for me to pay for the automobile in money or finance the automobile for twenty-four to 36 months? Some extra background info: I am grateful to have a six-month emergency fund and I contribute to an IRA and 401(ok). I’ve a very good credit score rating and I consider I can get a automobile mortgage with a 4% to five% rate of interest, I hope. I might like to listen to your recommendation on paying in money versus the chance price of financing the automobile after which investing the opposite cash in a dealer’s account. Thanks, Jim.

Sara Rathner: To assist us reply Jim’s query, which additionally occurs to be my query as a result of I’m additionally on this very same predicament, on this episode of the podcast, we’re joined by NerdWallet autos author Shannon Bradley. Welcome to Good Cash, Shannon.

Shannon Bradley: Thanks for having me.

Sean Pyles: Shannon, it is so nice to have you ever on the podcast. So to start out off, are you able to please describe the present state of the automobile market?

Shannon Bradley: Nicely, it is recovering, however nonetheless removed from the place we have been practically three years in the past, earlier than the pandemic. That is when the automobile market turned the wrong way up and factories shut down. After they reopened, automobile manufacturing was slashed due to provide chain points and the dearth of semiconductor chips. So the end result was a scarcity of each new and used automobiles that pushed automobile costs to file highs. And earlier this 12 months, new- and used-car costs declined, however solely barely. The typical transaction worth for a brand new automobile dropped, but it surely’s nonetheless practically $49,000 in comparison with about $38,000 earlier than the pandemic. And the common itemizing worth for a used automobile remains to be round $26,000.

Sara Rathner: So why are automobiles nonetheless so costly, particularly new automobiles?

Shannon Bradley: Nicely, despite the fact that provide chain points have eased some, auto manufacturing has by no means actually returned to regular. In mid-March of 2023, information firm Cox Automotive reported that total new-car stock was nonetheless down 53% in comparison with the identical time in 2019. With provides nonetheless unable to satisfy demand, new-car costs stay excessive. Many customers unwilling or unable to pay these greater costs are holding on to their automobiles longer, and that’s contributing to an ongoing scarcity and excessive costs for used automobiles, too. All of it comes again to provide and demand.

Sara Rathner: So clearly the automobile market will not be in nice form, which might be an understatement. That mentioned, I’ll ask you to convey out that crystal ball and determine the place you left the tarot playing cards and look into the long run slightly bit. Are you able to inform us once we may lastly see decrease automobile costs this 12 months? Asking for a good friend.

Shannon Bradley: Nicely, automobile costs already declined barely this 12 months from their file highs, however I do not see an enormous drop in costs anytime quickly if stock stays tight.

Sara Rathner: And why is that?

Shannon Bradley: Nicely, that is the place I want I had a crystal ball as a result of many elements come into play. Automobile gross sales have been up earlier this 12 months, lowering the restricted stock much more. However the enormous carry in automobile gross sales we usually see throughout tax season hasn’t occurred. Due to financial considerations and better rates of interest, some customers are simply hesitant to finance a $50,000 automobile.

Sean Pyles: Yeah, understandably so.

Shannon Bradley: If gross sales are stagnant, it may encourage automobile producers to start out lowering costs. Proper now, many automobile makers are seeing file earnings, even with out being at 2019 manufacturing ranges. They’ve had practically three years of not needing to supply rebates or particular financing. So if one decides to undercut the competitors and others observe swimsuit, we may see costs falling sooner than they’re now.

Sean Pyles: So it virtually looks as if auto producers do not have an incentive to attempt to make the market extra pleasant for people like us who may be seeking to purchase a automobile.

Shannon Bradley: Not at this level, no.

Sean Pyles: OK. All proper. So that is the context that our listener Jim has to navigate whereas they’re interested by other ways to purchase a automobile this 12 months. So let’s speak about Jim’s financing choices, beginning with auto loans, which is an choice that they are contemplating. Given how costly automobiles are proper now, these loans are additionally sure to get fairly hefty. So if somebody’s available in the market for a automobile mortgage in the present day, what ought to they consider?

Shannon Bradley: Nicely, to start with, they need to enable themselves time to buy round, not just for the automobile, but in addition for the automobile mortgage. That is some of the vital issues an individual can do. It is conventional car-buying recommendation that I feel could also be much more vital in in the present day’s automobile market.

Sean Pyles: OK. Yeah. I imply, I assume folks need essentially the most inexpensive automobile mortgage they’ll qualify for. How do people get that?

Shannon Bradley: Nicely, beginning with the automobile itself, the much less you pay, in fact, and finance, the much less you are going to pay in complete curiosity. So whenever you see a automobile you want, it’s tempting to only purchase it proper then, particularly when you’re interested by tight inventories. However even when automobile provides have been a lot tighter, we talked to individuals who used on-line analysis by way of pricing guides like Edmunds or Kelley Blue E-book. They used car-buying apps or on-line retailer listings to see what folks have been paying for a similar or an identical mannequin. They usually used that info to both get a greater deal at an area dealership or to purchase the identical automobile for much less from exterior their space.

Sara Rathner: So let’s speak about rates of interest as a result of that is additionally one thing that is been within the information lately that is freaking folks out. So what have the Fed’s rate of interest will increase completed to automobile loans over the previous 12 months?

Shannon Bradley: Nicely, it is pushed auto mortgage charges to the very best they have been since 2009. In February, Edmunds.com listed the common new-car mortgage APR at 6.95%, with a used-car mortgage at 11.03%. Now needless to say a median does not present the complete image as a result of customers with good credit score would possible have a decrease price whereas somebody with a FICO credit score rating of 600 or much less could possibly be paying 17% APR or extra.

Sara Rathner: Oh my God. That is like placing your automobile on a bank card at this level.

Sara Rathner: So let’s discuss slightly bit extra about procuring round for a automobile mortgage, as a result of that is one thing I do not suppose folks take significantly sufficient. It is really easy to take the lowest-effort choice, which is commonly what they provide on the dealership since you’re already there, but it surely won’t be the perfect deal you may get. So how do you store round for a automobile mortgage?

Shannon Bradley: Sure, it’s extremely true. Folks so usually simply, they wish to get the automobile, they wish to get out of the dealership and so they take that first provide that the supplier gives. However auto sellers generate profits off of arranging auto loans. In order that they aren’t your ally on the subject of getting the bottom price. Earlier than ever partaking with a dealership, get auto mortgage gives with price estimates from a number of different sources like banks, credit score unions or on-line lenders, and by no means inform a supplier upfront that you simply plan to pay money as a result of they might attempt to make up for misplaced income within the worth of the automobile.

Sara Rathner: You already know what? I did not know that. They will attempt to go above sticker in that case.

Shannon Bradley: Sure. I imply, there are such a lot of cases like that the place when you go into the dealership unprepared, that basically simply makes you a goal for lots of the strategies that the sellers use to only enhance their backside line.

Sean Pyles: I am seeing so many individuals on TikTok posting their car-buying tales, and many individuals, once they’re getting a breakdown of the worth for the automobile, they’re going to see a market adjustment line of some type, which mainly is an upcharge due to how tight the market is, which simply appears outrageous.

Sara Rathner: Yeah. Are you able to simply say, “Take this one off, I am not paying this”?

Sean Pyles: Yeah. And hey, worst-case state of affairs, folks can all the time stroll out of the dealership, and also you may discover that people working there are singing a distinct tune as a result of they need you to purchase that automobile in the present day.

Sara Rathner: Sure. We seemed right into a automobile that was on the market at a dealership about 50 miles away from the place we lived, and we’re nonetheless casually trying. In order that they gave us the lay of the land and we have been like, “All proper. Thanks, however no thanks.” After which instantly they responded with knocking $2,000 off the worth. Simply because we weren’t prepared to purchase, and we mentioned no, after which they nonetheless stored following up. The automobile hadn’t bought but, and each time the pricing modified, they stored following up. So made me slightly apprehensive that that automobile did not promote.

Sean Pyles: Nicely, what’s so attention-grabbing with the automobile market is that earlier this 12 months, I really was doing a little gentle procuring round for a hybrid. I made a decision to not get one as a result of they’re so costly. However I take a look at drove a handful, and the parents working at these dealerships have texted me virtually each single day since I went in. I have been left video messages from the folks with their front-facing cameras round, “The worth has modified, and do you wish to are available and check out it once more? Do you wish to purchase this automobile?” And it is getting slightly bit determined. So it makes me suppose they don’t seem to be having as straightforward a time promoting these automobiles, regardless of how tight the market is.

Shannon Bradley: Yeah. This time of 12 months, there usually is a carry. With tax returns, gross sales are up barely, however to not the extent that they usually can be this time of 12 months. So I feel there’s a little little bit of concern on the supplier’s a part of with the ability to transfer a few of these automobiles. The opposite factor that you simply stumble on I feel, Sara, about there was a dealership that you simply talked to out of your space. That was one of many issues that we found even a 12 months in the past when stock was even tighter, that I talked to a number of automobile patrons who they did not simply give attention to their native dealership. They used apps or they used on-line marketplaces to strive to buy the identical automobile that they might have seen on the native supplier lot.

However to have the ability to usher in some competitiveness, to have the ability to go into the dealership and say, “Nicely, I discovered this similar automobile 100 miles away,” and possibly they might have it delivered, possibly they’d drive to get it; but it surely put them in a scenario of getting extra leverage than the supplier pondering that the automobile they have been taking a look at on their lot was the one one they have been contemplating.

Sean Pyles: Nicely, talking of being extra aggressive as a purchaser, pre-qualifying and getting preapproved for a mortgage may give folks some good negotiating energy. Are you able to speak about what every of these phrases imply and the way folks can use them to their benefit?

Shannon Bradley: Sure. Auto mortgage pre-qualification or preapproval, which are not the identical issues by the best way — generally you’ll hear lenders use these phrases interchangeably, however they actually will not be. And you need to use each to match charges, however pre-qualification is extra like dipping your toe within the water. You get an concept about what charges you may qualify for with numerous lenders. That is not one thing you may take to the dealership as a result of it is not as a lot of a assure of any sort of approval. However it may well assist you to pinpoint lenders with decrease charges, and pre-qualified gives are sometimes primarily based on a delicate credit score test, so they will not have an effect on your credit score rating. Simply provides you a chance to buy round and evaluate and see what charges may be the bottom with which lenders.

Sean Pyles: Received you. And getting preapproved is the subsequent step. It is extra critical. Are you able to clarify that?

Shannon Bradley: Preapproved mortgage gives, I think about these to be extra wading on into the water. They’re what you’ll take to a dealership, and that offers the supplier a baseline price to beat. However it’s a must to needless to say a preapproval is predicated on a tough pull out of your credit score report. So that may trigger a slight and non permanent drop in your credit score. And when making use of for a preapproval with a couple of lender, you wish to strive to try this inside a two-week window. So a number of credit score inquiries rely solely as one.

Sara Rathner: Like procuring round for a mortgage.

Sara Rathner: So one thing we noticed pop up within the final couple of years are these on-line automobile dealerships as a result of millennials hate doing stuff in individual. So what when you aren’t shopping for at a standard automobile dealership? Can you continue to get financing from a financial institution or credit score union for these sorts of purchases?

Shannon Bradley: Usually, sure. And lots of people do not understand that the web retailers, a number of them do provide their very own in-house financing, however most of them will settle for financing from a financial institution or a credit score union of your selecting. So do not ever really feel that since you are shopping for from a web based retailer that you’re caught with their financing. That is a query that it’s best to undoubtedly ask.

Sean Pyles: Nicely, our listener Jim is questioning additionally in regards to the alternative prices of paying for a automobile with money versus investing that cash. Shannon, what are your ideas on that?

Shannon Bradley: Nicely, first I might wish to say that Jim is to be recommended for with the ability to pay money for a automobile whereas additionally having an emergency fund and contributing to his IRA and 401(ok). So Jim says they suppose that they’ll get an auto mortgage price of about 5%, and given what they’ve instructed us, I feel that is doable in the event that they do store charges. If Jim takes out a $50,000 new-car mortgage at 5% APR for 36 months, they’d pay near $4,000 in curiosity. Now, evaluate that, if Jim may then make investments the $50,000 for 3 years, and even when they add nothing to it at a 6% price of return, the funds would develop to just about $60,000, placing them about $6,000 forward.

Sean Pyles: Wow. I feel this actually speaks to the size of the amount of cash that Jim has and the way a lot folks may want for an auto mortgage. Taking out a $50,000 mortgage, it is simply mind-boggling, however that is the place the automobile market is correct now.

Sara Rathner: Yeah. That is not a high-end luxurious automobile essentially.

Shannon Bradley: No, not essentially these days. Lots’s going to rely available on the market and the kind of funding that Jim chooses.

Sara Rathner: Yeah. And Jim talked about that they’d good credit score, and that is one thing that may work to their benefit, too.

Shannon Bradley: Sure. I query that as a result of generally folks say, “Nicely, I’ve good credit score.” After we do not know their credit score rating, they might even have wonderful credit score. And looking out on the monetary scenario that Jim defined, if Jim really has wonderful credit score, there is a chance they might qualify for particular financing at even lower than 5%. 0% financing gives virtually disappeared in the course of the pandemic. So lots of people do not understand that they could possibly be in search of these once more. They appear to be coming again. In early March 2023, about 9.5% of auto financing transactions have been 0%. So if Jim does not have a selected make and mannequin in thoughts, they need to undoubtedly analysis particular financing gives, as a result of getting a price decrease than 5% can be much more of an argument for taking out a automobile mortgage and investing the cash Jim saved.

Sean Pyles: Shannon, do you’ve any last ideas for many who are searching for a automobile in 2023?

Shannon Bradley: So I feel the one bit of recommendation that I might additionally provide is that if an individual will be versatile, they are going to be extra inclined to discover a automobile that they are pleased with at a cheaper price. We talked about that with, if Jim does not have a specific make and mannequin of automobile in thoughts, that they can qualify for a greater financing provide. And one of many issues that we’re seeing with the diminished stock of automobiles is it isn’t equal throughout all auto producers. So a few of them have extra stock than others. Their manufacturing ranges are up greater than others, and so they could also be providing extra particular financing than others, or rebates. So when you’ve got a specific make and mannequin in thoughts, attempt to be versatile. It is all the time a chance that you’ll find an identical automobile with related options, however it might be that you’d be capable to purchase that at a barely cheaper price.

Sean Pyles: All proper. Nicely, Shannon, thanks a lot for sharing your insights with us in the present day.

Shannon Bradley: You are welcome. Thanks for having me.

Sean Pyles: And with that, let’s get on to our takeaway suggestions. Sara, will you please begin us off?

Sara Rathner: Certain. No. 1: Make the perfect of a troublesome market. Regardless of latest declines, automobile costs for each new and used automobiles are stubbornly excessive. Store round to seek out an inexpensive automobile that works for you.

Sean Pyles: Subsequent, know your financing choices. If shopping for with money is not an choice, look into getting preapproved for a mortgage earlier than moving into the dealership to enhance your leverage in negotiating.

Sara Rathner: And at last, take into consideration the trade-offs. Shopping for a automobile with money can hold you out of debt, however you may get a greater return on that cash when you make investments it.

Sean Pyles: And that’s all we’ve for this episode. Do you’ve a cash query of your personal? Flip to the Nerds and name or textual content us your questions at 901-730-6373. That is 901-730-NERD. You may also e mail us at [email protected] Go to nerdwallet.com/podcast for more information on this episode. And keep in mind to observe, price and evaluate us wherever you are getting this podcast.

Sara Rathner: And here is our transient disclaimer: We’re not monetary or funding advisors. This nerdy data is supplied for normal instructional and leisure functions and will not apply to your particular circumstances.