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Consumer NZ is warning against “dodgy car finance deals” in which fees and expensive add-on insurances leave used car buyers deep in debt.
It investigated the case of a Wellington man who bought a car worth $7000 using a loan from Auckland-based Go Car Finance that would have ended up costing him $30,000.
The case has also put a spotlight on efforts by financial mentors to get the Commerce Commission to take action against Go Car Finance.
The commission opened an investigation into the lender in October 2021 after a network of financial mentors from around the country gathered cases of what they claimed were irresponsible lending by Go Car Finance.
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They submitted these cases, including contact details for the borrowers, to the Commerce Commission.
One of the mentors, David Verry, from North Harbour Budgeting Services, said: “It’s frustrating that it’s taking so long to come to some decision around the investigation.”
He feared the commission had left it too late to contact some of the borrowers, who might now have decided to move on with their lives.
RICKY WILSON/STUFF
‘Valeti’ explains how she was stranded with her baby in a shop carpark after a lender triggered the immobiliser it had put into her car.
“We understand there is a process involved, but it’s very frustrating for the financial mentors, who are still working on Go Car cases,” he said.
Louise Unger, general manager for credit at the commission said: “Our investigation into Go Car Finance is ongoing, and therefore we can not provide any further information at this stage.
“We can confirm that it is an investigation we are prioritising, and we suggest following up again in the next three months.”
Go Car Finance chief executive Paul Verhoeven, said the company would not comment.
“We have provided Consumer with our feedback,” he said.
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Consumer NZ investigative team leader Rebecca Styles backs a Commerce Commission investigation into finance in the used car sales industry.
Over the last two years, the Commerce Commission had received 53 inquiries about Go Car Finance, Consumer said.
Consumer’s investigation highlighted some of the costly add-ons that inflate car loans, as well as resurfacing the issue of the tracking and immobilisation devices Go Car Finance installed in cars it financed.
Consumer NZ investigative team leader Rebecca Styles said the Wellington man was desperate to get a car, but had a poor credit history.
He responded to a car dealer who had an advert on social media offering finance to people with poor credit scores.
He ended up buying a 2007 Toyota “sight unseen” with over 115,000km on the clock, doing so with a loan from Go Car Finance arranged by the dealer.
JASON DORDAY/STUFF
David Verry is a budget mentor who networked to deliver a dossier on Go Car Finance to the Commerce Commission in 2021.
Styles said the car had a sale price of $13,000, but by the time the interest rate and a heap of “optional” extras were added on, the total cost for the loan amounted to almost $30,000, with interest alone adding up to $11,867 over the term of the loan.
A Trade Me car valuation tool estimated the car’s value was around $7000.
Styles said the extra costs lumped on to the loan included $2042 for add-on insurance including mechanical breakdown insurance and a restart waiver, $783 in fees, $1120 for a car maintenance service, and $1028 to have a “Go Connect Device” in the car.
This device enables Go Car Finance to disable a car remotely, if the borrower did not make their loan repayments.
The Salvation Army, FinCap and Christians Against Poverty (CAP) have called for an investigation into the car finance sector, and want these immobilisers banned.
Styles said Consumer did not think the buyer had been given all the information he needed to make an informed decision, which, if true, would be a breach of lending laws. Lenders also had to use the care, skill and diligence of a responsible lender to make sure a loan was both suitable and affordable.
“Although Go Car Finance appears to have checked the loan was affordable for [the man], we have seen no evidence it checked the loan was suitable,” Styles said.
The buyer did not recall discussing these add-ons or agreeing to purchase them, Consumer said, but it said both the dealer and Go Car Finance told it they had met all their legal duties.
The Wellington man was able to get out of the deal within its five-day “cooling off” period with the help of his boss, who was a qualified accountant, Styles said.
The Salvation Army, FinCap and Christians Against Poverty (CAP) have called for regulations on how car dealers sell finance and insurance.
The three agencies want to ban dealers from selling add-on insurance until four days after they have sold someone a car.
They want limits on the very high levels of commission dealers can earn from these insurances, which have been criticised by the Commerce Commission as being poor value.
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This graph was created by the Commerce Commission, and published in its November 2021 report on car financing ‘add-ons’. It shows the difference between the amount ‘waived’ by lenders in payments and the amount paid by consumers in retail premiums for repayment waivers in each year.
They also want a ban on dealers deciding the interest car-buyers pay on their loans.
Finance companies often provide finance at a base rate, and allow dealers to inflate it to increase their profits.
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