Race shouldn't be an issue with loan rates, but can be
The only color that should matter when it comes to getting the best deal on a loan, is green - the color of money.
Unfortunately, it's been alleged time and again that people of color don't always receive the same treatment as white customers with comparable creditworthiness. Two recent federal settlements, involving car and home loans issued by large banks, were the latest reminder.
Anyone can miss out on getting the lowest interest rate available on a car or home loan, but there are common-sense steps people can take to try and get the best deal possible. Recent history suggests people of color have good cause to be extra diligent.
In December, PNC bank agreed to pay $35 million in restitution to settle a joint Consumer Financial Protection Bureau and Department of Justice complaint that National City Bank, which PNC acquired in 2008, had charged more than 76,000 black and Hispanic borrowers higher home loan rates than white borrowers with similar creditworthiness.
Also in December, the CFPB and DOJ ordered Ally Bank to create an $80 million fund to compensate nonwhite clients who were charged higher interest rates on car loans. The higher rates cost the buyers an extra $200 to $300 over their loan terms.
In both cases, the consumer protection folks determined that the discriminatory rate-setting stemmed from lender policies that gave loan brokers and car dealers discretion to mark up rates, and financial incentives to do so. Those are just some of the most recent examples. The list of complaints and settlements just goes on and on.
So what can you do to make sure the loan rate you are offered is as good as it should be, based on your credit? There are some things all potential borrowers should do.
Educate yourself about loan terms and interest rates. If you don't know what to expect, how would you know if you're offered a bad deal?
If you're buying a house or a car, there are plenty of places to get a loan, and you don't have to accept what you're offered. Comparison shop. You should be able to find out what the best available interest rates are without filling out an application, just by looking at lenders' websites (they always show the lowest rates, for which not everyone will qualify), and websites such as bankrate.com that can show rates offered by multiple lenders.
One thing you may find is a better place to get the loan you're looking for. It's truly surprising how widely rates can vary from one lender to another.
Understand what you look like to the lender. Not your race or gender, but what you look like on paper in terms of creditworthiness.
If you don't know your credit score, or what your credit report looks like, you'll be at a disadvantage when you go loan-shopping. The good news is, under federal law you can review your credit reports at no cost once a year at annualcreditreport.com or by calling 877-322-8228. The credit reports are free, but you'll have to pay a small fee to get your credit score. Once you've reviewed your credit reports, and you know your credit score, you should have a good idea about whether you're going to be considered a person with excellent, good, fair or poor creditworthiness.
Consider that financing is part of the cost.
If you're making a large purchase and you're going to finance it with a loan, understand that the loan terms are just as important - often more important - than the price you agree to pay. In one of those lawsuits I cited earlier, some borrowers ended up paying hundreds more for their cars because their loan interest rates were several tenths of a percent higher than they should have been.
So, even a 10th of 1 percent (10 basis points) on a loan interest rate can add up to real money over a long term.
Even in the 21st century, the evidence is clear that while all borrowers need to do their homework, people of color have good reason to be extra diligent.
Reach David Slade at 937-5552, or firstname.lastname@example.org