Buy Here / Pay Here For Consumers
Buy Here, Pay Here Auto Financing for Massachusetts Consumers
A motor vehicle loan is a way for you to finance the purchase of a new or used vehicle if you cannot afford to pay cash. A sales finance contract must be in writing and the seller must provide you a signed copy. Lenders are required to provide a truth-in-lending disclosure detailing the terms of your loan, including the annual percentage rate, finance charge, payment schedule, total number of payments, total sales price, any late fees, credit insurance, optional products, default of contract conditions, and any other contract requirements. The contract and disclosures must be clear and conspicuous, and in a form that you may keep. These disclosures should be provided to you before you agree to the loan.
- Shop Around when Obtaining Motor Vehicle Financing:
- Banks and credit unions generally offer auto loans. They typically do not present a high pressure environment and may offer more competitive rates and/or terms. You should consult with your bank or credit union before shopping for an auto loan to compare rates and terms.
- Non-Bank Lenders, including Buy Here, Pay Here auto dealers, must be properly licensed by the Division of Banks.
- Auto Dealerships often arrange financing on the spot through various licensed lenders or banks and credit unions. Dealers may have a financial incentive to arrange financing through certain lenders and are not required to seek the lowest interest rate for your loan.
- Check Your Credit: Verify your credit history independently prior to shopping for a car to ensure it is accurate. Consumers are entitled to one free copy of their credit report per calendar year from each of the three major credit reporting bureaus. Consider requesting a copy every year to ensure it is free from error. Click here to request a copy: www.annualcreditreport.com
- Verify Licensure: Before signing a motor vehicle sales finance agreement with a non-bank lender, verify the company is licensed by the Division of Banks to lend in Massachusetts. A list of licensees may be found at www.mass.gov/dob by clicking on "Download a List of Approved Licensees" or you may verify a specific company's license status by name on www.nmlsconsumeraccess.org.
Protect Your Rights
Before You Sign - Some Important Terms to Understand:
- Interest Rate is the percentage rate applied to the outstanding principal balance of the loan to determine the amount of interest charged over the life of the loan. The most common way motor vehicle loan interest is calculated is by using the Simple Interest Method. Simple interest is determined by multiplying the interest rate by the principal by the number of days between payments.
- Annual Percentage Rate (APR) is the average yearly cost of the loan including all finance charges and interest, expressed as a percentage of the amount financed. The maximum APR under Massachusetts General Laws may not exceed 21%.
- Finance Charge is the cost of credit, which includes accrued interest and any other fees charged.
- Amount Financed is the dollar amount of the credit provided to the consumer. It is basically the loan amount less any prepaid finance charges.
- Total of Payments as disclosed on the vehicle loan agreement is the total amount a consumer will have paid by the end of the agreement.
- Credit Sale is a sales transaction where the seller provides the financing to purchase the vehicle.
- Total Sales Price is the total price of your purchase on credit, including your down payment.
- Late Fees must be explained in the contract. Under Massachusetts General Laws Chapter 255B, § 11, the late payment fee must be the lesser of $5 or 5% of the late payment.
- Credit Insurance is optional insurance that will pay the remaining balance if the consumer dies or becomes disabled. The cost of optional credit insurance must be disclosed in writing and agreed to in the motor vehicle loan contract.
- Guaranteed Auto Protection (GAP), or debt cancellation coverage, is optional protection which will pay the difference between the amount owed on the vehicle loan and the amount recovered from an insurance company should the financed vehicle be stolen or destroyed before the consumer has paid off the loan.
- Extended Service Warranty is optional protection on specified mechanical and electrical components of the vehicle. An extended service contract would supplement any warranty coverage provided with the vehicle. This fee is optional.
Know your Auto Repossession Rights
- Repossession is the act of a lender taking back the vehicle securing the loan when the consumer has defaulted on the loan. A lender cannot repossess a vehicle before providing the consumer with the right to cure discussed below.
- Starter Interrupt Device is a device installed on a vehicle by a dealer or lender that allows the lender to disable the vehicle remotely in the event of default. These devices often have GPS tracking built in to allow the dealer to easily locate and repossess a vehicle in the event of default. Some dealers require the installation of a starter interrupt device as a condition of credit for borrowers with poor credit histories. A lender cannot disable a vehicle before providing the right to cure discussed below.
- Default is the failure to abide by the terms of a loan agreement. The most common reason for default is failure to make payments on time or failure to maintain required insurance on a vehicle. A loan is in default if a payment is one day late. A lender cannot initiate the repossession process by issuing a Right to Cure notice to the borrower until the loan is at least 10 days in default.
- Right to Cure is a borrower's right to bring a loan current by paying any late payments, or obtaining adequate insurance coverage, before a lender may repossess a vehicle or use a starter interrupt device. Before taking action against a vehicle, a lender must send the borrower a notice detailing the right to cure the default within 21 days. If the consumer successfully cures the loan, then servicing continues as normal. However, if the consumer fails to bring the loan current within the cure period, the lender may seize the motor vehicle used as collateral on the loan or disable it through the use of a starter interrupt device.
- o Please note, if a borrower cures a default after notice 3 or more times, the lender is no longer required to issue a cure notice, and may take action against the collateral immediately upon default.
- Acceleration is a lender's ability to require a borrower to pay off the full loan amount immediately, including any interest due and reasonable repossession charges, prior to the maturity date of a loan. A lender may not accelerate the loan balance during the right to cure period, and must notify the borrower before doing so.
- Right to Redeem means the consumer may redeem the collateral from the holder within 20 days of the creditor's taking possession of the collateral by paying the total amount then due. If a lender accelerates the loan amount, the borrower must pay the entire balance before redeeming the vehicle.
Know your Lemon Law Rights
Massachusetts General Laws protect consumers who have purchased new or used vehicles with significant defects. Only vehicles purchased for personal or family purposes are covered by the Lemon Laws. For additional detailed information, visit: www.mass.gov/lemon-laws
Consumers with questions or in need of assistance with a finance company can contact the Division's Consumer Assistance Unit at (617) 956-1501. Additional information on motor vehicle financing, including how to file a complaint, is located on the Division's website at www.mass.gov/dob.
Additional Motor Vehicle Loan Resources for Consumers
The Consumer Financial Protection Bureau (CFPB) also offers resources to consumers looking for motor vehicle financing. You should review the following information at: www.consumerfinance.gov:
- "Know Before you Owe Auto"
- "Take Control of your Auto Loan"
- Office of Consumer Affairs and Business Regulation (OCABR)'s Consumer Guide to Private Party Car Sales
- MassLegalHelp Buying a Used Car
- Federal Trade Commission (FTC) Understanding Vehicle Financing
- Verify Motor Vehicle Finance Licenses Using the Nationwide Multistate Licensing System (NMLS)
- Download a List of Approved DOB Licensees
- Free Annual Credit Report
- Seven Things to Know About Car Loan Credit Reports
- Auto Loan Calculator Provided by Bankrate
Relevant Statutes & Regulations for Motor Vehicle Financing
- Massachusetts General Laws Chapter 255B: Retail Installment Sales of Motor Vehicles
- Massachusetts General Laws Chapter 90, § 7N 1/4: Express Warranty by Dealer of Used Motor Vehicle; Issuance; Consumer's Rights & Remedies
- Massachusetts General Laws Chapter 90 § 7N: Voiding Contracts of Sale (Lemon Law)