Cautionary Tale On Just Why One Should Read A Contract Before He Signs It

A Sentinel reader, a decent, if somewhat gullible chap, was recently in need of some new wheels. He surveyed the offerings at a handful of local car dealerships, at last settling upon a modern vintage used vehicle that had hardly been driven, one with fewer than 8,000 miles on its odometer. To ensure that he was not being taken advantage of, he took the car out on a test spin, driving to a garage run by a good friend of his. His friend, employing his own expertise and the diagnostic tools that in this day and age are at the ready in the arsenal of any true mechanic, pronounced the car fit in every way.
Back at the dealership, the Sentinel reader, having settled upon a purchase price of $22,000, made a down payment of $3,000. It was established that he owed a balance of $19,000, and he was handed a four-page contract, the first page-and-a-half of which he had skimmed over. He had satisfied himself with language that he found in the body of the details and fine print that the contract laid out that he would pay the specified $19,000 remainder over the course of 36 months, which comported with the representation made by the salesman. Satisfied and looking forward to driving about in what was to him a very nice, and almost new, car, he signed the document and drove off the lot.
About two weeks later, he received correspondence from the dealership pertaining to the instalments he was to be making on a monthly basis over the next three years. There, in very plain language which was not hidden three pages deep in fine print, was the brutal reality he had signed himself into: He was being charged $13,000 over and above the total $22,000 price of the car in exchange for the “privilege” of paying for the car on time.
He consulted with another friend who is good with figures. He was, his friend told him, paying an overall financing rate applied to the full $22,000 purchase price of 59.09 percent. His friend then offered to make a comparison of what sort of financing rates are currently available from banks, lending institutions or companies that engage in vehicle financing. When the Sentinel reader took his friend up on that offer, he was informed that typically depending on factors which vary such as credit score, loan type, and economic conditions, the average purchaser of a new car would be able to wangle an interest rate at around 4.07 percent yearly and someone buying a used car would be dinged approximately 8.62 percent annually. Put plainly, in the Sentinel reader’s case, a bank would have lent him the $19,000 to pay off the balance for $4,913.40.
Now enraged, the Sentinel reader consulted with a lawyer. The lawyer asked to see the contract. Practiced in reading dense and elaborately convoluted text as a consequence of being an attorney, the lawyer was able to maintain his attention on the sense of what the contract covered, from beginning to end. Finishing his perusal, the lawyer threw the contract down on the desk in front of the Sentinel reader, pronouncing, “It’s completely legal. They not only hooked you, you’ve been reeled in.”
“Aren’t there usury laws in this state?” the incredulous Sentinel reader asked.
At that point the lawyer went into what is for him an explanation he has made scores of times previously and will repeat countless times in the years to come, an abbreviated dissertation relating to the distinction between interest and time charges. Practically speaking, he intoned, there is no limit on what a lender can charge a borrower for financing a purchase. Interest is interest, he said, and fees are something else entirely. There is a difference, he said, a legitimate and fully legal difference, between the price of something and its time price. The first is the amount of cash it takes to buy something outright on the spot. The second is the purchase price at present together with the agreed-upon fee the lender will accept and which the purchaser pays together with the interest on that loan over the agreed-upon duration of the loan.
The technical difference[s] between cash price and time price have resulted in the courts consistently ruling that the laws and regulations which attend interest rates are not applicable to finance charges.
It goes without saying, or should, that unless someone actively wants to be fleeced or gouged, he or she should read the entirety of any contract before entering into it, no matter how forbidding the fine print and legalese. And if that language defies understanding, the contract should not be signed.
Affixing one’s signature to documents have consequences, ones that can greatly impact the tenor and substance of the signer’s life.

Leave a Reply