[ ♪♪ ]
>> David: Take a
ride undercover.
>> Just looking for a
little commuter car.
>> David: Inside
car dealerships.
>> $112 bi-weekly at 0%.
>> This is the trick.
>> The average consumer
sees that they think,
"Oh, I can afford that car."
>> David: And the high cost...
>> I can't get out of it.
So I have to pay it.
>> It's troubling.
I want to go in there and
find out what's going on.
>> David: How not to buy a car.
This is your Marketplace.
>> David: Jenny's shopping
for her first vehicle.
The biggest purchase of her life
and cost is her main concern.
>> Ya, I'm just
looking for cars.
>> Oh, okay, sure.
>> I'm looking
for a smaller car.
I'm just looking for a
little commuter car.
>> David: She doesn't want to
pay a lot and really doesn't
want a big debt.
>> And how much was this one?
>> David: Jenny is genuinely
looking to buy a car.
>> Is it on?
>> Yes.
>> David: And recording it
all with hidden cameras...
>> This will just
hide everything.
>> David: ..'cause she
works for us.
>> All right, see you later.
>> David: About 2 million
new cars will be sold by the
end of 2017.
Many of them with the lure of
low payment loans that seem
so affordable but are the
dealerships revealing everything
you need to know?
To find out,
we're calling in the pros.
>> This car just turns
heads everywhere it goes.
>> David: That's Shari Prymak.
Mild-mannered
school teacher by day,
car buying expert
in his free time.
And that $100,000 Lexus?
It's borrowed.
>> I get to test drive
new cars every single week.
I don't actually even own a car.
>> David: Shari works
with Mohammed Bouchama.
>> 84 months?
>> David: He heads
Carhelp Canada .
A popular car buying
service for consumers.
>> Oh, yeah, they trust
what I tell them.
>> David: They're dropping by
to analyse the financing advice
Jenny's hearing at dealerships.
>> Hi, David, good to meet you.
>> David: Hi.
Hi, Shari.
All right.
We're going to look at some
clips.
[ ♪♪ ]
>> I'm looking
for a smaller car.
>> David: Jenny's visiting ten
dealerships in the Toronto area
that sell popular
small cars in Canada.
She's barely in the door when
she hears about low payments
spread over a very long time.
>> David: That focus on payments
is a red flag for our experts.
>> We don't even hear at all
the price of the vehicle at all.
All we are getting is the
monthly payments or the weekly
payments or the
biweekly payment.
I mean, that's not right.
It really is not at all.
[ ♪♪ ]
>> David: Over and over,
it's low payment...
>> David: ..spread over
a long time.
>> David: At most of the
dealerships they instantly offer
up loans of seven years.
>> And that's for seven years?
>> Seven years.
>> The average consumer
sees that they think,
"Oh, I can afford that car."
"I can manage that, no problem."
But it's just another way of
bringing consumers into the
dealership and selling them
something that they really
can't afford.
>> David: Car loans
used to be shorter.
Like 48 months.
>> Get an incredibly low 2.9%
financing...
>> David: Then came
the great recession.
Money was tight so automakers
teamed up with banks and other
lenders to get you buying again
by stretching out payments.
>> Plus get zero percent
financing for 96 months.
>> David: And it's working.
More than half of new car
loans are seven years or longer.
>> David: On nearly every visit,
Jenny is told paying off years
early is no problem.
>> David: Not true
according to our experts.
>> I mean, yes,
you have the right to pay
it off, but the majority of
people cannot afford to
pay it off.
>> David: And why is that?
>> The majority of Canadians
are overloaded with debt.
So really they can't
afford just to get suddenly,
get $20,000 in one or two
years and pay off the car.
It's impossible.
>> David: Dealerships,
though, still suggest it,
and seven out of
the ten Jenny visits,
start by pushing long loans.
>> They really should
be telling the shopper,
"This is the price
of the vehicle."
"These are your
different options."
"You can finance for
this much over four years,
"this much over five
years," and so on.
>> David: So why
isn't that happening?
Dealers and salespeople in
Ontario must follow a code of
ethics and the law.
They must be "clear",
"act with honesty, integrity".
The man who enforces it
all is John Carmichael.
We show him the offers.
Low payments, long time
>> That to me is short-sighted,
just a recipe for problems.
For a consumer to make a fully
informed decision they need
a lot more information
than that.
>> David: Should a
potential buyer just be shown
the long term options or
should they be told
about other options
in front of them?
>> Well, my preference
would be they should be
shown all options.
The more choices the better
able you are to make the best
decisions for you
and your family.
>> David: Jenny ended up pushing
 back a bit, against
this idea of just the
seven year loan.
>> Right.
>> David: And I'd like to
show you a little bit of
that discussion.
>> David: Do you think that
advice is fair, is it honest?
>> It's troubling.
When I have a young person
who's standing in front of a
situation like that,
looking for their first car,
I would want to know they are
getting a lot better
sales experience.
I want to go in there and
find out what's going on.
>> David: Shari has
his own theory.
>> Long term loans with low
monthly payments often encourage
consumers to buy a more
expensive car because why buy
the affordable car for $20,000
when for a longer loan I can buy
the fancier car for $30,000
at the same monthly payments?
>> David: That is the key to
bigger revenue for automakers
and dealers.
While a $20,000 car costs
$154 every two weeks on a
five year loan.
A $30,000 car is just $11 more
a payment but you're paying for
two more years.
>> David: That upsell is
happening to Jenny right now
[ Laughter ]
>> This is the trick.
Suddenly you stop
thinking about your budget,
you stop thinking
what you can afford.
And the way they
do it, well, don't worry.
You can do it for 7 years.
>> David: Yeah.
>> And your monthly payments
going to be only this much!
>> Cars are more complicated
now than they ever have been.
There are a lot
more electronics,
there are a lot more sensors,
there are a lot more sensitive
parts that can be very
very costly to replace.
>> The last thing you want to
do is be in a situation where
you're making
payments on your vehicle,
at 6th year or seventh year,
and it starts to require
costly repairs, and at the same
time it's worth very little,
if you want to sell the vehicle.
>> David: In your opinion,
for the average person,
what is the best length
of time for a car loan?
>> No more than five years.
>> I would say ideally four
years but you can stretch it to
five years.
>> David: Seven and eight?
>> No.
>> No.
>> No, no, no.
If you stretch the
loan to seven or eight,
that means you
can't afford that car.
>> Right.
>> Forget it.
>> David: Good advice.
And she does hear it,
only a couple of times.
>> David: Even more rare,
sales people who warn
about longer loans.
>> That's great advice.
It really is.
I'm surprised actually.
There is no question
he is telling her the truth,
you know.
>> David: This is what you
think people should be seeing.
>> Absolutely.
[ ♪♪ ]
>> David:
Insider secrets...
>> We'll give them enough
information to make a decision,
but we're not going to point out
all the negatives.
>> You're
not losing in any way.
>> You're going
to lose your shirt.
>> David: The ride continues
on your Marketplace.
[ ♪♪ ]
>> David: How not to buy a car.
[ ♪♪ ]
>> David: We're testing the
advice you get at dealerships
about car loans.
>> You can always
pay faster, it's an open loan.
>> That to me is short-sighted,
just a recipe for problems.
>> David: Problems leading many
Canadians into a spiral of debt
they can't escape.
[ ♪♪ ]
>> David: 24-year-old
Chantelle Matthews knows
all about it.
She's working two jobs to
pay off one massive car loan.
>> Basically, wake up,
go to work, and then go
to the other job.
>> David: Job #1, at a
building supply centre in
Bracebridge, Ontario.
She's here from seven to five.
End of this shift is the
beginning of the next.
How much sleep do you
usually get when you work
two jobs like this?
>> Between three to four hours.
>> David: You must be
exhausted a lot of the time.
>> Yes.
It does take a toll on you.
>> David: Job #2
goes late, at the local pub.
By the time she closes,
it's almost three am.
[ ♪♪ ]
>> David: Chantelle's troubles
began when she bought a new
Hyundai on an eight year loan.
[ ♪♪ ]
>> I wanted a vehicle that was
cheap, reliable and
you know, half decent, would
last you a while.
>> $158 I believe
every two weeks. 
>> David: Seemed affordable
but the car kept breaking down.
>> The fan in the
fan motor went.
The alternator went and the
wheel bearings started going and
this is all within three months
of owning a brand new car.
>> David: She says the
dealership wouldn't take
it back.
Told her to trade
it in for a new one.
But the car was now worth much
less than she'd paid for it.
>> They said you have to carry
some of it over because you
signed for the car.
The car has been used.
>> David: That difference
between what she owed and what
the car was worth is
called negative equity.
>> It's not good.
>> Not good.
It costs you and it
costs you big time.
>> David: Sure does.
It means $17,000 in
old debt was added to
the loan for this new car.
>> With the two cars,
it was about 50 grand.
>> David: $50,000.
>> Yup.
>> David: You seem
very calm about that.
>> I've accepted the fact,
because I still have to pay it.
I can't get out of it.
So, I have to pay it.
>> David: There are thousands
of Chantelles out there.
A quarter of all cars being
traded in for new ones still
have money owing on them.
>> David: Did anybody
ever explain what negative
equity was?
>> No.
They did not explain the
negative equity to a detail.
>> David: Back on hidden camera,
that's what we're testing next.
How will sales people explain
negative equity and trade-ins?
>> David: Yikes!
He finally gets to his point.
Early trade-ins are a cinch.
>> David: Really?
>> David: Not how
our experts see it.
>> You are going
to lose your shirt.
Absolutely.
I mean, it's crazy.
>> David: This is all
about negative equity.
At three or four years, you owe
more than the car is worth.
>> A lot more.
>> David: In fact, you owe
more on your car than it's worth
until five and a half
years into a seven year loan.
>> No.
They're paying the bank the
money that you owe but they are
charging you, they are
adding that to the price of the
new vehicle.
>> The debt just
keeps on piling on,
and it's very dangerous.
>> David: We're showing
that explanation to Ontario's
auto regulator.
>> Yeah.
It's very troubling.
To just say, "We'll pay
off the loan",
well, how do you pay it off?
You don't just pay off the loan.
>> David: John Carmichael
doesn't like what he sees.
>> And this is my worry,
consumers who aren't able to
either understand or manage
that situation and they find
themselves in a transaction
that's going to come back to
haunt them down the road.
>> David: Do you see this as
following the rules?
>> I would challenge both of
what those individuals said on
the basis that they haven't
provided honest information
to the consumer.
>> David: So why might
salespeople break their rules?
We meet a man on the inside.
He's worked in sales
and finance for a decade.
Knows about the
pressures at dealerships.
>> Sell, just sell the car.
Yeah.
That's what their sales manager
is gonna wanna know
at the end of the day.
You talked to this person why
didn't you sell them the car?
>> David: We're hiding his
identity because he still works
in the industry.
>> No dealership is
going to turn down a deal.
We're not ultimately
their financial advisor.
We'll give them enough
information to make a decision
but we're not going to
point out all the negatives,
all the potential pitfalls.
>> David: Not-- not in your
interest to tell people about.
>> No.
>> David: The
downside of trade-ins.
>> Correct.
 Correct.
>> David: You may get a new car.
>> Yeah.
>> David: But you
may keep the old debt.
>> Yeah.
You're gonna get a new term,
you're gonna get a new payment
and, you know, it
goes forever right?
>> David: Do you think there
should be definite rules that
require a salesperson or
dealership to clearly explain
the basics to a customer?
>> Yes, at the very least the--
the basics of negative equity so
that people are going into
the transaction with open eyes.
>> David: We bring
that idea back to OMVIC,
Ontario's regulator.
>> In fact, I think, you
actually may have this
document -- but this
type of document
which talks to issues around
negative equity.
>> David: Carmichael says
he's putting the pamphlet into
government
offices across Ontario.
We turn it into a poster
>> I like yours better.
>> David: But you won't see
it in the one place you might
expect it.
Why isn't something like that
of this size in a dealership,
in a place, where people
are actually buying a car?
>> Well, it's brand new.
Happy to do that.
That makes sense, I like it.
I'd love to see that
on every sales desk.
>> David: But you
could require it.
>> Well, I don't know that
dealers are going to go that far
with it but
certainly for the consumer,
absolutely it's a
good thing to have.
>> David: But it
isn't compulsory.
Just hope you can find someone
who can spell it out like this.
>> This employee deserves
employee of the year award.
Congratulations to him.
>> David: So few
though get that advice.
Chantelle will be
paying for years to come.
>> David: I don't want to freak
you out but this has changed the
early part of your life.
>> Yup, and I looked into
getting a house and they won't
approve me because of
how much I have on my car,
in debt.
So, you can't basically do
anything until it's paid down.
>> David: How much time do
you have left on this loan?
>> About 4 and a half years.
>> David: About
four and a half years.
What do the next four and a half
years of your life look like?
>> Definitely changed now.
Basically I have a
baby on the way,
and--
>> David: Congratulations!
>> Thank you.
>> David: Can you work two jobs
seven4 hours a week for the next
four and a half years?
>> No.
I won't be able to do that.
>> David: How are
you going to do it?
>> I don't know yet.
I'll have to figure it out.
[ ♪♪ ]
>> David: Meantime, we
can't figure out her paperwork.
>> There are a number of red
flags that jump off the page at
me right off the bat.
>> David: Is this a breach?
Is this illegal?
>> It is.
>> David: Searching for
answers on your Marketplace.
Sign up for our
weekly newsletter at
cbc.ca/marketplace.
[ ♪♪ ]
>> David: Gearing up
for more Marketplace.
[ ♪♪ ]
>> David: We've been
investigating long term
car loans.
>> David: Sounds like a deal
but salespeople aren't always
upfront about
risks to carbuyers.
>> They find themselves in a
transaction that's going to come
back to haunt
them down the road.
>> David: It happened
to Chantelle Matthews.
>> With the two cars
it was about 50 grand.
>> David: $50,000?
>> Yup.
>> David: She owes that much
because she traded her
unreliable car early.
The money she still owed was
added to her new purchase.
But check out her paperwork.
No mention of that
debt or negative equity.
Instead there's "additional
retail value" on her second car,
as if she opted for features
like fancy speakers or
better seats.
I bring that to the regulator.
The rules say the
paperwork should be clear.
>> The mathematical gymnastics
that appear on this page are
astounding to me.
This is anything but clear and
in fact when you did send this
over to us yesterday, we tried
to figure out what we could and
had a terrible time trying to
figure out exactly what the
representative had done.
>> David: And you guys
are the experts in this.
>> Well, that's the theory,
there are a number of red flags
that jump off the page
at me right off the bat.
That in fact is
your negative equity.
They're hiding it up on a
line as additional retail value.
So they're putting it in the
value of the vehicle as opposed
to showing the actual
debt that's outstanding.
>> David: Is this a breach?
Is this illegal?
>> It is.
>> David: It's both?
>> Yes and this is
something I'd like to have
my people look into.
>> David: They are concerned the
dealership may have breached the
ethical code and the law,
hid the negative equity,
leaving it unclear just
what Chantelle is paying for.
>> We are most concerned
about consumers making
educated decisions.
There are concerns that people
not get in over their head or
get into long enough terms that
they're going to end up with
significant debt down the road
that they simply can't afford.
>> So it would be $25.68.
>> David: Chantelle
is chipping away.
Halfway through
her massive loan.
>> Biggest regret,
going into debt that much.
Thinking that I could get
out within the 8 years.
>> David: Why did you
want to talk about this?
>> Just so no one else
makes the same mistake I did.
It's not about my car.
It could be anyone.
It could be any age,
it could be your mom,
your brother, your
friend next door.
They could have
the same problem.
>> David: And in fact
there's lots of people,
lots of Canadians
just like this.
>> And they're just
drowning in debt.
[ ♪♪ ]
>> Charlsie:
Attention online shoppers.
>> I almost only shop online.
>> I look for the best deals.
>> Charlsie: A Marketplace test.
>> Charlsie: On
your marks, get set,
search!
Different shoppers,
different prices,
for the same room.
Oh, my gosh.
>> They're different
on different browsers.
>> The more
information they have,
the more they can
prey upon your desires.
>> Charlsie: The black Friday
special on your Marketplace.
[ ♪♪ ]
