Military borrowers face larger loans, higher interest rates, and more costly add-on products
Today, the Consumer Financial Protection Bureau (CFPB) published a report showing that United States servicemembers pay higher costs and face greater financial risks than civilian borrowers when taking out credit to buy a car. The report analyzes more than 20 million auto loans originated between 2018 and 2022, and finds that servicemembers typically have larger loans, make smaller down payments, and ultimately shoulder higher monthly costs.
While servicemembers pay nearly the same for both new and used vehicles as civilian buyers do, servicemembers on average pay more in interest and fees than civilian borrowers do, and also make those higher payments for longer. Military borrowers are also less likely to make a downpayment, more likely to make a smaller downpayment, and more likely to make a negative equity trade-in. Because servicemembers are often required to have a personal vehicle for transportation in order to fulfill their military obligations, and because they may be young men and women far away from family supports, they may be especially vulnerable to overreaching lending practices and have fewer resources to draw upon.
Key findings in the report include:
- Servicemembers borrow more while putting less down: For new vehicles, servicemembers borrowed an average of $39,000 – over $2,200 more than civilians – while putting down about $1,100 less in down payments. For used vehicles, they financed $27,500 on average, which is almost $400 more than civilians.
- Military borrowers pay higher rates over longer terms: Servicemembers faced average annual percentage rates (APRs) 0.6 percentage points above civilian rates and longer loan terms. This has resulted in servicemembers’ monthly payments averaging $644 for new vehicles, nearly $20 more than for civilian borrowers and nearly $1,300 more over the life of the average new vehicle loan.
- Add-on products, including GAP products, increase costs further: Over 70% of servicemembers purchased add-on products and paid on average about $140 more for add-on products than civilians. Warranty, service, and maintenance plans were the most common and expensive category of add-on products purchased. The second most common was GAP products. Servicemembers’ purchase of GAP products increased sharply in 2020, after the Department of Defense changed its interpretation of the Military Lending Act .
Read today’s report, Auto Lending to Servicemembers.
The CFPB continues to protect servicemembers’ financial interests across markets. The CFPB recently ordered Navy Federal Credit Union to refund over $95 million in illegal overdraft fees charged to servicemembers, veterans, and their families. The CFPB took action against FirstCash and MoneyLion for charging servicemembers illegal and high interest in violation of the Military Lending Act. The CFPB’s research found that Reserve and National Guard members were forgoing an estimated $9 million annually by not receiving the interest rate reduction benefit provided by the Servicemembers Civil Relief Act. The CFPB also proposed a rule to protect servicemembers and other Americans from data brokers selling their sensitive personal information to scammers, stalkers, and foreign surveillance operations.
Consumers can submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).
Employees who believe their company has violated federal consumer financial protection laws are encouraged to send information about what they know to whistleblower@cfpb.gov.