Smart Money Podcast: Top Consumer Complaints, and Car Shopping in 2023

Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.

This week’s episode starts with a conversation about the issues and providers that consumers are complaining about the most.

Then we pivot to this week’s money question from Jim:

"I am a fan of the podcast and want to say thank you to the NerdWallet team that put this podcast together week in and week out.

In 2023, I have a goal to buy a new car. My question is around car financing. My current car is almost 20 years old, and I am getting to the point where repairing the car isn't worth the cost. Since I have had the car for so long, I have had time to build up a savings bucket where I could pay all cash for the new car I am thinking about purchasing.

My question is with the current market conditions and high inflation, am I better to pay for the car in cash or finance the car for 24-36 months?

Some more background information: I am grateful to have a 6-month emergency fund and I make contributions to an IRA and 401(k). I have a good credit score and believe I can get a car loan with a 4%-5% interest rate. I would like to hear your advice on paying in cash versus the opportunity cost of financing the car and investing the other money in a brokerage account.

Thanks, Jim”

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Have a money question? Text or call us at 901-730-6373. Or you can email us at [email protected]. To hear previous episodes, go to the podcast homepage.

Episode transcript

Liz Weston: Hey, Sean. Have you ever had a problem with your credit report?

Sean Pyles: I mean, there was one time in my 20s that I discovered I had a collections account on my credit report from a utility bill that I forgot to pay in college, but that's about it. What about you, Liz?

Liz Weston: There may or may not have been an unreturned library book that snowballed into a collection account. I really wish I could blame that on somebody else. But it turns out a lot of consumers are having issues with their credit reports, and they're making their complaints heard loud and clear.

Welcome to the NerdWallet Smart Money podcast, where you send us your money questions and we answer them with the help of our genius Nerds. I'm Liz Weston.

Sean Pyles: And I'm Sean Pyles. Listeners, remember to send us your money questions. Take a second, feel free to pause the podcast if you need to, and think. I know, controversial. Pause the podcast for a second and just consider what is the issue with your money that you can't seem to work through. Maybe your budget always feels too tight and you want to save more money, or you have a bunch of friends’ weddings coming up and you want to figure out how to make them more affordable without being a cheapskate.

Liz Weston: Yes. Well, whatever your question, leave us a voicemail or text us on the Nerd hotline at 901-730-6373. That's 901-730-NERD. You can also email us at [email protected].

Sean Pyles: In this episode's money question segment, co-host Sara Rathner and I answer a listener's question about car buying in 2023. But first, Liz and I are going to talk about the biggest complaint consumers have right now, which is issues with credit reporting agencies and their credit reports.

Liz Weston: Three quarters of the complaints that consumers made to the Consumer Financial Protection Bureau last year had to do with credit reporting agencies, and the average monthly number of complaints that the CFPB received in 2022 nearly doubled from the year before.

Sean Pyles: Yikes. I mean, I don't know if I should be worried that folks have so many complaints or a little relieved that consumers actually know what the Consumer Financial Protection Bureau is. And that it is a government agency that can take their complaints. Well, anyway, let's dig into what's happening here. As Liz mentioned, there are a lot of complaints around credit reporting, and the most common complaint was incorrect information on a credit report. That was 38% of complaints.

Among the problems were negative information on the reports that wasn't accurate. Unlike Liz's not-returned library book that was accurate, it could also be an account that didn't belong to the consumer but was still on their credit report. Another issue is improper use of credit reports, like credit inquiries that people didn't recognize. That could be a sign of fraud, like if someone is using your personal information to apply for a credit card or a loan. And also it could be current creditors checking your credit, which is allowed and really common.

Liz Weston: Yeah. Sometimes people have trouble figuring out who is checking their credit because the name of the entity isn't quite something that they recognize. But either way, you want to know who's checking your credit report and why they're doing it to make sure that you only have legit credit inquiries on your reports. And some errors, like an old address or an old employer, those don't affect your credit at all; but an account that shows as late or sent to collections can really slam your scores.

Sean Pyles: And that can also make it harder or more expensive to get a loan, to rent an apartment or get insured, among other things.

Liz Weston: Consumers also had complaints about having trouble placing or lifting credit freezes — and we are big fans of credit freezes at NerdWallet because they provide pretty strong protection against someone opening bogus credit cards or other accounts in your name. But like everything else connected to your credit, credit freezes are not error-free.

Sean Pyles: And that also goes on the human side of things. Make sure that, if you're going to apply for a new line of credit, that you actually temporarily lift the credit freeze. Otherwise, you may find that you are automatically denied that new line of credit — something that happened to me recently.

Liz Weston: Yes, we had this discussion and that was one of the first questions I asked. Did you have a credit freeze?

Sean Pyles: Yes. I mean, I applied for credit so sparingly. I had almost forgotten that I froze my credit at all three bureaus. But anyway, neither here nor there. What consumers should do if they want to make sure that their credit is in great shape and there aren't any errors on there, is regularly check all three of your credit reports for errors. You can do this weekly for free for now. Go straight to annualcreditreport.com. Don't Google "credit report." Just go to annualcreditreport.com to make sure you're not going to any scam sites.

Liz Weston: Yes. Or lookalike sites.

Sean Pyles: Yes. If you do find any issues, you can dispute serious errors. And if you find that you're having trouble with a credit freeze or getting your credit report in the first place, you can contact the bureau involved directly. You may have to mail in various proofs of who you are, like a copy of your driver's license, but just getting that resolved will be worth it, I promise.

Liz Weston: Yes. And reach out to the CFPB if you're still having trouble. That's what they're there for.

Sean Pyles: Another big source of complaints is debt collection. The most common complaint around this was being pursued for a debt that the person didn't owe. Federal laws protect consumers from this and a lot of other shady and potentially harassing debt collection tactics. We’ll include a link in our show notes to resources that can help you fight back against aggressive debt collectors.

Liz Weston: And rounding out the top three sore spots with consumers was credit cards, most often because there's a problem with the purchase on their statement. Again, there are federal laws and issuer policies that will protect you, and we’ll link to those in the show notes.

Sean Pyles: And finally, complaints about credit repair companies were way down on the list in terms of the number of complaints — about 2,000 out of over 1 million complaints. But the CFPB said that the number nearly doubled from 2021 to 2022. Credit repair companies can be really problematic, and they can't do anything for you that you cannot do for yourself for free. If you need help cleaning up your credit, come to NerdWallet because we have tons of articles and other resources that can help.

Well with that, let's get on to my money question conversation with my other co-host, Sara Rathner.

This episode's money question comes from Jim, who sent us an email. We had NerdWallet writer Spencer Tierney read the question.

Spencer Tierney: So this year I have a goal to buy a new car. My question is around car financing. My current car is almost 20 years old. I know it's old, and I'm getting to the point where repairing it isn't worth the cost. Since I've had the car for so long, I've had time to build up a savings bucket so I could pay all cash for a new car. My question is: With the current market conditions and high inflation, would it be better for me to pay for the car in cash or finance the car for 24 to 36 months? Some more background information: I'm grateful to have a six-month emergency fund and I make contributions to an IRA and 401(k). I have a good credit score and I believe I can get a car loan with a 4% to 5% interest rate, I hope. I'd like to hear your advice on paying in cash versus the opportunity cost of financing the car and then investing the other money in a broker's account. Thank you, Jim.

Sara Rathner: To help us answer Jim's question, which also happens to be my question because I am also in this exact same predicament, on this episode of the podcast, we're joined by NerdWallet autos writer Shannon Bradley. Welcome to Smart Money, Shannon.

Shannon Bradley: Thanks for having me.

Sean Pyles: Shannon, it's so great to have you on the podcast. So to start off, can you please describe the current state of the car market?

Shannon Bradley: Well, it's recovering, but still far from where we were nearly three years ago, before the pandemic. That's when the car market turned upside down and factories shut down. When they reopened, car production was slashed because of supply chain issues and the lack of semiconductor chips. So the result was a shortage of both new and used cars that pushed car prices to record highs. And earlier this year, new- and used-car prices declined, but only slightly. The average transaction price for a new car dropped, but it's still nearly $49,000 compared to about $38,000 before the pandemic. And the average listing price for a used car is still around $26,000.

Sara Rathner: So why are cars still so expensive, especially new cars?

Shannon Bradley: Well, even though supply chain issues have eased some, auto production has never really returned to normal. In mid-March of 2023, data company Cox Automotive reported that overall new-car inventory was still down 53% compared to the same time in 2019. With supplies still unable to meet demand, new-car prices remain high. Many consumers unwilling or unable to pay those higher prices are holding on to their cars longer, and that is contributing to an ongoing shortage and high prices for used cars, too. It all comes back to supply and demand.

Sara Rathner: So clearly the car market is not in great shape, which is probably an understatement. That said, I'm going to ask you to bring out that crystal ball and figure out where you left the tarot cards and look into the future a little bit. Can you tell us when we might finally see lower car prices this year? Asking for a friend.

Shannon Bradley: Well, car prices already declined slightly this year from their record highs, but I don't see a massive drop in prices anytime soon if inventory remains tight.

Sara Rathner: And why is that?

Shannon Bradley: Well, this is where I wish I had a crystal ball because many factors come into play. Car sales were up earlier this year, reducing the limited inventory even more. But the huge lift in car sales we normally see during tax season hasn't happened. Because of economic concerns and higher interest rates, some consumers are just hesitant to finance a $50,000 car.

Sean Pyles: Yeah, understandably so.

Shannon Bradley: If sales are stagnant, it could encourage car manufacturers to start reducing prices. Right now, many car makers are seeing record profits, even without being at 2019 production levels. They've had nearly three years of not needing to offer rebates or special financing. So if one decides to undercut the competition and others follow suit, we could see prices falling faster than they are now.

Sean Pyles: So it almost seems like auto manufacturers don't have an incentive to try to make the market more friendly for folks like us who might be looking to buy a car.

Shannon Bradley: Not at this point, no.

Sean Pyles: OK. All right. So that's the context that our listener Jim has to navigate while they're thinking about different ways to buy a car this year. So let's talk about Jim's financing options, starting with auto loans, which is an option that they're considering. Given how expensive cars are right now, these loans are also bound to get pretty hefty. So if someone's in the market for a car loan today, what should they keep in mind?

Shannon Bradley: Well, first of all, they should allow themselves time to shop around, not only for the car, but also for the car loan. That's one of the most important things a person can do. It's traditional car-buying advice that I think may be even more important in today's car market.

Sean Pyles: OK. Yeah. I mean, I assume people want the most affordable car loan they can qualify for. How do folks get that?

Shannon Bradley: Well, starting with the car itself, the less you pay, of course, and finance, the less you're going to pay in total interest. So when you see a car you like, it is tempting to just buy it right then, especially if you're thinking about tight inventories. But even when car supplies were much tighter, we talked to people who used online research through pricing guides like Edmunds or Kelley Blue Book. They used car-buying apps or online retailer listings to see what people were paying for the same or a similar model. And they used that information to either get a better deal at a local dealership or to buy the same car for less from outside their area.

Sara Rathner: So let's talk about interest rates because that's also something that's been in the news recently that's freaking people out. So what have the Fed's interest rate increases done to car loans over the past year?

Shannon Bradley: Well, it's pushed auto loan rates to the highest they've been since 2009. In February, Edmunds.com listed the average new-car loan APR at 6.95%, with a used-car loan at 11.03%. Now keep in mind that an average doesn't show the full picture because consumers with good credit would likely have a lower rate while someone with a FICO credit score of 600 or less could be paying 17% APR or more.

Sara Rathner: Oh my God. That's like putting your car on a credit card at this point.

Shannon Bradley: Yes.

Sean Pyles: Yeah.

Sara Rathner: So let's talk a little bit more about shopping around for a car loan, because that's something I don't think people take seriously enough. It's so easy to take the lowest-effort option, which is often what they offer at the dealership because you're already there, but it might not be the best deal you can get. So how do you shop around for a car loan?

Shannon Bradley: Yes, it's very true. People so often just, they want to get the car, they want to get out of the dealership and they take that first offer that the dealer offers. But auto dealers make money off of arranging auto loans. So they aren’t your ally when it comes to getting the lowest rate. Before ever engaging with a dealership, get auto loan offers with rate estimates from several other sources like banks, credit unions or online lenders, and never tell a dealer upfront that you plan to pay cash because they may try to make up for lost revenue in the price of the car.

Sara Rathner: You know what? I didn't know that. They're going to try to go above sticker in that case.

Shannon Bradley: Yes. I mean, there are so many instances like that where if you go into the dealership unprepared, that really just makes you a target for a lot of the techniques that the dealers use to just improve their bottom line.

Sean Pyles: I'm seeing so many people on TikTok posting their car-buying stories, and many people, when they're getting a breakdown of the price for the car, they'll see a market adjustment line of some sort, which basically is an upcharge because of how tight the market is, which just seems outrageous.

Sara Rathner: Yeah. Can you just say, "Take this one off, I'm not paying this"?

Sean Pyles: Yeah. And hey, worst-case scenario, people can always walk out of the dealership, and you might find that folks working there are singing a different tune because they want you to buy that car today.

Sara Rathner: Yes. We looked into a car that was for sale at a dealership about 50 miles away from where we lived, and we're still casually looking. So they gave us the lay of the land and we were like, "All right. Thanks, but no thanks." And then immediately they responded with knocking $2,000 off the price. Just because we weren't ready to buy, and we said no, and then they still kept following up. The car hadn't sold yet, and every time the pricing changed, they kept following up. So made me a little worried that that car didn't sell.

Sean Pyles: Well, what's so interesting with the car market is that earlier this year, I actually was doing some light shopping around for a hybrid. I decided not to get one because they are so expensive. But I test drove a handful, and the folks working at these dealerships have texted me almost every single day since I went in. I've been left video messages from the people with their front-facing cameras around, "The price has changed, and do you want to come in and try it again? Do you want to buy this car?" And it's getting a little bit desperate. So it makes me think they're not having as easy a time selling these cars, despite how tight the market is.

Shannon Bradley: Yeah. This time of year, there normally is a lift. With tax returns, sales are up slightly, but not to the level that they normally would be this time of year. So I think there is a little bit of concern on the dealer's part of being able to move some of these vehicles. The other thing that you hit upon I think, Sara, about there was a dealership that you talked to out of your area. That was one of the things that we discovered even a year ago when inventory was even tighter, that I talked to several car buyers who they didn't just focus on their local dealership. They used apps or they used online marketplaces to try to shop for the same car that they may have seen on the local dealer lot.

But to be able to bring in some competitiveness, to be able to go into the dealership and say, "Well, I found this identical car a hundred miles away," and maybe they could have it delivered, maybe they would drive to get it; but it put them in a situation of having more leverage than the dealer thinking that the car they were looking at on their lot was the only one they were considering.

Sean Pyles: Well, speaking of being more competitive as a buyer, pre-qualifying and getting preapproved for a loan can give people some good negotiating power. Can you talk about what each of those terms mean and how people can use them to their advantage?

Shannon Bradley: Yes. Auto loan pre-qualification or preapproval, which aren't the same things by the way — sometimes you will hear lenders use those terms interchangeably, but they really are not. And you can use both to compare rates, but pre-qualification is more like dipping your toe in the water. You get an idea about what rates you might qualify for with various lenders. That isn't something you can take to the dealership because it isn't as much of a guarantee of any type of approval. But it can help you pinpoint lenders with lower rates, and pre-qualified offers are typically based on a soft credit check, so they won't affect your credit score. Just gives you an opportunity to shop around and compare and see what rates might be the lowest with which lenders.

Sean Pyles: Got you. And getting preapproved is the next step. It's more serious. Can you explain that?

Shannon Bradley: Preapproved loan offers, I consider those to be more wading on into the water. They're what you would take to a dealership, and that gives the dealer a baseline rate to beat. But you have to keep in mind that a preapproval is based on a hard pull from your credit report. So that can cause a slight and temporary drop in your credit. And when applying for a preapproval with more than one lender, you want to try to do that within a two-week window. So multiple credit inquiries count only as one.

Sara Rathner: Like shopping around for a mortgage.

Shannon Bradley: Yes.

Sara Rathner: So something we saw pop up in the last couple of years are these online car dealerships because millennials hate doing stuff in person. So what if you aren't buying at a traditional car dealership? Can you still get financing from a bank or credit union for those kinds of purchases?

Shannon Bradley: In most cases, yes. And a lot of people don't realize that the online retailers, a lot of them do offer their own in-house financing, but most of them will accept financing from a bank or a credit union of your choosing. So don't ever feel that because you are buying from an online retailer that you are stuck with their financing. That's a question that you should definitely ask.

Sean Pyles: Well, our listener Jim is wondering also about the opportunity costs of paying for a car with cash versus investing that money. Shannon, what are your thoughts on that?

Shannon Bradley: Well, first I'd like to say that Jim is to be commended for being able to pay cash for a car while also having an emergency fund and contributing to his IRA and 401(k). So Jim says they think that they can get an auto loan rate of about 5%, and given what they've told us, I think that's doable if they do shop rates. If Jim takes out a $50,000 new-car loan at 5% APR for 36 months, they would pay close to $4,000 in interest. Now, compare that, if Jim could then invest the $50,000 for three years, and even if they add nothing to it at a 6% rate of return, the funds would grow to nearly $60,000, putting them about $6,000 ahead.

Sean Pyles: Wow. I think this really speaks to the scale of the amount of money that Jim has and how much people might need for an auto loan. Taking out a $50,000 loan, it's just mind-boggling, but that's where the car market is right now.

Sara Rathner: Yeah. That's not a high-end luxury vehicle necessarily.

Shannon Bradley: No, not necessarily nowadays. A lot’s going to depend on the market and the type of investment that Jim chooses.

Sara Rathner: Yeah. And Jim mentioned that they had good credit, and that's something that can work to their advantage, too.

Shannon Bradley: Yes. I question that because sometimes people say, "Well, I have good credit." When we don't know their credit score, they may actually have excellent credit. And looking at the financial situation that Jim explained, if Jim actually has excellent credit, there's a possibility they could qualify for special financing at even less than 5%. 0% financing offers practically disappeared during the pandemic. So a lot of people don't realize that they could be looking for those again. They seem to be coming back. In early March 2023, about 9.5% of auto financing transactions were 0%. So if Jim doesn't have a specific make and model in mind, they should definitely research special financing offers, because getting a rate lower than 5% would be even more of an argument for taking out a car loan and investing the money Jim saved.

Sean Pyles: Shannon, do you have any final thoughts for those who are shopping for a car in 2023?

Shannon Bradley: So I think the one bit of advice that I would also offer is that if a person can be flexible, they will be more inclined to find a car that they're happy with at a lower price. We talked about that with, if Jim doesn't have a particular make and model of car in mind, that they may be able to qualify for a better financing offer. And one of the things that we're seeing with the reduced inventory of vehicles is it is not equal across all auto manufacturers. So some of them have more inventory than others. Their production levels are up more than others, and they may be offering more special financing than others, or rebates. So if you have a particular make and model in mind, try to be flexible. It's always a possibility that you can find a similar car with similar features, but it may be that you would be able to buy that at a slightly lower price.

Sean Pyles: All right. Well, Shannon, thank you so much for sharing your insights with us today.

Shannon Bradley: You're welcome. Thanks for having me.

Sean Pyles: And with that, let's get on to our takeaway tips. Sara, will you please start us off?

Sara Rathner: Sure. No. 1: Make the best of a difficult market. Despite recent declines, car prices for both new and used cars are stubbornly high. Shop around to find an affordable car that works for you.

Sean Pyles: Next, know your financing options. If buying with cash isn't an option, look into getting preapproved for a loan before stepping into the dealership to improve your leverage in negotiating.

Sara Rathner: And finally, think about the trade-offs. Buying a car with cash can keep you out of debt, but you might get a better return on that money if you invest it.

Sean Pyles: And that is all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at [email protected]. Visit nerdwallet.com/podcast for more info on this episode. And remember to follow, rate and review us wherever you're getting this podcast.

Sara Rathner: And here's our brief disclaimer: We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.