ASIC flags 'extremely high' car loan fees as complaints surge

Australia's financial regulator has warned consumers about predatory lending practices in the car finance sector, with a new report identifying alarming patterns of excessive interest rates, inflated vehicle valuations, and aggressive sales tactics.

The Australian Securities and Investments Commission (ASIC) investigation reveals that some borrowers are being charged interest rates as high as 22 per cent, with car purchase prices being recorded as "significantly higher" than the lender-verified value of vehicles.

Personal stories expose the human cost

Single mother Holly Reid's experience illustrates the financial strain these loans can create. Ms Reid borrowed $22,000 through a broker to purchase a vehicle in late 2024, only to face fortnightly repayments of $339 at a 22 per cent interest rate.

"I get a lot of anxiety, especially if I get an extra bill or rego's up. It's that uncertainty of whether or not I'm going to have enough food to feed the kids," Ms Reid said.

Despite maintaining perfect repayment history, the financial burden has forced her to sacrifice other essential expenses and fall behind on additional bills. Her situation is not unique, with ASIC's investigation suggesting widespread consumer vulnerability in this market segment.

Systemic issues identified in ASIC report

The regulatory body's findings point to multiple problematic practices across the car finance industry:

• Exceptionally high interest rates, particularly affecting vulnerable borrowers
• Vehicle valuations inflated well beyond market rates
• High-pressure sales tactics that limit consumer consideration time
• Finance brokers arranging loans without adequate affordability assessments

The report's release comes amid a marked increase in consumer complaints about car loan arrangements, suggesting these issues are not isolated incidents but rather indicative of broader industry practices.

Industry context and regulatory response

Car finance through brokers has become increasingly common across Australia, particularly in regional areas where dealership options may be limited. However, the broker-facilitated lending model appears to have created enforcement gaps, with some operators engaging in practices that would likely breach responsible lending obligations.

Financial counsellors working with affected consumers have called on ASIC to move beyond reporting to enforcement action against finance companies operating outside acceptable standards. The hope is that this high-profile warning will prompt both regulatory intervention and market correction.

What consumers should know

ASIC's report serves as a warning for Australians considering car finance, particularly those using brokers. The regulator emphasises that borrowers should:

• Verify interest rates are competitive and reasonable for their credit profile
• Obtain independent valuations of vehicles before signing finance agreements
• Resist high-pressure tactics and take time to review loan documents
• Seek financial counselling if struggling with repayments

The investigation underscores ongoing challenges in protecting Australian consumers from predatory lending practices, even as regulators strengthen their oversight mechanisms.

This article is based on reporting from ABC News.