PETITION TO STATE LEGISLATURES AND THE UNITED STATES CONGRESS

For Reform of Front-Loaded Interest Structures in Automobile Loans

 

Introduction and Purpose

We, the undersigned citizens, respectfully petition our elected representatives to address a structural feature of modern automobile loans that places unnecessary financial burden on consumers: the front-loading of interest under standard amortization schedules. This practice contributes to widespread negative equity, slows the building of ownership equity, and misaligns loan repayment with the actual period of vehicle ownership.

The Problem

Under standard fixed-payment amortizing auto loans, interest is calculated each month on the remaining principal balance. Because the balance is highest at the beginning of the loan, early payments consist primarily of interest, with only a small portion reducing principal. This is a mathematical consequence of applying a fixed rate to a declining balance while keeping the total monthly payment constant.

While this structure provides predictable payments, it creates significant problems for the typical car buyer:

•        Slow equity buildup: Borrowers pay substantial interest for years before meaningfully reducing the principal balance.

•        Negative equity ("upside-down" loans): Because cars depreciate rapidly in the early years while principal is paid down slowly, many borrowers owe more than their vehicle is worth for much of the loan term.

•        Mismatch with ownership duration: Studies show that Americans keep a vehicle for an average of approximately 8 to 8.4 years. Many auto loans, however, are written for 72 or 84 months. When owners sell or trade before the loan is paid off, they frequently face remaining balances that exceed the car’s market value.

•        Deficiency balances after repossession: In cases of default, the slow principal reduction increases the likelihood and size of deficiency balances after the vehicle is sold at auction.

Proposed Legislative Reforms

We respectfully urge legislatures to consider the following reforms to better protect consumers while preserving access to credit:

1.     Require disclosure of equity buildup schedules. Lenders should be required to provide clear, standardized illustrations showing how principal is reduced under the proposed loan terms, including the projected loan balance at common ownership milestones (e.g., years 3, 5, and 7).

2.     Mandate availability of even-principal repayment options. Lenders offering auto loans longer than 48 months should be required to offer, as an option, a repayment structure in which principal is reduced in equal monthly amounts (with interest calculated on the declining balance). This would produce declining total payments but faster and more even equity buildup.

3.     Explore authorization of equal principal-and-interest allocation structures. Permit and encourage loan products in which the total interest that would accrue under a declining-balance calculation is determined in advance and then allocated evenly across the term, alongside even principal reduction. This would produce fixed payments with substantially equal portions applied to principal and interest each month.

4.     Strengthen consumer education and comparison tools. Require that loan offers include simple side-by-side comparisons of total interest, projected balances at key intervals, and the impact of the amortization method on equity.

5.     Review long-term loan practices. Examine whether loans of 72 months or longer should carry additional consumer protections or heightened disclosure requirements, given the documented mismatch with average vehicle ownership periods.

Benefits of Reform

These changes would:

•        Reduce the incidence and severity of negative equity during the years most consumers actually own their vehicles.

•        Give borrowers clearer visibility into how and when they build ownership equity.

•        Preserve borrower choice by requiring options rather than prohibiting existing products.

•        Align repayment more closely with real-world ownership and depreciation patterns.

•        Maintain the ability of lenders to price risk through interest rates and underwriting while improving transparency and fairness for consumers.

Call to Action

We call upon state legislatures and the United States Congress to hold hearings, direct relevant agencies (including state banking departments and the Consumer Financial Protection Bureau) to study these issues, and introduce legislation that expands consumer options and strengthens disclosure requirements for automobile financing. The goal is not to eliminate fixed-payment amortizing loans, but to ensure that borrowers have clearer information and meaningful alternatives that better protect their financial interests during the period they actually own the vehicle.

Respectfully submitted by the undersigned citizens of the United States.

Signatures

By signing below, I support the goals of this petition and urge my elected representatives to take action on auto loan amortization reform.

Name (Print)                         Signature                               Date               City/State

 

 

Please circulate widely and submit copies to your state representatives, state senators, and members of Congress.