Are you considering taking out a loan for a new vehicle? Buying a car can be difficult if you have no credit, bad credit, or do not have enough cash on hand. So, hearing about auto loans with too good to be true perks may be a tempting option. However, there are traps that you will want to avoid.
What is a Subprime Car Loan?
The amount of subprime car loans is on the rise. You want to protect yourself from all the problems associated with a predatory car loan. Basically, subprime loans are offered to borrowers with credit scores under 650 according to Equifax. These loans have high interest rates and a greater chance of the borrower defaulting on payments. So, how can you tell if an auto loan is problematic or predatory in nature?
What to Avoid:
- Long lease terms: While having more payments at a lower rate may sound great, you may end up paying more than what your car is worth.
- Upside-down loan: This just means that the loan amount is higher than vehicle’s value. You will find these with long loan terms, since over time they typically cost more in interest than the initial rate.
- In-house loans: This means that you finance directly from the dealership. These are typically targeted at people with bad credit or no credit history at all. The loan rates will be higher than what you would find at a bank or credit union. The dealer may be benefitting from added interest to your initial rate.
- Junk Fees: Make sure that the car’s price is not unnecessarily increased through “junk fees.” For example, rust proofing, “GAP” insurance, theft deterrent packages, etc. This will only increase the vehicle’s cost to increase the loan size, which also increases the amount received by the dealer.
- Say no to conditional sales! When you do not agree to a final sale, you run the risk of the dealer later claiming that they are unable to fund the agreed upon loan terms. You will then be required to return the car and renegotiate the loan. You may also find that the initial down payment is non-refundable or that your trade-in was already sold.
- Stay away from “mandatory arbitration” clauses: This will waive your right to sue and appeal in court. Meaning, if you have any complaints against the dealership, you cannot take court action.
What Can You Do?
You must read the fine print. It can be intimidating to read through contracts, but it will save you a lot of headaches later.
Still Unsure What to Do?
Contact our office today to get more information about what to do next.