While car loan scams are now beginning to grab the attention of government enforcement, it is important for credit challenged buyers to make smart choices so that they can potentially save hundreds of dollars.
Financing is a huge part of shopping for a new car, and one of the more challenging and unpleasant ones for most Americans. To try to qualify when you have bad credit can open the door for the dealer to take advantage of you. Car buying scams are everywhere, even at the largest and most trusted dealerships. Many have no idea what a good deal is, how to go about getting proper financing, avoid paying excessive fees, or what should be in order before the day comes when you require financing. Tricks and car scams and car warranty scams abound and while it may be a stereotype that car salespeople aren’t the most trustworthy or ethical of people around, there is some truth behind the myth. When you’re dealing in a world that is highly dependent upon sales and commissions, everyone wants to sell to the most qualified candidates. Many look to prey on those who don’t have so many options due to poor credit. To protect your self you should know exactly what you are looking for in a vehicle, as well as your credit history and your financing options. This is one of the best ways to avoid car buying scams, fast-talkers, or payments that are higher than they should be.
Car dealerships offer all sorts of financing, and of course, the better your credit profile is, the more likely you are to be offered what appears to be a great deal. In actuality, the car dealerships aren’t looking for those with perfect credit any more than they are looking for those who might be a risk for not paying on time. Financing is often geared to the middle-class buyer with an average credit score, who can be up-sold on a better vehicle by making more payments. It is important to remember that car loan lenders make money off of interest, so the smaller the payment, the longer you’ll be paying that car off–with interest. They make buyers think they are getting an amazing price but pay more than usual with high interest. Why would anyone willingly sign up to do that when interest is simply throwing your money at the dealership? It often comes in a pretty package, such as offers of “no down payment”, “0% interest for the first six months”, or free upgrades to the car that are secretly tacked on to the base price. The car dealer scams presented to you when working on financing with a car dealership don’t seem to be car scams at all, and so it is easy to inspire interest by the unsuspecting customer.
Everyone wants to pay the least amount of money now and worry about the details later, but agreeing to these little tricks can cost a great deal over the long-term. A good alternative, is to research other methods of financing available to you so you will be better prepared to spot delivery scams. Getting pre-qualified for an auto loan before seeing the dealer is the best way to shop for a car. The power of the internet makes it possible to use a third-party lender to finance your car. With a lot less effort than you might imagine, you can have arranged financing through your own lender. While it’s easy to be wary of financing anything via the internet, it’s all about knowing how to avoid the car scams and pitfalls. A good quality reputable third-party lender will offer refinance loans and new car loans with all the information you need in a very straightforward fashion. They will offer better financing options than the dealership and help you to avoid the pressure of the dealer that ends up increasing what you’re paying for a new car.
Seek Those with Experience
It is very important for those who are burdened under credit challenges to know that now is a crucial time to get smart and make good choices. Financially burdened people are often suffering from a psychological burden that can make it difficult to think clearly enough to make wise decisions. Not only will you will be taken advantage of by the sales person and it will cost you more than necessary, It moments of distress, predatory loan companies can come along and make you grand assurances to get you to trust them.
Instead, credit-challenged people should find those with experience and dependability. Seek experienced companies that have a reputation of being effective in their field backed by great customer reviews. Valley Auto Loans has been working with applicants with poor credit find those lenders who offer financing to people with bad credit. Our site can help explain various types of loans and help people gain a better understanding around issues of bankruptcy and bad credit auto loans processes.
Guidelines to Avoiding Bad Car Loans
Know Your Credit Score
Before you even go to visit a dealer you should know at least one of your FICO scores and find out what is in your credit report. A normal car loan with a captive finance company, bank or credit union can usually be secured with a credit score that is above 640. By knowing your credit score you will be better prepared to enter the deal knowing your limitations and abilities.
Determine Your Budget
Next, you should take steps to decide your car budget. Make sure to include the costs of gas along with the full coverage car insurance. You can decide your debt to income (DTI) and your payment to income (PTI) ratios. Then you can decide if they meet the requirements of typical subprime auto lenders.
Back End Product Options
Back end product options are sometimes offered by finance managers at dealerships to boost the sale and increase finance charges. Some of these would be extended warranties, rust proofing, accessories and other things that they convince an uninformed buyer to purchase. Among the various back-end product options, gap insurance is often beneficial if you have a 60-72 month loan or have less than 20 percent down currently.
Overall, to make sure you get the best possible outcome, it is important for you to be informed about what your credit score is and that you become familiar with the contents of your credit reports. Also, you should be checking your income and your expenses to make sure that you are able to meet the basic lender requirements before you submit a loan application for approval.
Financing Versus Predatory Lending
There are many dealers that cater to financing for those with poor credit, bankruptcy, or other problems that a dealership will see as high-risk and offer financing only after raising the price on the automobile. The advertisements for these dealers are often so tempting that those with fairly decent credit will look into things, hoping to save some money through smart financing. In actuality, this is one of the worst mistakes you can make when deciding to purchase a new vehicle. Predatory lending is not illegal when it comes to companies that charge 100-150% interest on payments in exchange for offering no down payment and a decent car to those who don’t have a great credit profile.
Credit Card Trap
One more pitfall to avoid is the credit card trap. While there are times that emergencies happen and it is necessary to make use of a credit card to afford the down payment on a car, it is important to keep in mind that you are still paying interest. However, if you have a decent credit card, the APR is still often tremendously lower than what the dealership is going to offer you. When working with a third-party for financing, however, there are often options if you have a limited budget for a down payment. It pays to explore all alternatives before making a choice simply because you’re in a rush to get your new car and your life back to normal. It is that sense of desperation that can cost thousands of dollars, so take a step back and check every option.
Know Where You Stand
Before you set foot in a car dealership or log on to the Internet in search of financing for your new car, it’s imperative to have your finances in order. Much like when it comes to applying for a credit card or home loan, the higher your credit score, the lower the APR. This is a good thing, because it means you’ll pay less in interest and have more financing options available. It also means you will have to be slightly more aware when dealing with the staff at the car dealership, who will want you to spend outside of your budget to make up for the low APR you’re getting. don’t let the salesman push you into doing paperwork and taking a deposit before you shop around.
As hard as it is for some people, facing the music and knowing where you stand financially is important. There are many places online from which to get your detailed credit information, but you’ll need a copy of your report that lists numbers from all three credit bureaus, as well as your FICO score. It isn’t enough to take advantage of one of the free offers that give you an average of all three, because you’re not necessarily seeing what anyone else sees when running a credit check. You may have to pay for this service initially, but monthly updates are usually free. You can see how positive or negative credit choices affect your profile, and help to raise your score if necessary.
The FICO score is a simple number that looks at your complete credit history for the past 7 years, and it is the primary thing that the car dealership will look at when helping you to finance your automobile. The number that sums up your credit will greatly influence how you’re treated at the dealership, so it’s best to know before even starting the process.
How It Works
Broken down into simple terms, here’s what you can expect as a result of your FICO score:
- FICO Score 680 And Above: You are considered to be in the top-tier of borrowers. You’ll qualify for a low APR and for special financing and other offers. On the down side, dealerships will try to get you into a more expensive car to up their commission, and the great terms are only more tempting.
- FICO Score Between 550-680: You are looked at as a potential risk and not the ideal client for financing, but dealerships want to make a sale. They will not push towards vehicles you clearly can’t afford or offer special financing or promotions. Instead, you’ll pay a higher APR for the vehicle in your price range, which really adds up.
- Fico Score Under 550: You are considered to have poor credit and will rarely qualify for a loan or financing anywhere. Unfortunately, a slew of services offering “bad credit loans” are out there, and come with terms that will drive you even deeper into debt. It is best to pay cash for a used car while you rehabilitate your credit.
Whatever category you happen to fall in, taking charge of your credit is one of the most important things you can do for your future. Don’t buy a car if it’s going to put you so deep into debt you can’t recover, or you don’t have at least 20-25% saved up for a down payment. Otherwise, you’re putting your future in jeopardy, because you’ll eventually need something for which your credit score matters a great deal. As a general rule, staying on top of your credit monthly is key for financial success.
It is also important to remember that too many inquiries about your credit or applications for loans lower your credit score, so be choosy about things for which you’re wanting to apply. In addition, younger people with no credit are considered as much of a risk for financing as those with poor credit, so start taking control of your finances early.
The Benefits of Online Financing
Now that you know where you stand in the great big credit universe, you’re ready to shop for financing options. Some of the pitfalls of financing at the dealership, using credit cards and lines of credit to finance, and “bad credit” auto loans have already been discussed. That means you’re probably wondering what the positive options are that will save you money before you drive the car off of the lot.
Online websites that customize financing tailor-made for your needs are a wonderful option. They are safe, secure, and can be done in the privacy of your home or office without pressure by sales people. In addition, your loan is secured before you find the car you want and before you can decide how much to offer. This gives you a target price and helps you avoid the tricks and car buying scams dealers use. Qualifying for online financing often can be done and approved within an hour, and you’re able to lock your financing rate for 60 days.
On top of everything else, no application fees, one inquiry on your credit report, having opportunity to read the fine print and feel comfortable with your choice makes buying a car so much simpler. You will also avoid getting cheated from a car dealer trying to oversell your loan by telling you to purchase extended warranties or credit life insurance to get approved financing.
To Sum Things Up…
Buying a new car may seem overwhelming. With so many out there willing to take advantage of anything you let slide through the cracks, it’s good to have someone on your side. To sum it up, know your credit and financial information. Have an idea of your needs regarding a new vehicle. Apply for financing through a reputable broker without the pressure of car salespeople or bankers present. If you stick to these principles, you’re far more likely to drive off with your new piece of paradise without forsaking peace of mind.