With all of the various lending practices out there, and the vast array of loan options that customers have to choose from, it can be tough to know how to avoid a bad car loan and seek out the best deals for your budget. However, when it comes to financing on a new or used car or truck, there are some golden rules to staying away from suspect deals that could end in an upside down car loan or default situation. Here are a few of them.
Know Thyself : When it comes to getting the best deals on car loans, knowing your credit score is critically important. Your credit will be your key to better deals, and without knowing it, you will be essentially shopping in the dark. Lenders may try to tell you that you have bad credit. Don’t let this happen to you – research your score by getting a copy of your credit report before you go car shopping.
Look Beyond the Monthly Payment: One of the biggest ways that customers get taken advantage of is by agreeing to a “low monthly payment.” Without knowing more about the loan, you risk signing onto a potentially bad car loan involving high interest and revolving debt.
Keep Interest Rates Low: The annual interest rate or APR on a car loan has a huge effect on the amount you will pay over the entire term of the loan. Don’t settle for whatever a lender decides to give you. Demand the lowest interest rates according to your credit situation.
Look for Changing Interest Rates: Lenders may try to slip in interest rate changes in the loan agreement. Some of these bad deals can be very deceptive. A lender can offer 0% financing for a certain number of years, then ratchet up the interest rate for a “balloon payment” at the end. Scour the fine print for any interest rate changes, and be sure to ask about what a variable rate interest loan represents.
Assess Loan Fees: Some lenders include extra charges and fees for processing or other services. Look critically at these to avoid auto loans that are padded by miscellaneous extras.
Consider Making a Down Payment: A lender may be happy to lend you the entire amount for financing a vehicle, but these deals generally come with a lot of strings. You may not be able to see all of these at the outset, but keep in mind that making a down payment generally empowers the borrower, and many 0% or no money down loans are not as advantageous as they may seem.
These are some of the main ways to avoid the pitfalls of deceptive or expensive auto loan situations. When you’re shopping your local dealer’s lots, it’s critical to be able to spot the terms of bad auto loans. Lots of deals are slanted against the borrower, and they are not always easy to identify. The more you look into the various types of loans that are out there, the more you can discover about how to bypass the bad loans and get to the good ones.