Though it is increasingly difficult to be approved for a mortgage, there are plenty of car loans available. Not all vehicle financing is alike and predatory car loans substantially increase the vehicle price.
The Center For Responsible Lending has identified five things consumers should look for to determine if a car loan is predatory.
Lenders usually enter agreements with car dealers, agreeing to a low buy rate that the dealer may increase at its discretion. Dealers often raise this because they pocket most of the extra interest.
Some dealers also pack junk fees into loans. These include overpriced add-ons like rustproofing, vehicle service contracts, insurance, window etching, and theft deterrent packages. As the vehicle cost rises, so does the loan amount. This increases the potential kickback for the dealer.
Some dealers convince buyers to enter a conditional sale agreement or arrange this unbeknownst to the buyer. A conditional sale is not the same as a final sale. Once the buyer takes the car home, the dealer claims it cannot fund the loan at the initially agreed-upon terms.
They buyer must then return the car and enter negotiations for a loan that often turns out to be more expensive.
In some cases, buyers are locked into such deals by being told the vehicle down payment is non-refundable or the car traded in has already been sold. Another type of predatory practice is the mere existence of buy here, pay here car dealerships.
These offer in-house bad credit auto financing with a very high APR.
Before consumers sign on the dotted line for car loans, they should investigate this financing in terms of the points above. Once they get into a predatory loan, it is often difficult, if not impossible, to get out.
Taking a cautious approach to vehicle financing can save a consumer time and many headaches in the end.
