Car Financing Essentials: What You Should Know Before Buying Part 3
written by Credit-HQ ExpertTips to Avoid Shady Car Financing Deals
-Shop around for lending institutions on your own, prior to visiting the car dealership. You can set a mental budget and request for quotes so that you’re armed with figures with which you can compare those quoted by the dealer. Generally, credit unions offer lower rates than banks. You’ll also be given less confusing computations than those hurriedly made for in-house financing.
-The sticker price is almost always negotiable. If no rebates are offered, you can bargain for a discount some other way. On the other hand, be wary of manipulations regarding the number of payments or the total cost of credit offered if a rebate is freely given to you. It may be that the discounted amount would only be added somewhere else.
-Don’t leave everything to the auto dealer. If you’re amenable to the terms offered by them, get the name and contact information of the bank agent arranging your loan so you can always contact them directly. In addition, always check if there is a substantial balloon payment at the end of the loan life.
-There are times when auto dealers would search for your credit reports without your prior authorization. The Fair Credit Reporting Act makes it illegal for car dealerships to obtain credit reports without your written consent. There are car dealers who pull credit reports without the buyer’s consent to:
a) get a hold of your credit card balance (which can be accessed thru credit reports) which they use to suggest to you to use your credit card in order to come up with a larger initial payment. Make it a point, then, not to give away sensitive personal information such as your Social Security number, phone number, and date of birth before you have the payment terms down pat;
b) compute for the rates that a lending institution is likely to give you, based on your credit reports; thus giving them the upper hand in negotiating rates with you; and
c) get as much information from you as possible so that they’ll get leverage during negotiations for the purchase;
d) check out your previous car loans and utilize these figures as a baseline on which to pile on additional payment months or cash during your negotiations.
-After you have decided on which car to purchase, call your bank or the credit union you’ve previously talked to and ask for a quote. Don’t let impatience get to you. Remember – you can save hundreds, if not thousands, of dollars if you wait and study figures meticulously.
-Say no to on-the-spot deliveries, no matter how tempting it may seem. If you give in to this, you won’t be able to read the fine print, and are putting yourself in a situation where it would be more difficult for you to back out of a shady deal.
-Check the contract for a binding arbitration clause which serves to protect the auto dealer from future litigations. Because of the numerous lawsuits that several auto dealers have had to answer to, this clause has been included in many contracts to help dealerships avoid expensive court judgments and instead avail of the services of an arbitration company. Moreover, when you agree to this clause, you are in effect waiving your right to appeal any decision by the arbitration company, which is usually chosen by the dealership.
-Watch out for the devious practice of jamming a loan package. This happens when the sales agent or the car dealership manager comes up with an inflated estimate for a certain loan, providing a margin for throwing in certain items – such as service contracts, credit insurance, and even packages for environmental protection. You are then led to believe that these items are free, when in fact you end up being overcharged for these noncompulsory items.
-Be aware of the Truth in Lending Act (TILA) which serves to protect consumers, including those looking to buy automobiles. This Act requires dealers to present the financing terms in an easy-to-understand and standardized format, making it easier to compare quotes from various lending institutions and discouraging dealers from including figures that are disadvantageous to the client.
The lender must, at all times, disclose the following information for every loan:
-the lender’s identity
-amount to be financed, or total cost of the loan package
-yearly percentage rate, including variable-rate disclosures when applicable
-breakdown of the amount for financing
-finance charges
-schedule of payments
-penalties and other conditions
-the following, when applicable: a) required deposit; b) insurance; c) security interest; d) total cost; e) reference to the contract
You are protected in that if the lender violates any of the terms of the Act, you are given one year during which you can sue and recover lawyer’s fees, court costs, and twice the computed finance charges (between $100 and $1,000). On the other hand, the creditor is given two months from the time of the discovery of the slip-up to rectify any errors made, and is not liable for bona fide errors or honest mistakes.
It is wise, in any case to be informed of your rights and to study beforehand various aspects of car financing in order to get the best and safest financing plan for your new car.
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