Car Financing Tips

On June 18, 2012, in their “Money” section, Time published an article online entitled “4 Rules for Getting a Car Loan”. The author touches on some important tips that bear repeating. Some thoughts:

If you plan on financing a car through a dealer, you should be aware of your credit before go. Review your credit reports (you can get your credit report free once per year through annualcreditreport.com). Look for mistakes in credit reporting and/or unauthorized use of your credit and correct the problems. Otherwise, you could fall victim to a higher rate. You can also consider getting pre-approved for financing prior to heading to a dealership.

Also, watch that you’re not upsold on extra products during your car purchase. Dealers can make a big part of their profit by adding products or services to your purchase, often once you have reached the financing department. Though some buyers think the financing department is really just about the final signing of documents, it’s also a place where many extras can be sold to the unwitting buyer. Chris Kukla, senior counsel for government affairs at the Center for Responsible Lending, reports that close to “50% of a dealer’s profits come from the finance office.” Products a buyer might see pushed are rustproofing, undercoating, gap insurance, theft deterrent devices, service contracts (often mistakenly called extended warranties), and a whole slew of other add-ons. Despite pressure, “keep in mind that you can buy any of these extras after the fact, although the dealer will try to discourage this by pointing out that you won’t be able to roll the cost into your loan.”

Watch out for the “yo-yo” scam. Really a bait-and-switch tactic, in the yo-yo scam the dealer leads you to believe financing has been completed when, in reality, it never was. Yo-yo scams can occur in cases where the dealer knows the buyer won’t qualify for financing, often so the dealer can get the buyer’s downpayment or trade-in vehicle. Then, days or sometimes weeks after you have settled into the vehicle, the dealer calls to say there’s a problem with the financing and you need to come in. Often you are told you have to “resign” documents, but then you’re forced to pay a higher interest rate or forfeit the car and pay substantial “wear and tear” or “rental” fees. “‘The dealers use very coercive tactics to get them to sign the new contracts,” Kukla says. “Many were told their trade-in couldn’t be returned or the down payment was nonrefundable,” he says.” The most straightforward way to avoid this scam is to make clear to the dealer that you will not take delivery of the vehicle until the financing is final. Also know that most contracts signed by car buyers in California include language indicating that the dealer only has 10 days in which it can notify a purchaser that the dealer wants to rescind the contract because the purchaser has not qualified for the loan.