How to Spot a Bad Car Credit Loan

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January 27, 2012

When purchasing a car, a bad car credit loan can dramatically increase the overall costs of paying for the vehicle itself. Bad credit loan lenders are not to be confused with lenders who provide loans to people with bad credit. Bad credit finance loans of the type in this article are those that unfairly take advantage of interest rates and other aspects of a loan to make more money off of your loan repayments than you need to pay. Fortunately, a thorough understanding of how car loans work will help you to spot bad car credit loans at the outset and before you've signed up for them.

Beware of Dealer Loans

Dealerships are well known for offering loans with terrible interest rates. However, many people take a standard dealership loan on the payment plan of their car simply for the fact that it is convenient. Do not be fooled by a dealership loan that appears to be too good to be true. In most cases, the dealer will make a substantial profit off of the interest on the loan repayment installments. Read through every dealership loan offer very carefully, and be sure to compare the interest rates and repayment schedule with loans from other potential lenders before you commit to anything.

Look Out for 0% Loans

In some cases, dealerships and other lenders offer a 0% interest loan to pay off the cost of your vehicle. This is another case of a deal that appears (and is often) too good to be true. Be careful of hidden items in the fine print of these loans. One of the most common of these is the mandatory forfeiture of a discount off the list price of a vehicle in order to take the loan. While this will not necessarily cost you a significant amount of money, it is important to calculate exactly how much money a 0% loan will save you over other standard-rate loans. If the amount of money you stand to save on the 0% loan isn't as much as the discount you could have saved off the list price of the vehicle, the 0% loan isn't the best deal for you.

Read the Fine Print

Lenders often manipulate the numbers so it appears they offer an excellent interest rate on a loan. While in some cases this may be true, in others it is a disguise for a higher interest rate that is phrased differently through careful advertising. Be sure to calculate the APR and the APY of a loan before you commit to any one loan, and always read the fine print. By doing these things, you help to compare different loan options on the same level and in the same terms, which makes selecting the best deal easier for you.

If you have any questions about selecting a loan, consult with an accountant or financial advisor. The amount of money you spend on a consultation of this kind may be minimal compared with the extra money you'd spend on a bad car loan overall.

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