Avoid Predatory Lending Practices with Your Car Loan
The most common practice in predatory lending is inflated interest rates.
Low initial interest rates that jump above market rates after an agreed period are typical predatory lending practices. Don't be fooled by low- or no-interest introductory rates.
If you have poor credit, predatory lending auto dealers might offer you a loan, but, the rates be unreasonably high. There is a simple defense against predatory lending interest rates: Shop.
Lenders are hungry for good borrowers. Both online or in person lenders can give rates quotes with a simple and quick credit check and income review.
Finally, a lender is required to disclose the Annual Percentage Rate, or APR. Be sure you compare the APR on various loan offers for a fair comparison and go with the best offer.
A predatory lender can create a negative situation for you by inflating the price of the vehicle and increasing the size of the loan. The "zero down payment" offers only mean you pay less cash up front. The amount of the down payment is still included in the price of the vehicle.
This is yet another example of a situation where predatory lenders can take advantage borrowers with poor credit history. You may be offered a deal on a car and a loan, but at an inflated price. As with an inflated interest rate, you are locked into long-term repayment loans. For example, you may get a 5 year loan instead of a 3 year loan. To protect your interests, be sure to using a pricing service. There are a variety of online pricing services can explain the actual dealer cost of a new car and allow you to compare used car values.
Your total loan amount reflects what you and dealer agree is the total cost of the car, including extras. Special wheels and tires are an example of an "extra." Another predatory lending practice is to include the price of the car without extras. The extras are not installed. Be certain what you agreed to buy is what you get.
The fine print on a loan document contains the fees you pay. Even if you get a good price on the vehicle and a good interest rate on a loan, the loan can be bad due to high fees. Unnecessary fees offset the savings you made in negotiating the car price and loan rate. This is also true if the fees are rolled into the note.
The lender is required to clearly explain all fees to you. If there are fees that seem abnormally high, shop around. See if other lenders charge the same fees.
Predatory lending scams include kickbacks and what are called "yo-yo" deals.
In a kickback, a seller sends you to a particular lender and the lender kicks back the seller money for the recommendation. These lenders typically inflate the interest rate to recoup the kickback cost.
In the "yo-yo" deal, you accept what appears to be a good loan. You finalize it and drive the car home. You are then called by the dealer, jerked back in (like a yo-yo) and told you no longer qualify for the original deal. If you want to keep the car, you are offered a more expensive loan. The best defense to this scam is to shop around and be informed. Do not simply trust the seller to recommend the best lender, investigate for yourself.