The Risks Of Guaranteed Car Loans

Some borrowers seek instant financing through pre-approved or guaranteed car loans. These are often distributed through Internet lenders with a very short application process. Many borrowers prefer guaranteed loans because they are quick and hassle free to secure if you have good credit. They typically use a simple formula based on credit score, income and other factors to determine interest rate and terms. While these loans are hassle-free to obtain, they are not always the best loans a borrower can locate.

Lack of Negotiation

When you submit a form for a guaranteed car loan, typically online, a quote is generated very rapidly. All you have to do is accept this quote, sign the contract, and you have your financing. You sacrifice the ability to negotiate the loan when you opt for this convenience. Many people fear loan negotiation, and this is a primary reason why they end up getting bad deals on financing. Shopping around for different loans and leveraging those loans against one another will yield better rates, especially for those with bad credit. 

No Time for Questions

Loan contracts are complicated legal documents. Car consumers in particular neglect to give attention to details on instant loans because they are excited over the prospect of a new vehicle. Sitting down with a loan representative to ask questions will assure a borrower understands all the terms of the contract. It is important to remember that a loan is about more than just interest rates and limits. Asking about late payment procedures, collections procedures and more can help a borrower understand the company. 

Preset Terms

Asking questions and negotiating will lead to better terms for the borrower in most cases. Particularly for those with bad credit, it is crucial to ask about terms for loan modification in the future. You are signing a close-end loan, meaning you will not have the option to modify the loan in the future without penalty. Knowing exactly what these penalties are is the most important step in deciding on whether the loan terms are favorable to the borrower. You may be able to arrange for better terms of modification if you agree to a higher monthly payment. This option will not be appealing to everyone, but depending on the borrower, modification terms can be very important. 

Low Introductory Rates  

Guaranteed loan lenders often entice borrowers to sign the contract quickly by offering low introductory interest rates. These rates are often well-below the industry standard. However, the companies are not always up front about how much the rates will adjust over time. It is not uncommon for the rates to double in the course of a few years. Asking about fixed rate options can help secure a borrower against this risk. 


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