Spotting predatory car loans

As despicable as it seems, some people make their living taking advantage of financially vulnerable members of society.

If you think your high credit score renders you invulnerable to the machinations of these individuals, think again. Spotting predatory car loans is just as critical for the well heeled as it is for those who are a bit down on their luck.

Here are some signs you’e dealing with a potential predatory lender.

“No Credit – No Problem!”

Granted, there are legitimate firms out there writing loans for first-time car buyers. Still, if a lender shows no concern for your previous credit history, keep a close eye on the fees and interest charges they apply to that loan. Do some research to find out what the typical interest rates are running before you go shopping so you’ll know when a number you’ve been quoted is too high.

“Buy Here — Pay Here!”

Sellers advertising these terms are counting on the convenience of getting a car and financing it at the same place to get buyers to overlook the extraordinary terms they’ll impose. As with the scenario above, you’ll find the annual percentage rate applied to that “Pay Here!” loan is much higher than you’ll encounter with a traditional lender.

You’ll also find the requirements of the loan will usually entail a significant down payment and gives them the right to repossess the car if you ever pay late. This enables them to make as much as possible on the car and sell it again to as many different people as possible.

Mandatory Arbitration Clauses

Stipulating arbitration saves the unscrupulous from appearing before a judge and being singled out as the sketchy operators they are. In other words, if you have a problem they don’t want to solve for you, agreeing to mandatory arbitration means you’ll waive your day in court. Instead, you’ll have to deal with an arbitrator — usually a person designated by the dealer — to seek relief. If you go in expecting to come out with a judgment in your favor, you’ll emerge disappointed.

An Abundance of Fees and Add-ons

Always read your purchase agreement carefully to ensure it contains only things to which you agreed and nothing more. Shady dealers often inflate the final price of a car with goodies such as gap insurance, vehicle service contracts, credit life and disability insurance, rust proofing, theft deterrent packages and window etching.

Further, they’ll have all sorts of logical-sounding arguments when you question these addendums. Yes, gap insurance (a policy to pay the difference between the car’s value and what you owe if the vehicle is deemed a total loss in an accident) can be good to have. However, it’s only useful if you have a small down payment or you agree to pay an exorbitant amount for the car. If you get into the loan with a 20 percent down payment and a favorable interest rate, the likelihood of owing more than the car is worth is low.

In other words, taking a legitimate new car loan will help you avoid that situation.

The Yo-Yo Call

You thought all was said and done and you’re relaxing at home with your new car in the garage. Your phone rings; it’s the sales person — there’s a “problem” with your financing and they need you to come back in. You arrive, they say your original financing didn’t go through and they need to work out a new (more expensive) loan for you.

If you say you don’t want the car anymore, they’ll say your down payment is nonrefundable and your trade-in has been sold — you’re stuck. Never sign a conditional loan agreement and do not leave a dealership until your financing is complete and the contracts are signed.

Bottom line; anyone pushing conditional financing is setting you up for a scam.

With that in mind, spotting predatory car loans can be boiled down to one simple observation. If it looks to good to be true, it probably is — don’t go for it.