Last week, we talked about car buying and how it’s important to keep our wits about us. Unfortunately, there are some other situations relating to car buying we need to look out for, because car financing is an area in which predatory lending can be just around the corner.
One of my favorite things about my job is teaching a class called Credit When Credit is Due in the prison. In the chapter on car buying, they say “Shop for the car you want, not the monthly payment.” Now, we know the payment is important, but it’s not the whole decision. Predatory lenders are going to focus only on the payment and hope their potential customer isn’t paying any attention to the rest of the deal.
Back when my son was born, I was driving a 4 cylinder diesel VW Rabbit that I had been driving for about 15 years, maybe longer. This car was LITERALLY falling apart. When I brought him home from the hospital, we had to put him in the back seat through the window, because that door didn’t open from the outside. The other back seat door didn’t open at all. The driver’s door was about to hit the ground every time I got in and out of the car. I loved that car, but it was not a mom car. It was time for a new one.
I wasn’t sure what shape my credit was in as I hadn’t had a car payment for a long time, and so I was a bit reluctant to go to the bank. Back then, it wasn’t as easy to get a credit report as it is now. So I went down to Sioux City to a place that advertised “E-Z Credit” and LOW payments. I found a car that was not too bad, certainly in better shape than the one I had. So out we went on the test drive. As we were driving, I asked the salesman “How much is the car?”
“What kind of payment are you looking for?”
“I’m sure we can get you in for that.” he said.
“Okay, sounds great. How much is the car?” I asked again.
“I’m sure we can get you in for that payment” he replied.
“How much is the car?”
“We’ll fix that ding in the windshield and ScotchGuard© it all up for you”
“Thanks!” I replied. “How much is the car?”
At that point, he realized I wasn’t going to let it go. He sighed heavily and paused.
“Depends on what?” I thought to myself. And then the light bulb came on.
They were going to run my credit and whatever they could get on my credit rating was the cost of the car. And no matter what that amount was, my payment would not be more than $150.00 per month, even if that meant a long loan term. Fortunately for me, I knew enough to get out of there. I went to my bank and got my car loan, and got a nice little car for us to have.
Predatory lenders count on us not paying attention to the details. They hope that a single mom who really needs a newer car is going to just sign on the dotted line.
Not every self financing dealer is predatory, but the odds are against you. Before you even go shopping for a car, visit with a lender and find out what you can afford, or at least what interest rate to expect. Talk to more than one lender if you want. Two or three inquiries for one loan purpose won’t damage your credit rating. There are dozens of loan calculators online that can help you figure out how much your payment will be or how much you can borrow to keep your payment below a certain amount.
Remember, you want a loan term no longer than 60 months (5 years) and a payment that will keep all of your debt payments under 20% of your income.
If you need help with that, your friendly neighborhood credit counselors are here to help you crunch the numbers, and make sure you are getting into a good deal financially.
Contact us at 1-888-258-2227 or visit us online at www.LssSD.org to make an appointment.
Written by Sylvia Selgestad, Financial Counselor and Educator
Photo credit: pinterest.com
LSS Center for Financial Resources
Consumer Credit Counseling Service | Housing Resources | Sharpen Your Financial Focus | Financial Fitness Education
705 East 41st Street, Suite 100 | Sioux Falls SD 57105-6047
605-330-2700 or 888-258-2227
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