Car Loan Financing Tips and Scams - Part 2
As I talked about in Part 1 there is a lot to learn about how to get the best deal on your car loan. It's a lot to take in but make sure you read everything. The finance office is the place in the dealership where they are most likely to pull the wool over your eyes.
Keep in mind that a car loan is a product that the dealership is selling you. It's not a favor they are doing for you so that you can drive off the lot with a car. They make profit on the loan and it is in their best interest to charge as high an APR as possible. As I recommend throughout the site NEVER shop for a car based upon the monthly payment. When you analyze a loan offer the only thing to compare is the APR. The higher the APR, the more you are paying in interest and therefore the more you are paying for your car. Don't be fooled by the dealer sneaking in a 60 month loan to make it look like you are getting a good deal. As I'll teach you here you should get all your ducks in a row before setting foot in the dealership so you'll know your options and can compare to the dealership offer to figure out which car loan is best for you.
Did you put down less than 20% on your new car? You better consider gap insurance
If you put down less than 20% on your new car loan, you should get Gap Coverage. Most people refer to it commonly as "gap insurance". Don't bother buying it from
car dealers, they mark it up big time to a retail $500-$700 price, then finance it into your new car loan with a high APR reaping even more from your wallet for the
next 5 years. Ask your insurance agent or loan officer about Gap Insurance for your new car. If you owe $20,000 on your car, and it's only worth $16,000, you're
upside down. If you total the car, or it's stolen, your insurance company gives you $16,000, you must come up with $4000 immediately to pay off the bank, plus you
have a $500-$1000 deductible from your car insurance company! Gap coverage protects you against this. The better ones cover up to $500 of your deductible as well.
I'm paying cash, why does the dealer want me to fill out a credit application?
Dealers tell people it is required by the Patriot Act to monitor cash. It's one of our Top 10 Car Dealer
Scams. Many businesses dealing in large amounts of money are required to bounce your name off the OFAC list to make sure you are not a banned person.
But it does not require a credit check to do this, they do not need your SS# to verify your name, all they need is your name. Some buyers tell me they convinced the
dealer to relent.
Know Your New Car Pricing Before You Go Car Shopping!
Visit online car buying sites and research car pricing. Read reviews in Chapter 2 of car pricing sites
like Cars.com,
Edmunds.com,
CarWoo,
MyRide.com
and CarsDirect who get you competitive price quotes, car pricing, dealer cost and rebates.
How to get bad credit auto loans
If your Credit Score is < 600 don't submit loan applications that get rejected, dropping your credit score even further. Apply to Auto Credit Express or CarsDirect Car Loans, they find "bad credit car loans" for you. They get you new car financing from high risk lenders, with decent online auto loan rates, even with a bankruptcy. If your score is > 550, no bad credit for 6 months, Auto Credit Express may have lenders to help you establish credit with lower online auto loan rates than dealers. If you had bad credit in the past, but now you make more money, you'll find you are cash rich and credit poor. Then a bad credit auto loan might be your only hope. They connect you with a car dealer near you who can get you financed. Sometimes if your situation is really bad, you don't have a choice on cars or dealer brands, and you might have to work out the auto loan first, and choose your car second. For more information read our chapter about bad credit car loans.
"Subject To Financing": why the dealer called you 2 weeks later to re-sign your auto loan
New car financing at the dealer can be a headache. The "Subject to Financing" clause appears on paperwork of all new car loans. It means the deal is not done, yet
you think you are signing a contract. Then 2 weeks later the car dealer calls saying "your new car loan fell through." They knew what you qualified for when you bought
the car, a common auto loan scam, usually pulled on people with bad credit. You should not buy a new car first then worry about new car financing. When you buy a house,
you MUST have approval first, so have your car loan in order before car shopping. Use online auto loan sites such as Up2Drive and myAutoLoan.com. The
lower online auto loan rates avoid these scams. Sometimes dealers call and say they found you a lower APR. Oh, Really? Have them fax you over all the new figures
and APR in writing, and make sure they did not increase the number of months. Otherwise do not re-sign any contracts. We are big proponents of online new car loans.
Don't get stuck with bad credit auto loan if it's not necessary. This would have been avoided if you used online auto financing.
Used Car Loans:
If you plan to purchase a used car from a dealer - Up2Drive or myAutoloan.com provides used car loans for buying from a car dealer. Apply online and get approved today.
If you plan to purchase a used car from a private party - myAutoloan.com provides used car loans for buying from a private party.
Car loan payment calculators
We have a car loan payment calculator for you in our
Free Excel Spreadsheet Download Area. Our car payment calculator is easy to use, with 4 loan scenarios
on one 8x10 printout, allowing you to make quick decisions about your auto loan. You can also find auto loan payment calculators online at Up2Drive. If you have a PocketPC type PDA, download our
Car Loan Payment Calculator for Pocket Excel. Use our spreadsheets to compare online auto loan
rates to the car dealer auto loan rates. Many people have told me they used our spreadsheets on their laptop or PDA to catch the car dealer cheating on the car
payments. New car financing just got easier for you.
Car Refinancing Tips to lower your car loan paymentsWere you scammed into a high APR car loan? You can refinance your car loan to lower online auto loan rates, reducing car payments of your bad credit auto loan. Read Auto refinancing tips & scams to avoid, with tips on lowering your car loan APR. Apply online at Up2Drive or myAutoloan.com. They pay off your car loan, you pay them back at a lower APR. |
Keep your debt to income ratio and credit balances low
It's crucial before you attempt new car financing, to get your credit balances way below 50% of your credit limit or they lower your credit score. You pay on
time but can still have a low credit score if balances are too high, you applied for credit recently, or have too many open accounts. This surprises many people
applying for auto loans who get rejected. Get your debt to income ratio below to 36% if you can, otherwise banks stick you into a bad credit auto loan.
"bad credit" car financing credit score scam
This happens often with new car financing. One buyer told me his score was 780 from 3 credit bureaus. He applied for auto financing at the
Chrysler dealer. Four sales guys
came out of the finance office with a bogus "credit score" of 580 circled in red. They lied that with his bad credit they could get him financed at 10.9%, not at the
special 2.7% auto loan interest rate. It's New car finance trickery. He pulled out his own credit report showing
Equifax at 780, why is theirs is 580? Three salespeople scattered, the last guy lied that credit agencies show better credit scores to consumers than to lenders. The
buyer left, buying his Chrysler elsewhere at 2.7% APR. For people with bad credit, this scam works perfectly, suckering you into a bad credit car loan.
Warning about Low APR auto loans (0%, 1.9%, etc.)
Usually low APR rates like 0% or 1.9% are offered to few people with perfect credit, on new car loans typically 12 to 36 months. According to J.D. Power,
only 7% of new car sales in 2003 took advantage of these low teaser rates, and 10% in 2002. Most of you planning 48 or 60 month auto loans, or used car loans
won't get 0%. Ads say "with approved credit". You either get the low car loan APR or rebate, not both. Calculate which is cheaper. It may be better to
take a large rebate over the 0% APR new car financing. Compare to online auto loan rates. Pay off your auto loan early, saving on interest. Applying the rebate and
using your own low-interest financing often gets you greater savings.
Which is better: a rebate or special new car financing?
The table
below shows a real world example, where you are buying a new car for $19,287, and trading in your old car for $2,000. It compares side by side the 0% APR auto loan
with a higher 4.39% APR auto loan, and shows that even with a higher APR, the rebate saved the most money. Crunch the numbers for your case and see which is best.
| 0% Rate vs. $3,000 Rebate Comparison | ||
| Annual Percentage Rate | 0% | 4.39% |
| Cost of Car | $19,287 | $19,287 |
| Less Equity in Trade | $2,000 | $2,000 |
| Less Rebate | $0 | $3,000 |
| Amount of Finance | $17,287 | $14,287 |
| Monthly Payment | $288.12 | $265.64 |
| Total Cost | $17,287.20 | $15,938.40 |
| Savings | $0 | $1,348.80 |
Your Deposits And Down Payment
Never pay cash for a deposit on new car financing. If the deal goes south, at some dealers, you'll never get your cash back, but you can dispute a credit transaction.
The VIN Etching scam in the finance office
Dealers slip in a $300-$900 fee for VIN# window etching into your new car finance paperwork, lying that you won't get the auto loan without it, "the bank
requires it". You can order the same kit used by car dealers online from www.VINshield.com is only $19.95. Some dealers lie that the VIN etch was free, yet it's padded in your payment.
Bad Effects Of Low Credit Scores on your new car financing
Your credit score determines your new car loan approval and APR. If you have bad credit and score is low, you'll pay high car loan interest rates, up to 23%, with
a bad credit auto loan. If your score is below 720, you might not get those special 0% new car financing rates. Your bad credit score affects how much you pay
for car insurance rates. People with bad credit have no clue about this, maintaining your credit
score should be an ongoing process, not a rush job when financing a new car. That's the worst time, banks will reject you if you have disputed items on your credit
report, until it resolves. It can take 60 days to clean up your credit score, so don't apply for new auto financing until all disputes are resolved and you verified
your FICO Score. You have been warned! I have seen people rejected for applying while "in dispute." Then they get stuck with bad credit auto loans.
What Should Your Credit Score Be For Approval On A New Car Loan?
A car dealer shouldn't know more about your FICO Score than you. Get yours now. Where to get your credit score: Experian, TrueCredit or Equifax. Is your credit score over 680? If not, time to get to work. Premium Credit Product: For those who want the ultimate in credit monitoring and access to credit scores, Experian's Triple Advantage offers the complete package - credit scores and monitoring from all three credit bureaus. Now is the time to get your credit report: Don't put it off until later. Do it now before you finish reading this page, and correct it. |
Credit score myths: "I've never missed a payment. My credit score must be high!"
Many people get upset at auto loan time when they find out their credit score is low, and they have bad credit. Paying on time is but one of 100 variables making up
your credit score. Having many open accounts will damage your credit score, as there is potential for you to spend up to your credit limits. People with good credit
have too much credit and old accounts no longer in use. When I got my score it was ok, but by closing half a dozen retail store cards no longer in use, I improved my
credit score almost 40 points. Having credit account balances above 50% of the credit limit quickly degrades your score, meaning higher auto loan interest rates and
bad credit auto loans.
How to increase your car loan approval chances
- If you're a recent college grad, don't apply for new car loans until you're at your new job at least 6 months
- Your monthly income must be over $1600 otherwise you have no business taking out a loan, buy a used car instead
- It helps if you have a past auto loan in your credit history. Some lenders may reject you if you don't
- Learn how to repair bad credit yourself, get your credit score to 680 before you apply for new car loans
- Pay down your credit card balances as low as possible, payoff higher APR cards first before applying for auto loans
- Don't apply for new car loans if you have bad credit, moved in the last 6 months. Lenders hate nomads, they verify addresses & income
- Get a stable job with a consistent paycheck. Self employment is very difficult to get approved
- Haggle with creditors to get charge off's, late payments, other black marks off your credit report before auto financing
Credit card companies say it takes 60 days for paying off your credit cards to show up on your credit report, but who wants to wait 2 months before buying a car? One of our visitors filed a request for investigation of her report stating that the balances on these cards were incorrect, and the investigator looked up her correct balances. She checked 2 weeks later and it was changed. Also, by paying off 2 credit cards from 70% max credit level down to 0%, increased her credit score 100 points. That's the difference between paying 6% APR for a new car loan, and 21% for a bad credit auto loan.
Steps to take before you apply for a new car loan:
- Get your Credit Score from all 3 bureaus so dealers can't lie to you about your score. Flash it in their face when they lie to you about your score
- Start comparing online auto loan rates from sites like Up2Drive and myAutoloan.com to new car dealers, use car loan payment calculators
- Close old credit accounts, they are excess luggage dragging down your credit score, but leave your oldest account open
- Remove erroneous previous addresses and other errors off your credit report before attempting new car financing
- Wait until your score goes up to 680 if applying for lowest rate car loans
New car dealer financing is just a product the dealer sells you. Is it an auto loan or not an auto loan?
New car loans at the dealer are not really new car loans, nor used car loans. They are Retail Installment Sales Contracts (RISCs). Great acronym. The dealer sells
the RISC to a bank, often sharing interest rates, so the higher APR they charge you, the more money they make. Unless there is a subsidized low APR from the car maker,
you'll usually find lower online car loan interest rates at online new car financing sites like Up2Drive and myAutoloan.com.
Now you have lower online auto loan rates. In the 1990s, we HAD to get our auto financing at the dealer. New car financing is just a product the dealer sells you. You
don't have to buy their convenient product anymore. You should never put yourself in a position where you rely on a new car dealer to tell you how good your credit is,
you should be telling yourself instead by understanding your own credit report. This way you avoid their bad credit auto loans. Subject to new car finance.
Don't Be Fooled By Lower Monthly Car Loan Monthly Payments
When auto loan shopping, look beyond monthly car payments. Sneaky dealers quote a lower monthly payment than your bank, but the dealer's auto loan might be 72
months, and your bank's auto loan is 36 months, a common scam, to get you into a bad credit auto loan. Some dealers lie about APR on their auto loans, but plugging
numbers into a car loan payment calculator exposes the lie. Auto financing is a cat and mouse game. Always verify their numbers, make sure monthly car payments match
the selling price and APR that you are expecting to pay. If you can't check their numbers, you have no business taking out an auto loan! You have the right to know
how much new car loans will cost including interest rate, trade-in value, taxes and fees, all disclosed in writing. But there are people selling you new car financing
who don't want you to know how much you're spending, and divert your attention by pointing out low monthly payments you are comfortable with. The same happens
with used car loans. Always car loan payment calculators to verify car loan interest rates and payments.
The Straw Purchase car loan, don't do a co-sign!
This is the dark side of auto financing. A straw purchase refers to a person buying a handgun for someone who is ineligible to own one. That's how the Columbine
High School shooters got their guns. With new car buying, the dealer tells you that with bad credit, you can't qualify for the auto loan so you need a co-signer. No
problem, Grandma will do it for you. But Grandma is duped by the dealer paper shuffle and 2 weeks later you find out there is no co-signed auto loan, they wrote the
auto loan in Grandma's name! This does not help your bad credit. Her name is on the title, and it's illegal for you to buy insurance on a new car that is not titled to
you. This is pulled a lot on used car loans also. I hear Texas has laws against Straw Purchase auto loans. How To Avoid The Scam: Have both signers present,
auto loans should have both signatures together. A notice to the cosigner is required by the Federal Trade Commission's Trade Regulation Rule on Credit Practices. With
bad credit you should try a cheaper used car, with a used car loan.
Good Sources of Online New Car Financing
You can save even more with online car financing. The
easiest way to get pre-approved for an auto loan is a credit union or trustworthy online auto loan sites such as Up2Drive, myAutoloan.com,
CarsDirect Car Loans
and Auto Credit Express (for bad credit). Before you buy a car you must have auto financing ready. Once you are
pre approved by the new car financing sites, compare online auto loan rates to the dealer's APR. If the dealer can beat your online car loan APR, with no cash flow
shell games, finance through the dealer. Otherwise use online new car loans. Banks charge a bit more for used car loans, than new car loans.
Advantages Of Online Auto Financing - new car loans and used car loans
Benefits of new car loans from an online auto loan company:
- Online auto loan rates are usually lower than car dealers
- Low APR, No app fees for New Car Loans and Used Car Loans
- Online car loan payment calculators, your auto financing APR is locked for 60 days
- Online new car financing avoids headaches, bad credit auto loan scams, and frustration of car dealer auto financing
- Auto loan approvals are usually within an hour during business hours
- No new car finance hidden fees, points or prepayment penalties with online new car financing
- New car loan lenders FedEx your check to arrive next day
Extended Warranties
As with financing, you must shop for extended warranties before you buy your car so you can compare with the dealer's warranty pricing. For an extended warranty, try
CARCHEX and WarrantyDirect. Click on the following
link to read my complete article on buying an Extended Warranty where I review both of them. You'll want to get an online warranty
quote before you go to the dealer, so you'll have something to compare the dealer's extended warranty price with. Never show up at a dealer to buy a car without a
free quote from an online warranty site. Beware of dealers who offer to lower your car loan APR in exchange for purchasing an extended warranty. These extended
warranties are sometimes very over priced and end up costing you more than you save on the lower APR loan.
Alternate Auto Financing: Credit Unions
Credit unions are easier on you than car dealers for new car loans or used car loans, they'll lend you more money at favorable auto loan interest rates over
dealers, give more favorable benefits than leasing companies. Your credit union can approve you over the phone in minutes, printing your credit report during the call.
They'll tell you what auto loans you qualify for. I have found often the online auto loan lenders rates beat credit unions. Some credit unions don't require a lease
security deposit, down payment, other fees, and are generous with lease mileage.
Equity In Your Home Can Fund Your Car Loan
If you have equity in your home, find a home equity loan for down payments with no fees. You can usually deduct interest from home equity loans from
your taxes, effectively reducing your APR. Don't borrow more than 75% of your equity. Home equity loans are usually 2% or higher APR than car loans. They might be
higher APR than used car loans too. But is some cases the tax savings make up for the higher interest rate.
Lease Calculators
Read our guide on using ALG Residual Values. You'll need it to calculate your auto lease payments, and look up dealer cost for cars
and trucks. Every person leasing autos should use the same type of auto financing tools that new car dealers use. Without it you're sailing the ocean of confusion,
and they'll swallow you whole. I would never lease a car without using lease software. Fight fire with fire.
Auto Leasing Software with Residual Values We like Expert Lease Pro because it's so simple. Choose your car from the menu. It lists the dealer invoice cost and MSRP for the base model and options. Check off the options and it supplies you with invoice and MSRP pricing. Look up the residual value for your vehicle using Expert Lease Pro's built-in residual values. Select the sales tax info, and interest rate, and the software tells you what your payments will be. It's used by Attorney Generals to sue crooked car dealers. Click Here To Check Out Expert Lease Pro. |
Get The Credit You Deserve
New car dealers know that almost everyone has a bad mark on their report, and they make good use of it with
higher APR auto loans. Erroneous black marks on your credit file cause you to have a bad credit rating and pay higher auto loan rates.
- My friend found 3 errors on his credit report that kept him from getting approval on his new car loans until they were fixed
- My sister moved, the electric company never sent her last month's bill, causing a bad charge off on her credit report
What's on your credit report
Your credit report appears online, and shows who has checked your credit history. Some sites lure you with "free" credit reports, but you must sign up to
their paid credit monitoring service to get it. Errors in your credit file put you at a disadvantage when the dealer calls 2 weeks after the sale to say "your new
financing fell through, you have bad credit, we need more cash". Then you are stuck with their 21% APR bad credit auto loan, all because you did not do your new
car finance homework first.
TIP: When filling out the forms for your credit report or anything else online, remember to enter your full email address properly! If your email address is forgetful@aol.com, don't just put "forgetful", you must add the full "forgetful@aol.com" or your request will be denied. They need to be able to email your report to you as a backup. Also, have your drivers license handy, you need the Drivers License #.
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CONSUMER ALERT: In August 2008 11 people were charged with stealing 41 million credit card numbers by hacking into networks at nine major retailers. Incidents like this continue to happen all the time and emphasize why it is so important to monitor your credit file and protect yourself from identity theft. Where To Get Your Credit Report Online Experian Online Credit Report You get a thorough credit report in 30 seconds from one of the big 3 credit bureaus. They are strict about security so if you type one bit of data incorrectly or have moved in recently, you won't be able to get your report instantly. Instead they'll mail it to you about a week later. If you have never seen your report before, you should get the "Merged Credit Report" from All 3 credit bureaus. Experian also offers Triple Advantage, the complete credit monitoring solution. This package includes unlimited credit scores and monitoring from all three credit bureaus. Banks and dealers typically run your credit report from at least 2 credit bureaus. TrueCredit has your credit report online instantly. Get the 3-in-1 Credit Report With FREE Credit Score if you have never seen your credit report. It has your credit files from the top 3 credit bureaus used by car dealers. Now you'll have the story on what car dealers know. Equifax Instant Online Credit Reports And Score Power Equifax is one of the big 3 credit bureaus in the U.S. Most creditors who run your credit profile use Equifax, as they are the most thorough. You need the credit score option so you'll know BEFORE going to the dealer. No more dealers lying that you have a bad score, you'll have your FICO Beacon score to slam the door shut on their scam. When you apply for mortgages and car loans, banks get your credit report from Equifax. Using the same credit bureau as banks, you'll be in sync with what they see. The Score Power package includes your Equifax Credit Profile, your FICO score (also known as your BEACON score), plus a personalized analysis with tips on how to improve your score over time, how you rank among other consumers. |
Responsible Use Of Credit Cards
Use the card to buy gas or food, and pay it off in full and on time each month to build solid credit, before applying for auto loans. You can't get blood from a stone
and the moral of the story is to not get into these situations to begin with. How do people get into these situations? By not taking their financial pulse and making
a budget. You must have a spending budget and stick to it. People with bad credit think they have no power to negotiate. That's just how some salesman want you to
think. Dealers often charge them full MSRP. These folks, low on self esteem, are often prey to psychological conditioning by salesmen. If you can't afford a new car,
research used car loans and think about getting a used car.
"You're a credit risk. Only way to make this auto loan worth it for us is to charge 18%.
It's not our fault you have bad credit."
If the dealer learns of your credit woes, they'll say: "This is a great opportunity for you to re-establish your credit rating, since our bank is willing to give
you the money." They just want you at 18% APR auto loan. Re-establish your credit on a lower priced sofa or computer.
Auto Financing for First Time Car Buyers And College Students with bad credit
Some dealers have first time buyer/college graduate auto financing programs subsidized by carmakers. Sometimes there is no recent grad new car finance program,
they just charge you 18% APR for new car loans. If you have good credit history, there's no reason to pay 18% in a bad credit auto loan, they are feeding off your
ignorance and rejection fears. You have the same haggling rights I do, don't let any salesman tell you otherwise. Don't fall for first time buyer "0 down"
auto financing ads. You must put 20% down on new car loans, or you'll be upside down on your auto loan. Salespeople tell you auto loans are a way for you to establish
credit, but it does not mean you have to pay a high APR on your auto loan. You might try used car auto loans too, since you will be borrowing less money.
Use car loan payment calculators to get used to the numbers. If you work at your college, try an auto loan through the credit union, a good place to establish
credit. Don't let your parents buy the car cash, or finance under their name, it wont establish credit for you. Pay down your debts and clean up your credit
score before applying for a car loan. The key to stability is living where you can afford the rent, even if it's not up to your standards, so you don't have to
move. If you move around you become un-creditworthy, and might only be able to get a used car loan or a bad credit car loan.
| Jeff's New Car Financing Physics If you don't know how much you owe your creditors off the top of your head, you have a credit problem. |
Don't Forget Auto Insurance
You'll be surprised how much some new cars cost to insure. Get your auto insurance quotes before you buy a car, and plan your budget to include insurance. If
you're buying a car on the hairy edge of what you can afford, insurance payments will drag you under. Insurance payments are part of your monthly cost of ownership.
Read All About Auto Insurance for buying tips, coverage glossary, how to avoid scams, reviews of free auto insurance sites. Auto
insurance sites BestCarInsuranceSite, Allstate,
GEICO and LowerMyBills.com give you free online auto insurance quotes, so be sure to get pricing from them too.
Go On to Chapter 2: Discount Car Buying & Car Pricing On The Internet
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| Jump to any chapter. I suggest you read each chapter in order. | |||
| Chapter 1 Get your credit report, how to get a car loan, scams, online car loans, firt time car loans, budget & loan excel spreadsheets, credit repair. |
Chapter 2 Reviews of internet discount car buying sites, new car prices, find dealer's invoice cost. Get a new car quote. |
Chapter 3 What to bring to a dealership, what to say, how to act, what not to do, what to look for at the dealership, and a glossary of all dealer fees. |
Chapter 4 How to read dealer invoices, finding dealer's cost, how much to offer the dealer, buyers offer spreadsheet, examples, trade-ins. |
| Chapter 5 Negotiating tips, dealer scams & tricks to watch out for, dealing with aggressive salespeople, choosing between rebates or low APR loans. |
Chapter 6 Close the deal, avoid needless extras, scams in the business office, extended warranty scams, options, buying warranties online. |
Chapter 7 Actual misleading dealer ads, and what to do when you've been ripped off, customer satisfaction surveys, how I bought my Lexus. |
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