With a down economy and stricter lending requirements, guaranteed auto loans are growing in popularity. Commercials from local car dealerships advertising guaranteed car loans regardless of how bad a person’s credit is, can be found in nearly every city across America. The big question is, if banks can’t afford to lend money to people with poor credit, how can a local car dealership? Are these offerings legitimate loans or are they some kind of scam? The truth lies somewhere between and depends on each individuals perspective.
Guaranteed Auto Loan Basics
The commercials are always the same. A guy is shouting, “Bad credit?! No Credit?! No Problem! Everyone is approved!” And it’s true. Everyone does get approved for the guaranteed car loan but there is a catch. In fact, there may be many. The most common of which is extremely high interest rates. Banks don’t want to make these loans because they consider them too risky. The chance for default on the loan is too high. But car dealers accept the risk and jack up the interest rates to offset the amount of cars they will have to repossess. A large down payment is also occasionally required. Many of these dealers sell, repossess, and resell the same car multiple times until someone actually makes the payments.
Guaranteed auto financing has come under scrutiny because of these tactics. The critics claim that the car dealers are taking advantage of the poor and the high interest rates make the chance of repayment nearly impossible. The car dealers counteract this complaint by claiming that the people that get guaranteed auto loan approval have no other option and need a car to get to work. They claim that the loans actually help people because the people that do make the payments will re-establish their credit making it possible for them to get a more conventional loan at a more competitive rate. The truth probably lies somewhere inbetween.
Getting a Guaranteed Auto Loan
If traditional financing is out of the question and the risks and drawbacks to guaranteed auto loans has been properly weighed then the next step is to go out and get one. As previously mentioned, commercials for local dealerships offering guaranteed car loans are quite common so the companies advertising would be a good place to start. Calling around to other dealerships and asking what kind of loan programs they offer can work as well. Also, ask around for recommendations or at the very least, research the dealerships with the Better Business Bureau to determine that they have a good reputation.
Before visiting a dealership, it’s vital to come up with a budget. Find out how much money can be used for a down payment and how much money can be realistically spent on monthly car payments. Many people fool themselves into thinking they can afford much higher payments than they actually can. When visiting the dealership for the first time, go in with a solid plan of not purchasing a car that day to make sure high pressure sales tactics don’t cause an impulsive purchase that might be regretted in the future. To safe guard this plan, leave check books at home. There is really no point of even looking at a car on the lot until the financing situation has been discussed with the dealer. Deciding what car to purchase before discussing the financing brings in too many emotions and it’s harder to make a wise financial decision.
Carefully read the entire guaranteed auto finance plan offered by the dealer. Pay special attention to any fine print so there are no surprises. It may be difficult for someone with poor credit to afford a lawyer to look over the contract before signing it, but it’s a smart move if the money is available. If a lawyer is not possible, make sure to ask the dealer every question that comes to mind to gain the best understanding of the contract as possible. Perhaps one of the most important questions is discovering the situations that can get the car repossessed. For example, how late can payments be before the repo man shows up and tows the car away.
After the details of guaranteed car loans have been hashed out the fun part begins and a car can be picked out. Choosing a car is a matter of personal taste and what needs the driver requires. Hopefully the experience is a positive one and the road to credit recovery can begin.
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