June 20, 2018
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Car Dealer Tricks and Scams – Part Two

Some less than honest car dealers may try to push you into a deal that may not be to your advantage, just so they can make a sale and earn a commission. If your budget is stretched and you have bad credit, you’re even more susceptible to being led astray. Here are two situations that should raise the red flag:

Trade-Up Trouble:
For many, a car is more like a status symbol instead of a way to get to work. Consequently, it’s tempting to trade up to a more expensive vehicle even before your current auto loan is paid off. Car dealers love people who want to have a new car every 2 or 3 years. Instead of telling a customer it would be better to sell their car or wait a few years before purchasing a new car, a sneaky salesperson may suggest that you rollover the remaining payments on your current vehicle into the new car loan or lease, which may bring new credit problems for you. They’ll explain the car is really “hot” and the rollover is a great solution to your problem and, of course, it sounds appealing to you because who wants to wait?

While this isn’t illegal, it’s very risky for the borrower who ends up owing more on the second car than what it’s worth. If you end up in an accident and total the car, or if you decide to do another trade in, you’ll still have to write out a big check for the bad credit and to cover the loan amount that is above and beyond the value of the vehicle. Suggestion: first of all, pay off your car before you even look at a new one; secondly, downsize your expectations and go for a car that is really in your budget; and thirdly, consider a good, used car.

Balloon Payment:
In an attempt to get you the auto payment that you’re comfortable with, a salesperson and lender can “work the numbers” to come up with loan terms that you can afford. One strategy is an unrealistically low monthly payment, with the balance of the loan due in one large “balloon payment” at the end of the loan period. It’s risky, especially for those who are already overextended (which is why you’re on a mission for the lowest payment and willing to do just about anything). You have to pay the balance in full.

If you are thinking about getting into a car loan with a balloon payment, don’t. Re-evaluate the type of car you want. Chances are you’re way over budget. Financial experts recommend spending no more than 12 to 15% of your after tax monthly income for a car payment unless you will face the credit problems in the near future. If your budget is maxed out, you can’t even afford that. Going with a more reasonably priced vehicle that can be paid off in 3-5 years is a wiser choice. Plus, keeping it long after it’s paid off will give your budget some relief. Don’t let a car dealer pressure you into a car that is too expensive, if you do, as a result you will have to face the potential consequences.



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