Car buyers beware! There are plenty of methods nowadays to attract you to buy
the car of your dreams through various financing schemes.
And schemes
they are, even for people with unfavorable credit scores. Instant credit
almost always equals costly car loan interest payments in
the long run. This is visibly the case with many online new and used car loan lenders.
Apart from up-front entry
and processing fees, some of these lenders will charge exorbitantly
high interest rates which could almost equal, if not exceed, the purchase value of your car!
According to the Federal Reserve Board, there is an increasing trend in the
average length of car loans;
instead of the reasonable 36 months, a car loan now has an average of 5 years.
This only means that while your monthly
payments go down, a huge portion of this goes to interest payments, very little to the principal, at least for the first 3 years.
Combined with the devaluation of your car, you can find yourself in
what is known as an upside-down trap, whereby you pay more in interest rather than the actual value of your car.
Auto loan basics dictate that first shop around and the Internet is a good way to go
about it. But not all online car lenders (and there are hundreds, if not thousands online) are up-front about how
they do business. Those with unfavorable credit scores, and who are probably
desperate in buying a car, are the ones who turn unknowingly to these
types of lenders.
A good gauge of fair and honest financing is the prime money rate.
It is the average interest rate that most commercial banks
and other trustworthy financial institutions would charge on a loan.
Written by: Katrina Marion
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