Canadian Bad Auto Loan Scams and Tricks to Avoid
Having a poor credit can indeed put you in a difficult spot when applying for an auto loan. In financing, you need to consider the interest rate offer, duration of loan, and the affordability of monthly payments. And with a poor credit, securing an approval will indeed be very challenging.
There are a lot of auto loan scams that one must look out for. Here are some of the most common tricks that lure people into getting a loan that are just too good to be true.
100% Approval Gimmicks
Lending institutions that give 100% approval mostly come with a catch. Generally, they require you to place a relatively huge down payment before you can take home your new car. They do this in order to reduce the financial risk they are taking. This is only advantageous for those who can pay up front but in reality it’s the opposite. Most people cannot afford to make a big down payment since they also bear other financial obligations such as mortgage and bills.
Another scenario is if you cannot meet the desired down payment, they will still give an approval but at the expense of the quality of the vehicle that they offer. Meaning they will limit your options to vehicles that are low in quality and usually with high mileage. At the end of the day, agreeing to a loan that only offers a substandard vehicle will not give you the satisfaction that you seek.
In New Car Canada, we offer loan products that will give you reliable and good quality vehicles that will satisfy your transportation needs. Not only that, we also make sure that you can afford this loan and not end up buried in debt because of expensive auto loans. Click here to see your options.
More Credit Inquiries Can Mean Less For You
More inquiry with regards to your credit could spell disaster for you. Many dealers that offer auto loans for those with bad credit will endorse your application to a number of lenders. This can hurt you because it is implied that when you apply for a bad credit auto loan, your credit score is likely to be too low for an instant approval. This lead to lenders requesting for a Credit Bureau Report and will carefully scrutinize your credit. To add, too much inquiries will make you look very desperate for an approval and this is a bad sign in the eyes of prospective lenders. Moreover they might get the impression that you have been disapproved too many times.
Not only that, most lenders will also check on other possible lending institutions that may have reviewed your application too. Since they are aware of the products that other lenders are selling, they will feel skeptical about your creditworthiness if lenders who have relatively low approval standards turned you down.
If by someway you would still get approved, it is very likely that you will end up in a loan deal that has a high interest rate, bigger down payment requirement, and possibly even a car that you don’t like. What a bad way to make a deal, right?
Here at New Car Canada, we review your application carefully before endorsing it to the right lenders. We only need one Credit Bureau Report in order for us to make an evaluation and look for the best lender fit for your situation.
Disadvantages of Extended Term Loans
In bad credit loans, the duration of a loan is affected by the model of the vehicle and its mileage. But for brand new cars, it can take as long as 84 months (7 years). Stretching the auto loan duration would mean lower monthly payments but higher overall cost due to interest payments. There’s even a possibility that your car won’t last that long and you’d end up paying something you can’t even use.
- High Interest Rates – With a bad credit, you are typically faced with a high interest rate and will have to deal with it until you can fix your credit. Your best option is to start rebuilding your credit as soon as possible, so you too can have the chance to enjoy lower interest rates. Committing to short term loans rather than long ones will allow you to refinance your loan to a better one much sooner once you’ve gained back a better credit.
- High Mileage Vehicles – Old, high mileage vehicles are less expensive but will incur more added cost such as sudden repairs or replacement of spare parts. You might even end up paying a car that is not safe to drive anymore. Generally, old model cars needs a lot of repairs and engine issues that needs constant fixing. Choosing a vehicle that is more expensive but assures good performance will save you more money in the long run.
- Refinancing Might Be Impossible – During the earlier years of your auto loan, most of what you are paying goes to interest payments thus your principal debt will only be reduced by a little. Agreeing to a long term loan with high interest rate will make refinancing highly impossible. Why? Given that cars depreciate over time, you are likely to end up paying more than your car’s worth. This is called being “upside down” or accumulating negative equity on your loan. It is unlikely that your lender will allow a refinance because:
- Most bad credit lenders do not offer refinancing especially to those who are still rebuilding credit.
- Trading-in your vehicle will only get you the current value for your car (depreciated value) which is much lesser than the purchase price you paid for. This reduces your chance of refinancing due to negative equity.
- If you get lucky and are approved for refinancing, the negative equity will be rolled over to the new car loan and still needs to be paid off.
What we have listed are the most common types of traps that you should avoid when looking for a prospective dealer. If you are looking for someone to finance your car loan that offers the best deals and won’t rip you off, New Car Canada is the name that you can trust. Fill out our quick and easy online application form and we will look for ways to fulfill your needs.
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