How to Avoid Car Loan Ripoffs

Phony Financing: Don't Get Ripped Off on Your Car Loan

Buyers Beware: Consumers who finance their car loans through auto dealers often pay hundreds, or even thousands, of dollars more in hidden interest charges.

Many auto lenders allow dealers to charge consumers a higher interest rate than they should be charged based on their credit histories. Dealers and lenders then split the proceeds of these "marked up" auto loans. To protect yourself from phony financing, following these ten tips:

Before you go to an auto dealership:

1. Get your credit score from one of the credit bureaus so you know whether you might qualify for a lower interest loan.

2. Get a copy of your credit report from a credit reporting agency and check to see if there are mistakes. Get any mistakes corrected.

3. If your credit is less than perfect, take steps to improve it, such as paying off debts.

4. Save up and pay cash for a car instead of borrowing. Consider buying a less expensive car than you can afford, and then maintain it well.

5. Sell your vehicle yourself instead of trading it in. You'll likely get more money for it. And be sure to pay off the loan on the car you own before you buy another vehicle.

6. Beware of advertisements offering special rates such as “0% interest.” Most consumers do not end up getting those special advertised rates, even when they qualify for them.

7. If you must borrow: get pre-qualified by a bank or credit union so you know how much you can afford to pay and the interest rate you qualify for.

At the dealership:

8. Don’t let them wear you down. Tell the salesman when you arrive on the lot that if they can’t complete the sale within two hours, you will leave. If they drag the process out longer than two hours, or if you feel you are being pressured, leave.

9. The salesman will ask you how much you can pay per month. Don’t respond. Negotiate over the price of the car. Then, after you agree on a fair price, talk about how you will pay for the car.

10. If you must borrow: tell the dealership you have already pre-qualified for a loan, and if they can’t offer a more favorable rate, get your financing through the lender who pre-approved you for a loan.

Stay Active: While these tips can help reduce your risk of getting ripped off, more needs to be done to protect consumers from predatory loans. Be active on consumer issues like this by visiting www.copirg.org or call 303-573-7474.