Whenever you go to buy a new Car, it is very rare that you have cash to pay for the Car. Most of the times it occurs that usually people buy a Car, specifically a new Car on Credit and this results to getting involved in debts. However, most of us are taught that we must never go for debts or credits until and unless for a very necessary purpose like education or a new house, to which a debt is understood. The word debt is hated and detested by many. But still we are caught in it in some way or the other. We should try our best to not take help of Credit for consumer goods but go for it only for necessary purposes. The truth is that when buying a new car, most of us cannot afford to pay with cash and then this results to a vicious circle of non payments and debts.
You might be saving a certain amount for some months or years but saving for a new Car and a one that is fully loaded might not be so easy to collect. It is of course a huge amount and it will take a number of so many years for you to collect that amount and by the time you have saved it after killing yourself for debt, being tempted by your friends and their cars, travelling public and sacrificing a good time and heart, the number of years will probably have you to change your Car choice.
The one which you saved for would probably be an old one and now the new town in Car requires more amount.Hence, when you finally go to a bank to consult for the do’s and don’t of Buying a new Car, you will a pleasurable young man or woman who will talk politely with you and explain you the options. The two most possible options that will be brought in front of you will be to either get a line of Credit or a Car Loan.
A line of Credit is relatively flexible as you can go back and forth with the payment and have to pay on the interest. Sometimes you spend and sometimes you pay. In line of Credit, we have to pay for whatever we use. It would about 25 percent of our net worth. A Car Loan on the other hand is a one time offer. It has fixed payments monthly and you have to pay both the interest and the principal amount. A Car Loan is bound on the value of the vehicle.
You can either choose a Car Loan or a line of Credit. But you should be aware of the smart convincing ways the bank manager will take help of to convince you to additional deals. He will try his best to make them look important and so profitable in front of you but in actual there won’t be any such thing. You should keep in mind that the money you have is hard earned and you can not just let these banks, financial institutions and corporates take away your money.
Predatory Lending Practices
One of the predatory lending practices that led to the 2008 mortgage crisis may have moved to the Auto industry. Experts warn dishonest lending practices that result in Auto Loan fraud may also lead to higher default rates in 2017. That’s according to a new whitepaper reported on CUTimes.com.
The boom before the bust?
- Average new Car Loan: $30,621
- Average used Car Loan: $19,329
- 32% of new Car loans and 18.2% of used Car Loan now have terms from 73 to 84 months
A separate report by the New York Federal Reserve reveals Auto balances topped $1.1 trillion by the second quarter of last year. Credit Unions funded $16 billion of Auto loans originated in the first half of 2016. Now, the new CreditUnionTimes.com report warns those lenders that fraud may be hidden in higher rates of default they can expect to see over the next year. Essentially, the report means experts predict 2016 was the boom before the 2017 bust.
Hidden Auto Loan fraud refers to deception buried in an Auto lending agreement. It’s “the misrepresentation of the application of a borrower’s identity, income or employment, as well as other key factors such as the price or condition of the vehicle.” Data shows loans containing these types of deception have higher rates of default.
Responsibility for this type of fraud lies with the Loan originator, in this case the dealership. Even a borrower’s income and employment should be verified. The report states, “3% of deals are providing loans that are responsible for 100% of their known fraud and early payment default risk.”
It’s effectively the same type of predatory lending practice thought to have contributed to the mortgage and real estate market collapse of 2008. In an effort to make a sale and ensure a Loan approval, the lender extends a Loan that’s not good for the borrower. The borrower either can’t keep up with the payments or the property is not worth the value of the Loan. Both lead to early default that’s often completely out of a borrower’s control.
How to avoid default on an unfair Loan
“If you’re a subprime borrower, it increases your risk of becoming a victim of predatory lending practices,” says April Lewis-Parks, Education Director of Consolidated Credit. “It’s a good thing that lenders want to work with borrowers who may have less than perfect Credit. But when it crosses the line and results in deceptive lending agreements in order to ensure a borrower qualifies, that’s a problem for everyone.”
Consolidated Credit’s financial counselors advise anyone struggling to keep up with a subprime Loan to be proactive. Don’t wait for a Loan to slip into default because you fall behind. This leads to Credit damage and the potential to have your Car repossessed.
“A bad Loan becomes a burden on your budget that leads to missed payments, not only on the Loan, but other obligations,” Lewis-Parks explains. “Once you fall behind and damage your Credit, lenders are less likely to work with you. If you see an Auto Loan you took on last year has you in a bind, explore refinancing options now before your Credit takes any hits.”
Given the increase in lending term lengths available today, Auto Loan borrowers can achieve more affordable payments with increased terms. The longer you extend the term on a Loan, the more time you have to repay the amount borrowed. This means lower monthly payments.