You want a car. In fact, you probably need one. But, like most people in our country right now, you can’t afford one and you are having difficulty obtaining credit to get the car you need.
You are not alone. This is a common scenario for many would-be car owners. Then, you receive approval for credit to buy a car, probably from the dealership itself or another lending agency closely associated with the dealership. However, the interest rate on the loan is steep, and the interest compounds almost constantly.
This is a dangerous loan. It is dangerous for the lender, for the auto industry and, most importantly, it is dangerous for you. These sub-prime loans are notorious for ensnaring unsuspecting lenders, and they are causing serious problems within the financial and auto industries, according to a recent article in Wolf Street.
Why You Should Avoid Sub-Prime Auto Loans
There are two major problems with these loans. First, they are aggressively targeted toward people who might be a high risk to not pay off the loans. Most major lenders are less likely to give out these loans because of the risk. Now, if someone takes out a loan that they are highly unlikely to be able to pay, of course, this is likely to end badly for both parties.
Second, most of these sub-prime auto loans come with an extremely high interest rate. If you fail to make a single payment, all the interest compounds into the principle and now you owe more. And of course, the problem quickly creates a financial avalanche effect for the lender, leading to serious debt problems.
How to Avoid Becoming a Statistic
It can be a common Catch-22: You need a car to get to work so you can make money, but you can’t afford the car until you’ve been going to work for some time and saving some money. However, that is exactly what you need to do. You need to find some way to get to work and save money until you can afford a car outright or are at least eligible for a more secure loan.
If you must get rides to work, take the bus or find other means, these are all better options compared with getting into a dangerous lending situation.
Another option might be to just get a cheaper car. If you are at a point financially where you are not eligible for a safe loan from a major lender, maybe this isn’t the time to but that nicer car you’ve always dreamed of. See it as working your way up to a larger goal. You get a cheaper car at first, just to get to work and start saving and building up your credit score. Then, when you are ready, you can get into that nicer car as a reward.
In most cases, it is difficult to negotiate the specific terms of a loan offered to you. It is further challenging because, most likely, you already have your eye on a specific car that you want, so the loan is as tempting as it is dangerous. But the possible fallout is too great to take the risk. Avoid a sub-prime auto loan and protect your financial future.