Perhaps one of the most overwhelming parts of the car-buying process is securing a loan from a lender. While you can read article upon article about how to handle the situation, you might still second guess your decision when you ultimately opt for a deal.
While all of that “expert advice” is certainly helpful, one of the best ways to approach the situation is by learning from the mistakes of others. Below, we’ve detailed three “horror stories” that car buyers have come across as they’ve been looking to secure a loan. While you should certainly seek additional advice, this bit of insight will at least provide you with some cautionary tales before you start shopping around for a car loan…
To kick off these words of wisdom, a young car buyer wrote to Bankrate.com to detail how they got conned into accepting an all-too-common dealership money-lending scheme:
“I purchased a van for $19,000. No big deal, the payments [stretched] over 5 years for $420 a month at 11.1 percent, starting on the 31st of the next month. I’m only 21, my credit isn’t great, but what can you do. Anyway, they gave me the car, I signed the paperwork, my mom co-signed and I drove it home. So, I DROVE IT HOME. IT WAS MINE. ALL PAPERWORK COMPLETE.
Three days later, the bank I was supposed to send payments to says my loan was turned down. I guess I was excited considering I was already given the car and now didn’t have any bank to make the payments to. I left for school, assuming there was a mix up. I drove from Pennsylvania to school in Stanford, Calif. The van broke down in Arizona and it cost me a $100 deductible of warranty and took 14 days to fix. About three weeks after the purchase, I got a letter saying my payment was $489 with 17 percent interest! That’s $70 more per month than what I agreed upon when buying the van. This must be against the law or something.”
This particular buyer was a victim of a “yo-yo scam,” a strategy which many less-than-reputable dealerships will capitalize on as they attempt to get a customer to commit to a purchase. Essentially, the dealership will offer the customer a deal (including financing), and the customer will sign all of the necessary paperwork and drive off the lot in their vehicle. Days or weeks later, the dealership will claim that they were unable to secure the promised financing, and the applicable interest rates (and, in the case above, the value of the car) will increase.
This is shady business, and many dealerships should already have a firm grasp of the financing when they offer a customer a deal. Furthermore, it sounds like this particular customer was also scammed into purchasing an inadequate car, which is another issue that customers should watch out for. In the simplest terms, even if you’re pursuing financing, you should only be shopping from the most trustworthy dealerships.
Meanwhile, Reddit user u/ronintetsuro lamented the fact that they were upside down on one of their car loans, which essentially means they owed more on the car than it was actually worth:
“The short version of the story is that I made a poor decision based on my situation with the car I traded in, and now I am upside down $15k on an 8 year old SUV that I bought for $10k. I’m paying almost $500 a month for it, and I can’t really afford it. There’s no way I can sell it for what I owe, so I’m trying to figure out my options for lowering my payments.”
Predictably, this poor car owner doesn’t have too many options to help them out of this jam. One user went as far as to imply that the individual should leave their car in a high-crime area, hoping that it gets stolen. Of course, this would only be useful if the owner had gap insurance. While insurance would likely cover part of the used car’s value, the owner is still responsible for at least half of the remaining balance.
On the flip side, that strategy is also fraud, so you certainly shouldn’t be opting for that advice. Rather, the best method is to focus on that particular payment and reduce it as quickly as possible. The only true way to get out of this particular jam is by paying off the deficit, and avoiding the interest rates if you eliminate the debt as soon as possible.
Finally, Reddit user /emily871 found themselves with an issue that many car owners come across:
“I bought a car in Sept. 2012. I realized only a few months later how much of a mistake it was. I make about $950 a month (just under full time at minimum wage) and I have a monthly payment of just over $300. I also have insurance at $200 a month and various credit cards that I pay. As of right now, I am three months behind on my car payments and I have no idea how to get caught up (unless I manage to get a second job very quickly). I was recently thinking of just giving up the car voluntarily, but I have no idea how that would affect me financially. I know I would still owe the lender money, but is that something I can pay down monthly? My credit is so screwed up from this car, and I’m only 23. I worry about this every day because I seriously fucked this all up. Any advice?”
Emily’s big mistake was committing to a vehicle that required about half of her income. The vehicle was clearly out of her price range, and now she finds herself in financial duress. The only logical route here is to sell the vehicle and opt for public transportation. This all could have been avoided if the Redditor had anticipated her monthly budget before she headed into the dealership.