After bankruptcy, you’ll want to rebuild your credit, and taking out a car loan can help you do that. But be careful, some auto loans are downright predatory. Let’s take a look at a few signs that a car loan is predatory:
Conditional Sales Agreements
Be wary of signing a conditional sales agreement. These types of agreements are used when a sale isn’t finalized or the car loan is pending approval. Many lenders will give you a conditional sales agreement and let you drive home with the vehicle, only to call you a few days later saying the loan didn’t go through. Some buyers in this situation end up “renegotiating” the sale and get saddled with a loan that has a much higher interest rate.
Many lenders will give you a conditional sales agreement and let you drive home with the vehicle, only to call you a few days later saying the loan didn’t go through.
Buy Here Pay Here (BHPH) Lenders
Beware of dealerships that have “buy here pay here” financing. These types of loans are typically very expensive and are for an amount way above the value of the vehicle. Many post-bankruptcy debtors who use BHPH loans can find themselves drowning in large car loan debt that they can never pay off. Also, many BHPH lenders do not report payments to credit bureaus, so taking out this type of loan may not help rebuild your credit after bankruptcy.
Surprise Junk Fees
Looking to make extra profits, some predatory lenders will stuff car loans with junk fees that can quickly add up to hundreds or even thousands of dollars. These junk fees are packaged as “value” add-ons such as extended warranties, rust proofing, and GAP insurance. Read the contract carefully before you sign, and ask questions about any fees you don’t understand. Remember, you have the right to have junk fees removed from your car loan.
Remember, you have the right to have junk fees removed from your car loan.
Before accepting any car loan, make sure that you thoroughly investigate the lender’s reputation and be sure to read all documents before you sign. Your financial health after bankruptcy will depend on your ability to avoid predatory lenders.