Law Office of Rick Morin, PC

I have had occasion to review many car loans through my bankruptcy practice. I would like to share some of the wisdom that I have gained because car buying can be so difficult. This is especially true if you aren’t familiar with all of the tricks car dealers play.

1. You Don’t Have to Use Dealer Financing

Financing through the dealer can be very convenient, but it is far from your only option. As discussed below in more detail, your car dealer may have a financial interest in you utilizing their finance partners. This means that they might not be looking out for your best interest when it comes to finance arrangements.

I often recommend that a potential car buyer look for financing options away from the dealer. Often time the bank that you already have a relationship with will give you a car loan.

This is not to say that all dealer financing is bad. If you are buying a new car through a main line dealer, often times you can score below-market-rate financing. This is because the car dealer really wants you to buy their new car.

2. Pay Attention to the Details

Many car buyers get distracted by one thing: monthly payments. This is a huge mistake. Car dealers love padding their bottom line by charging extra fees, marking up add-ons, and not giving you a good price on the car. If you get stuck focusing on the payment alone, you can easily miss opportunities to save money.

Do some simple math at the negotiating table. If the dealer is proposing payments of $350 per month over 60 months, how does that compare to the actual cost of the car? You may be surprised by how much more the dealer is asking you to pay over time when compared with the purchase price of the car. Don’t fall into a bad deal by missing these details!

3. Dealers Can Markup the Interest Rate

Have you ever read that massive contract you sign when you finance a car through the dealer? Most people have not. There is often a clause in the contract that says that the dealer can assign your financing contract to a third party and earn a portion of the interest rate being charged.

What does that mean in simple terms? The dealer may have obtained financing for you through their bank at 5%. But they are telling you that they are going to charge you 8%. That 3% extra goes right into the dealer’s pocket. If you don’t ask, they will never tell you. But their contract gives them every right to do this.

Be a savvy consumer. Ask the finance person point blank whether they are marking up the interest rate. They cannot lie — this is called fraud. If they are marking up the rate, negotiate it down so you don’t have to pay more over time.

Bankruptcy can help get rid of a terrible car loan. Chapter 7 can get you a fresh start with your finances. Call my office at (916) 333-2222 if you have questions about bankruptcy in Sacramento.