Bad Credit? Lets make a deal

How to make sure the car dealer doesn't win.

By Ted Johnsen

Syracuse, NY: You've probably seen the latest craze in automobile commercials. The ones that say "Bad credit? No problem."

But whats the catch? Gary Thurber works for a credit counseling service in Syracuse, and sees many people getting tricked into buying cars they cant afford. "Typically it's the payment, they forget to look at the interest rate or how long the loan is for," he said.

"If you don't read the rate of interest and term lengths, you will be taken advantage of," said Randy Elder, a finance professor at Syracuse University's Whitman School.

For example, let's take a car valued at $11,490. The bank could charge the customer a 20 percent interest rate. But, to shield the cost of the car, the dealer might suggest a loan paid back over 7 years. That way the monthly payment looks reasonable at $255. However, by the time the car is paid off, the buyer will have spent nearly double its original cost at $21,431.

What to watch out for
Car experts say there are a few of things to watch out for before agreeing to the interest rate and length of the loan. "You need to know what your credit score is," said Evie Hayden, a saleswoman at a local Volvo dealership. She said you can check your credit score for free every six months at annualcreditreport.com. She suggested buyers should also ask their bank what kind of an interest rate they'd be willing to offer, before going to the dealer.

Another thing to watch out for is the length of the loan. Experts say you dont want to take out a loan for more than 5 years, because they say you probably wont even own the car in five years. They say you don't want to be paying for a car you dont even drive anymore.

Have to be prepared
Car experts say to make sure you avoid being taken advantage of, you have to do your homework.

And if you're unsure about whether you can afford that car payment or not, credit counselors have a tip. "Practice. Before you go and buy that new car- if you think you can afford that 250 dollar payment- put that money aside in a savings account for 6 months. That way if you didn't have to touch the money, you know you're probably ready to buy a car, and plus you have a down payment," said Thurber.

And if practice makes perfect, you won't need to worry about missing a payment, and further damaging your credit score.