By Megan Eaton
Syracuse, NY-During recent economic struggles, car dealers work to peek the interest of consumers with bad credit. Their commercials promise low prices and guaranteed financing. What they don’t mention are the additional fees and interest that come with buying a car. Fees that people with good credit probably won't get charged.
HIGH RISK FACTOR
Before a customer signs on the dotted line, a car dealer has a bank run their credit score and set an interest rate. Because there can be a higher risk in collecting money from people with bad credit, banks charge them a higher rate. That's something dealers take advantage of. "It's called bumping," said LaMacchia Honda salesman Fredrick Killian.
HIGH RISK FACTOR
Before a customer signs on the dotted line, a car dealer has a bank run their credit score and set an interest rate. Because there can be a higher risk in collecting money from people with bad credit, banks charge them a higher rate. That's something dealers take advantage of. "It's called bumping," said LaMacchia Honda salesman Fredrick Killian.
BUMPING?
Bumping occurs when dealers add on to interest rate set by the bank. For example, if a bank approved a car loan with a twenty-two percent interest rate, the dealer can add on their own three percent.
RED FLAGS
Adding on interest isn't the only thing dealers do to make a profit. "Quoting you more than one price...running your credit right away before they show you the car...adding things on at the end they say you have to have that add on to the price...like rust protection," said Evie Hayden, a salesperson for Alan Bryer Volvo.
Potential buyers may also think it saves them money to extend the length of a car loan. But it can end up costing them much more.
Adding on interest isn't the only thing dealers do to make a profit. "Quoting you more than one price...running your credit right away before they show you the car...adding things on at the end they say you have to have that add on to the price...like rust protection," said Evie Hayden, a salesperson for Alan Bryer Volvo.
Potential buyers may also think it saves them money to extend the length of a car loan. But it can end up costing them much more.
DO THE MATH
For example, if a used car costs 7,990, and the bank approves you for an interest rate of 22 twenty-two percent. Then the car dealer "bumps" up the interest an additional three percent, and a buyer takes out a loan for 84 months, or seven years. The monthly payment would be 202.23 a month. However, seven years later the customer has spent 16987.32. More than double the amount of the car. That's what dealer's call being Upside Down. "It means you owe a lot more than the car is worth," Hayden said.
SO WHAT CAN YOU DO?
"Do your homework. Make certain they're not taken advantage of. Don't buy unnecessary protections...try to get the best terms just like everyone else," said Syracuse University's finance professor Randy Elder.
That make people with bad credit smart shoppers, who are then less likely to end up further into the black hole of debt.
For example, if a used car costs 7,990, and the bank approves you for an interest rate of 22 twenty-two percent. Then the car dealer "bumps" up the interest an additional three percent, and a buyer takes out a loan for 84 months, or seven years. The monthly payment would be 202.23 a month. However, seven years later the customer has spent 16987.32. More than double the amount of the car. That's what dealer's call being Upside Down. "It means you owe a lot more than the car is worth," Hayden said.
SO WHAT CAN YOU DO?
"Do your homework. Make certain they're not taken advantage of. Don't buy unnecessary protections...try to get the best terms just like everyone else," said Syracuse University's finance professor Randy Elder.
That make people with bad credit smart shoppers, who are then less likely to end up further into the black hole of debt.
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