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It’s certainly true that not all bad credit car loans are the same! And often when you’re desperate to buy a car, you’re placed at the mercy of lenders and car dealerships who know you have bad credit. If you’ve recently obtained a loan, or are about to sign one, be sure to keep an eye out for these 5 warning signs.
There Are Strange, Unnecessary Extra Charges
Take a good read through your loan agreement and make sure all the costs and rates listed are broken down and not lumped together as one amount; you need to understand each fee. Of course, there are a few legitimate charges you should expect to see on your contract. Some things, like sales tax and documentation charges, are standard, legitimate fees you’ll see across the board.
However, charges for floor mats, extended warranties, fabric protection, rust control, sealants, and other add-ons are generally just plush charges. Unless you agreed to these (usually unnecessary) services or products, you should ask to have them removed.
Another sneaky fee you’ll often see is guaranteed auto protection insurance. “GAP” insurance helps to cover the gap between how much money you have left on your loan and how much the vehicle is actually worth if your car was to be stolen or totaled. Some lenders simply add it to their costs, but it’s really something you should calculate first to ensure it’s worth having.
What You Can Do. Read through your entire agreement before you sign it, and make sure you understand each and every charge—it should all add up. You can certainly question any charges you don’t recognize or you think are bogus.
The Vehicle Price Is Higher Than You Agreed Upon
You may have made a deal to buy a vehicle at a certain price, but now that you’re about to sign the paperwork, the price is suddenly much higher. While it is possible that the salesperson made an error, most of the time they have simply tried to inflate the price to get more money out of you.
You’ll likely hear excuses that the original deal you had with your salesperson has expired and the vehicle will now cost more money. Or that extra administrative fees now need to be added on. These are both huge red flags.
What You Can Do. Confirm the price listed on your contract is the same price you agreed upon. If you start getting excuses about why it’s higher, hold your ground and be prepared to walk away.
The Prepayment Fees Are Very High
Being able to pay off your loan earlier than you expected is a good thing, right? Well, it should be—especially for you. Of course, it’s understandable (since lenders make most of their money from the interest you pay on the loan) that they don’t love it when you pay it off early. After all, the longer you pay, the more interest they get. And if you’ve got bad credit, this is likely your only option.
So, because of this, prepayment penalties are common across most lenders. However, these penalties are typically reasonable; it’s likely worth it to pay the penalty if it allows you to repay early. But, if the prepayment penalty you see on your contract seems very unreasonable, that’s likely another red flag.
What You Can Do. Check with a variety of lenders to get a ballpark idea of their prepayment penalties. If necessary, ask if your lender will lower it to something more reasonable and be prepared to find another loan option if they won’t.
You’re Entering Into A Conditional Sales Agreement
In most cases, it’s a bad idea to enter into a conditional sales agreement. Conditional sales agreements (also commonly called conditional financing) mean the buyer is responsible for securing their own finances. However, the dealer still holds all the cards, because they ultimately decide whether your financing is good enough and they can cancel the sale, even after the deal has supposedly been completed.
This usually results in the dealer trying to get you to refinance your car loan, often with higher interest. It can sometimes even mean you must return the car, and you won’t get your down payment back!
What You Can Do. Read your contract and determine if you are entering into a conditional financing agreement. If you are unsure, question your lender and get to the bottom of it!
You’re Expected To Sign A Mandatory Arbitration Clause
If you sign a mandatory arbitration clause, you essentially have no legal recourse. It doesn’t matter if the loan terms end up being totally different than you agreed upon or if your lender entered you into a fraudulent loan. If you sign off, you won’t be able to sue the lender or dealership.
What You Can Do. Read your contract carefully, including the fine print (which is where it’s usually hidden), and specifically ask if your contract has an arbitration clause.
Know You Have Options!
When you have bad credit, you may assume you have to grab the first deal or bad credit loan you’re offered. It is true that you may have a tougher time securing a loan than someone with good credit, but it doesn’t mean you don’t have options!
At LendingArch, we offer a variety of choices for bad credit car loans and no credit check car loans. You’ll find options for car loan rates and used car financing. You can also see comparisons and use a car loan calculator to help you find the best car loan rates in Canada.
So, no matter if you are looking for car loans in Toronto or anywhere else across Canada, check out LendingArch today. It’s simple, all you have to do is fill out a quick application form on our website to get started.