6 Warning Signs of a Bad Car Loan

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Car loans are a great way to finance the purchase of your new vehicle. But, if you don't know what you're looking for when you go car shopping, it can be difficult to find the best deal. This blog post discusses six warning signs of a bad car loan and how to avoid them.

1. Incredibly High Car Loan Interest Rates

According to Lantern by SoFi, the auto refinancing rates that your bank or credit union offers you will most likely be lower than the interest rates offered by car dealerships. If they aren't, it's a good idea to shop around for different options before committing to an auto loan with them.

The best way to avoid incredibly high-interest loans is by getting pre-approved from a lending institution ahead of time. Choosing the right auto finance provider is a must. This will not only ensure that you can get the best deal, but it also helps to weed out dealerships and banks that don't have your best interests in mind.

2. Absurd Long-Term Contracts

If you want to get an auto refinancing loan, try not opting for long-term contracts. The best way to do this is by applying with a bank or credit union that offers short-term loans instead of the standard 72-month warranty. The longer your car loan agreement is, the higher your monthly payments will be after added interest rates.

3. Poor Customer Service

The bank should offer competitive rates and provide excellent customer service. Make sure to ask any questions that come to mind and even test out their services by reaching out via phone or email ahead of time.

If an auto refinancing company isn't willing to answer your questions honestly and efficiently, it's probably best to keep looking. The best car re-financing companies will answer your questions clearly and provide you with the information you need. If they don't seem willing or able to do this, it may be time for another option.

4. Conditional Financing

Conditional financing is a type of car loan that allows you to get the vehicle before your final agreement has been approved. Even though this sounds like an ideal situation, it often comes with some significant drawbacks and not to mention hidden fees. If conditional financing isn't adequately disclosed upfront, many people end up paying more for their auto refinancing.

5. Mandatory Arbitration Clause

A mandatory arbitration clause is a type of contract that forces you to settle any legal disputes through an outside party rather than in court. While this may sound like an ideal solution for some people, it often comes with major drawbacks.

If the auto refinancing company makes their customers sign away their right to pursue legal action in a court of law, they're probably not on the up-and-up. If you feel like settling disputes through arbitration is necessary or beneficial to you and your case, make sure that it's an optional clause.

6. Costly Prepayment Penalties

Most lenders will charge you a penalty if you pay off your vehicle early. This ensures that they get the total amount of interest out of their clientele so that it may be beneficial for them in the long run.

If an auto refinancing company requires prepayment penalties up-front, look elsewhere! These types of companies are interested only in your money and not your financial well-being.

Conclusively, it is always a good idea to go through the proper channels when you are looking for an auto refinancing company that will help you get into your car safely and securely. By keeping these six warning signs in mind, it's easy to weed out bad dealerships from the ones with best interests at heart.