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Avoid Paying The Dealer Fee For Bad Credit Car Loan |
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About 25% of car buyers needing financing are targeted for a scam known as dealer reserve and as a result bad credit car loan dealerships are making more than $1 billion in extra profit each year. Auto financiers and bad credit car loan dealerships are having a field day as more and more Americans are paying on a bad credit car loan at any given time. The majority of the victims are Hispanic or African American car buyers. Basically, dealer reserve is the kickback paid to bad credit car loan dealerships by the finance companies (including those owned by car manufacturers) for bringing in new customers and it constitutes the extra interest points (normally 2-4%) that are added on to normal interest rate that a car manufacturer or financier fixes for the customer. This increases the price of the car by a few thousands and hikes the monthly payment by $30, $50 or more. As an example, if the car manufacturer (like Ford Credit) offers to finance a new car purchase for 15%, the customer is kept in the dark about it by the bad credit car loan dealer who hikes it up to 19% and tells the customer that he qualifies for that much only. Ford Credit then gives this commission of 4% to the dealer and the customer is left poorer by that amount without realizing that he has been a victim of the scam. As there is no law against hiding extra finance charges in respect of auto financing, this practice is not considered illegal. The bad credit car loan dealers argue that they are helping customers to obtain financing and as such they have a right to earn a commission which is an average of about $850 per car. This dealer reserve money is most likely levied on the members of minority groups and those with low incomes, whom the auto industry refers as less fortunate. Although whites might also be targeted to this scam, African-American, Hispanic, females, or those having a modest income are at a higher risk. The easiest way to obtain bad credit car loan, avoiding the bad credit car loan dealer reserve is to become a member of a company or community credit union and establish a relationship with them by opening checking and savings accounts and then you will be able to qualify for the lowest rates available for someone with your credit score, when you need the finance. You can also go online to obtain finance. There are a few companies such as eloan.com and peoplefirst.com that base their credit decisions on your credit score and nothing more. There is another way of avoiding bad credit car loan dealer reserve and that is the direct route to the dealership, whereby you can inform them that you are aware of this practice and that you are not going to tolerate it happening to you. You should ask specifically before financing through the bad credit car loan dealership, about the dealer reserve. You must let them know that you are aware of this practice and insist that your interest rate should not be inflated. As a result of this awareness, more and more consumers are now fighting back against this practice and at least twelve class action lawsuits have been filed against finance companies owned by the major car manufacturers. Until April 2004, General Motors and Nissan have agreed to limit the markup after settling the lawsuits against them. You must appreciate that the higher your credit score, the lower the interest rate that you will be charged. As such you should concentrate on raising your credit score. You must know what your FICO credit score is, before shopping for finance. If your score is above 700, you should get a lower rate but if your score is 500 to 680, you will pay a higher interest rate, if you don't improve your score beforehand. |
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