Okay, so maybe the title is a bit dramatic, but we take car finances pretty seriously around here, and make it our job to learn and evaluate trends in the automotive industry. So, while we know plenty of folks who have had great success buying a car from a franchise car dealership, we've seen enough of the hard numbers to know that that's not always the best route for a lot of people--and can ultimately cause great financial disasters and financial stress.
In the past few years, subprime lending has seen dramatic increases, with many warning that subprime auto loans could be the next big bubble that bursts in the American economy. Recently, predatory used car lots, Buy Here Pay Here dealers, and even new car dealerships have underwritten car loans that ended in repossession. For larger subprime credit companies like Santander, national used car chains, or global car manufacturers, the costs associated with repossession are minimal, as their annual revenue tops the millions--if not the billions--and legal losses can be covered elsewhere.
As a consumer, though, this is terrifying: we spend hours and hours researching the cars we want, and examining our budget to know what we can afford. When a car dealership sells us a car they know we can't afford--or don't really need--soon the car loan we thought was great turns out to be the cause of incredible financial stress.
Unlike large automobile manufacturers, new car dealers, or national used car chains, your local used car dealer or Buy Here Pay Here dealer may actually provide you with the best alternate option to hidden costs, predatory lending, and financing without a safety net. In fact, if the car dealership you choose comes with financing, ask how their finance program works. Could you get a lower interest rate at a certain point? Is there a good customer rewards program? Will they report your good repayment to the credit bureaus so that your credit improves because of your used car loan? Does the company employ sales people just looking to close a deal, or do they have loan officers that manage your account and don't work on commission?
When--and IF--you decide it's time for a new car, be on the lookout for a subprime credit financing program that works for you. Ask lots of questions. Don't apply for credit unless you know you can get another human on the end of the phone. Shop locally. And most importantly: educate yourself.