EchoBay Expert: I'm going to apply for a used car loan at my bank, credit union and with an online lender. What terms and conditions in these car loan contracts should I be looking to avoid?
Loyal Reader: No matter where you choose to get a used car loan, you should read over the loan documents carefully before signing. The first thing you should look for is a prepayment penalty. This can be a set fee or a certain percentage of the loan amount. Regardless, this fee will kick in if you prepay your loan in any way - whether by paying it off or by making an extra payment.
Loan documents are also great places to add extra charges. Be aware of the loan amount and make sure it is the same amount you agreed to pay for the vehicle. Question any differences.
Also, be sure you know what happens to your deposit money if you are not approved for a loan. If it is spelled out in the loan that your money will be forfeited with a denial, you will have no form of recourse once you sign.
Dealers can also sometimes add an extended warranty into the loan. Extended warranties generate a lot of revenue for the dealer and in most cases, do not do a lot to protect you.
A common addition to loans is mandatory credit life insurance. This insurance pays off your loan if you die before the term of your loan ends. This coverage can be somewhat expensive depending on your age. This coverage is not mandatory, although some lenders may try to pass it off as if it is.
Read carefully over any documents before you sign. If something seems out of the norm, question the lender on it. If you're not comfortable with the agreement or can't negotiate some of the above- mentioned terms out of the contract, don't sign.