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December 10, 2015

4 Signs of a Bad Car Loan

All car loans definitely are not alike: some financiers, unfortunately, out and out work to provide you with a bad car loan. That is, they work to ensure the loan is of best benefit to them, not caring how it affects you.

So how can you tell if you’re being steered into signing a “bad” loan? Take a look below for four signs of a bad car loan.


  1. You see charges on the loan you don’t understand.

Such a tactic is known as “loan packing” and can occur when a less-than-scrupulous car dealer adds on aftermarket products you don’t need or want.


  1. An auto loan markup.

Some dealers receive a kickback for “encouraging” you to go get a loan from a third-party lender. These loans often cost more/have higher interest rates and the dealer receives a portion of the mark up.

To protect yourself, it’s best to already have an approved car loan from the financer of your choice before you shop for cars. If not, have a financer in mind before you shop for a car and steer clear of finance companies recommended by the dealer.

dallas car loans

  1. You end up getting a loan from what is known as a “captive lender.”

Such a lender is also known as a “nonbank auto finance company” and it works often with car buyers who have no credit history or a poor credit rating. Interest rates often are much higher than from a bank or credit union.

If you don’t yet have credit history, it’s still best to go to a bank/credit union. (Understand you probably will have a higher interest rate because you’re unproven in your ability to meet your obligations.) But if you have bad credit, you may not be able to get a loan from these traditional institutions at all and so a “captive lender” may be your lender of last resort.

But before going to one of these types of financers, check out the dealership’s own financing program, such as the one we have here at PAACO. Your interest rate undoubtedly will be higher than if you were able to get one with a bank/credit union, but you can rest assured the car dealership won’t be out to gouge you.


  1. A “conditional” sale.

If you agree to a conditional sale, don’t be surprised if the car dealer calls you after you’ve taken possession of the car and then tells you something was wrong with the transaction and you need to come in to the dealership to make things right.

This is a classic sign that the dealership wants to get you to sign a more expensive/higher interest rate loan. If this occurs, return the car (after all, the sale was “conditional”), and report it to the state attorney general’s office.

PAACO has been helping responsible people find great cars – and get good car loans – for more than 23 years, no matter what type of credit issues they may have had in the past. Come see us at the PAACO location nearest you to learn more, or give us a call at 877-810-4555.

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