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Terms To Avoid In Your New Or Used Car Loan Contract
By EchoBay Loans Staff Writer

When you're arranging your automobile financing, you're pretty much at the mercy of the dealer and the lender if you don't work to ensure that you understand all of the terms related to your new or used car loan. Not all car loans are the same, and a few unfortunate consumers find themselves caught in the clutches of a used or new car loan that is nothing like the vehicle loan they thought they were getting. So how do you avoid becoming one of these not-so-lucky consumers? The best way to avoid unwittingly falling into a trap is to know what to look out for.

There are some basic terms and conditions that you want to avoid at all costs, and not realizing what these terms and conditions entail can cost you a lot of hard-earned dollars.
We'll call these terms the "head for the hills" terms. What this means is if you see any of these terms or conditions written into the used car loan or new car loan that you're applying for, run in the other direction and find a different lender.

The first "head for the hills" term you should look for is what is called an early payoff penalty. An early payoff penalty is a fee or charge that is imposed if you pay off your loan early. Even if you think there's no reason you'd pay off your used or new car loan early, don't fall for this trap. If you were to trade in your car before the end of the loan term, you'd be responsible for paying this penalty, which could be substantial.

Another loan term to look out for is the hidden cost or charge. What you see is not always what you get and you'll need to review your loan contract word for word to avoid being stung. When hidden charges come into play, even a little thing like choosing to mail in your monthly payment rather than having it deducted from your checking account automatically can turn into an extra monthly fee.

If you notice that you're being forced to purchase an extended warranty, don't do it. If you have to roll this warranty into your new or used car loan, you're going to wind up not only paying the added dollars for the warranty, but you're also going to be paying interest on top of the warranty cost. While extended warranties are not necessarily a bad idea, they should be purchased on your terms, not the terms of the dealer or lender you're working with.

You'll also want to make sure that you know what will happen to your deposit money if your auto loan application is not approved for any reason. Some dealers require a few hundred dollars in deposit money, and unless you can afford to throw that much money away, you'd better make sure you're getting it back if the loan doesn't go through.

Another cost some lenders and dealers like to tack onto your used or new car loan is what is called mandatory credit insurance. This type of insurance policy guarantees that the loan will be paid off if something happens to the person responsible for the loan. There is no law mandating that this type of insurance must purchased, so the only entity that is making it mandatory is the lender or dealer that you are working with. This insurance can be very costly since you're not just paying for the insurance, but you're probably going to be paying interest on the premium as well. This is another one of those loan terms that you should avoid at all costs.

Remember, if the lender or dealership you're working with refuses to play the game by your rules, there are other dealerships and lenders out there who will be more than willing to help you according to your terms. Don't fall for any high-pressure sales tactics and don't allow yourself to be pushed into a loan that isn't right for you. You'll end up regretting it in the future. By knowing what to avoid and what to look for, you can be sure that you get the new or used car loan that's right for you.


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