Some people who have bad credit will quickly pounce on any opportunity to receive a car loan from a dealer. However, a new study suggests that individuals should shop around before signing off on a financing plan.
According to the Center for Responsible Lending, some dealers mark up auto loan rates, which adds hundreds of dollars to loans. The study is based on 2009 new and used car loan data from 25 auto finance companies representing 1.7 million accounts.
The report suggests that many car buyers do not know that dealers mark up lenders' rates in order to receive their own kickback. By charging a "dealer reserve," some sellers are implementing an interest rate that is significantly higher than the one that the customer qualifies for.
Some dealers justify this "reserve" charge as compensation for the time that they spent finding financing options for the consumer. These 2009 markups will cost car buyers approximately $25.8 billion by the end of their loans.
Individuals who have a poor credit score may be eager to accept the first rate they are offered. As an alternative to conventional financing methods, these consumers can apply for a bad credit car loan.