Tips to avoid car debt traps are essential in this day and age where nearly everyone is trying to make a quick buck off others. You therefore need to know exactly what the great deal that your car dealership is offering actually means. Here are five tips to make sure that you do not end up in the horrible situation of losing your vehicle.
Stick to your budget
Many people have the best intentions of sticking to their budget and then are enticed to spend more by dealerships. The reason that the dealers want you to buy a more expensive car is because they will earn more commission off of the vehicle. They are not concerned with what you can actually afford, but rather their own bank balances. Therefore before you even go looking for a vehicle, decide on a budget as this way you will be able to stop yourself from being conned by the dealers.
Do not purchase a car without a deposit
Many of the leading car dealerships and brands are offering their customers the chance to purchase vehicles without a deposit. Now as enticing as this may seem, there are a number of catches that apply. Firstly, if you do not pay a deposit, it means that your monthly instalment will be more every month. You will therefore need to factor this increased monthly instalment in to your budget. Many people get so caught up with the idea that they can instantly get a car without actually having saved some money for a deposit and do not realise that this forces the monthly instalments up. As a result, they end up losing the car and get a bad credit record because of it.
What is more is that should you be able to afford the monthly instalments, what you may not realise is that you will have to pay a balloon payment at the end of your loan period. This can sometimes amount to hundreds of thousands of rands and if you cannot pay that amount, the dealership will take back the car and you will be back to square one. However, should you sell your car before you are required to pay the balloon payment, you can pay off the balloon payment as well as have a deposit for another vehicle. This however is seldom the case.
Make sure that you get the right interest rate for you
Many car dealerships offer financing options to their customers through the banks. This means that you can choose between two types of interest options. Firstly you can choose the fixed interest rate. This is probably the safest of the two options as a fixed interest rate means that for the term of your loan, you will pay a set interest amount on your vehicle every month.
The second option is a variable interest rate that is linked to the prime lending rate. Should the lending rate decrease by a point, then you will pay less interest on your vehicle that month. Should the lending rate increase however, you may find yourself not being able to afford your car. Another important thing to note is that you should investigate what other dealerships and banks are offering in terms of interest as you may find the dealership trying to charge too much.
Make sure that the car has a full service history
Many dealerships claim that the vehicles they have on sale have a full service history yet once you have purchased the car, you find that there is no service history for you to refer to.
Know your rights
With the new Consumer Protection Act that came in to play in April 2011, there are a number of dealerships that are trying to hedge their bets and get away with unlawful behaviour due to the fact that consumers are not knowledgeable. It is therefore imperative that you understand the act in order to safeguard yourself against unlawful behaviour. This will also provide you with additional tips to avoid car debt traps.