Shopping For A Car? Don’t Get Taken For A Ride!Written by James H. Dimmitt
Imagine this ... You're ready to buy a new car. You've done your research on web at a site like Edmunds.com so you know what dealer has paid for model you want. Based on your information you've established your comfort zone for price haggling. You walk into dealership, meet with a salesperson, and begin negotiations. At end of your test drive and haggling, you're confident that you've made best deal possible. No way you're getting ripped off because this time you are an "informed consumer" unlike when you bought your last vehicle. One final step stands between you and your brand new "ride" - financing. Your credit is outstanding so you get what you believe is lowest possible interest rate from dealership. You drive away in your shiny new vehicle triumphant! Ready for a dose of reality? According to a new study, there's a 1 in 4 chance that you've been "taken for a ride" by dealer's finance department, especially if you are female or a minority, by as much as an extra $1,000. The Consumer Federation of America, a Washington, D.C.,-based consumer interest group, said consumers often pay additional fees in that process - totaling as much as $1 billion nationwide - without realizing they qualified for cheaper financing.
| | Why Bad Credit People Pay Higher RatesWritten by Dave Czach
Why Bad Credit People Pay Higher Rates by Dave CzachLet's face it. People with credit problems pay higher rates for same reason people pay higher auto insurance premiums - risk. Virtually everyone knows if you receive a traffic ticket, you get points on your driving record and an increase in your insurance premium. Why? Because traffic ticket has created an emerging pattern of risk. If you got one traffic ticket, chances of receiving another one are now greater than when you had no tickets. Therefore, there is a greater likelihood of you filing a claim in future. A speeding ticket can lead to accidents, property damage or even vehicular manslaughter. All of which pose a real risk of insurance company paying a claim. The more claims company pays, less money they have to pay other claims and make sound investments to pay future claims. The credit world is similar. If you pay your bills late, your credit score decreases and interest rate on your next financing increases. Why? Because late payment has created an emerging pattern of risk. Whatever reason for your late payment is basis for future late payments. For example, if you have been living beyond your means buying items on credit because you can't afford to pay cash, this causes larger monthly payments. When it gets to point of causing a late payment, it's most likely to continue because you have demonstrated you don't have enough money to pay your bills. Hence, there is a greater chance of frequent or severe delinquency in future. But real world credit market differs from insurance comparison due to one more factor - opportunity. Lenders are not required to loan you money. Afterall, from their perspective, they are comparable to annuity investors. That's right - investors. Suppose you were buying an annuity that would pay you monthly for 30 years. You could choose Annuity X that pays in full and on time every month with a rating of "A." Or you could select Annuity Z that sometimes pays late and sometimes misses a payment completely with a rating of "B." As an investor who may not get paid entirely by choosing Annuity Z, it's only fair that you require a higher yield - or return on investment - in exchange for accepting extra risk of losing your money. If investor is not comfortable with added risk, they could exercise their right of opportunity and choose Annuity X. It pays a lower yield. But they are relatively assured they will receive all their money in full and on time.
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