The Do’s and Don’ts of Car Loans in a Post-Recession Climate

By | September 11, 2013

If you’re thinking about getting a new car, there are some aspects you should take into account. First of all, you should consider financing. Do you have enough money saved to by the car on your own or do you need the help of a financial institution? If someone asks you to be a consigner for a car loan, should you agree? Is it better to get a pre-approved loan or negotiate with the dealership? We’re going to answer all these questions, and hopefully many more, in this article. So, here are the do’s and don’ts of car loans.


1. Getting a pre-approved car loan has both practical and economical reasons, according to Motive Auto Finance. It’s a well known fact that car dealers will always try to increase your interest rate with the so-called “dealer markup”, which means offering you a higher interest rate than the one they receive from the financial institution. It’s a common practiced used for years, which is legal in most states. To avoid situations when you pay even 3% more than what you usually should, pre-approved car loans are the way to go. A safer way which lets you focus on the car of your dreams and not on “fighting” greedy dealers.

2. Be careful with hidden costs! As we previously stated, a pre-approved loan is the best way to if you’re avoid hidden costs from dealerships. However, if you still decide to get a dealership loan, pay attention to the hidden costs (extended warranty, optional insurance etc). Also make sure you are well aware of additional costs such as: registrations, taxes or interest charges.

3. Make sure you know the car loan market. This requires a little bit of research. For example, if you’re trying to get a car loan in Cincinnati, you’re probably getting one of the cheapest deals in the country, since car loan rates in Cincinnati are ranked as number ten in the 100 cheapest car loan U.S., according to

Cincinnati’s average lending rate for a new car is 3.4 percent, while St. Louis ranks first at 2.95 percent, with Detroit next at 3.2 percent. If you’re wondering about the most expensive place to finance a car, know that it is Laredo, Texas, at 5.3 percent.


1. Consigning for an auto loan is always a bad idea since you become responsible for the entire loan is care the borrower is unable to pay installments. Keep in mind that if you want to be a consigner on an auto loan and neither you or the borrower will be able to pay in time, this could easily ruin your chances of getting a loan until you finish paying for the one you’ve consigned for. So, make sure you have a good, long talk with the person who asks you to be a consigner before agreeing to anything. Try to find out why exactly does that person need a consigner (insufficient income, bad credit reputation etc.) and how the situation can affect you.

2. Don’t take the car home until the loan is finalized. The National Automobile Dealers Association stated that it’s important to distinguish between “fraudulent yo-yo financing
and “legitimate conditional sales or spot deliveries”. “Abusive spot deliveries” is an illegal practice in every state because it is deceptive or misleading. This means that a dealer will allow you to take the car home, knowingly quoting a rate that won’t be approved, the deal ultimately failing and refusing to give back the down payment. Millions of conditional deliveries occur each year without the consumers being given any hint of problems.