Dodging Repossession: Financing and Other Mistakes to Avoid When You Purchase a Car
Kelly’s SUV was being repossessed. By the time Kelly could get outside her SUV was gone and she was furious.
Kelly is just one of 60,000 people who lose their vehicle to repossession every month. Obviously, Kelly lost her SUV because she missed payments, but her real trouble started the moment she set foot on the dealership lot. Earlier that year Kelly saw that a local auto dealer was offering great deals on new cars. The promise of rebates, low interest rates and delayed payments helped foster the idea that she could finally afford an SUV. In her haste to purchase her dream vehicle Kelly made a number of mistakes, starting with the purchase process, that made her vulnerable to repossession:
1. Before Kelly even walked onto a car lot she should have investigated her credit score. Based on the dealer’s advertisement, Kelly thought she could buy her dream SUV at an APR of 0%. In fact, only a handful of people with excellent credit scores even qualify for the super low APR financing offered by dealers. Kelly paid most of her bills on time and “thought” that her score was good. She didn’t realize the impact that a few late credit card payments had on her score, nor did she realize that her high debt to income ratio lowered her score.
Walking onto the car lot Kelly never had a chance to qualify for the great deals that were advertised. The salesperson, however, knew that only a handful of people-those with excellent credit scores – ever qualify for the low rate. Of course, this didn’t stop the salesperson from pushing the sale.
Kelly selected an SUV off the lot and, noting that it didn’t have all the features she wanted, loaded on a few extras. The SUV now cost a few thousand more than she thought she’d spend but she figured she’d make up for this with the low interest rate she was sure she’d get. Once Kelly took the SUV for a test drive they headed to the office to sign the paperwork.
2. In her excitement, Kelly decided to purchase the car and apply for financing at the same time. She signed the sales contract and then applied for financing through the dealer. In other words, she agreed to purchase the $23,000 vehicle without knowing what interest rate she qualified for or where the loan was coming from.
Once the salesperson read through Kelly’s application and made a quick phone call to the credit bureau he knew that Kelly’s interest rate would likely be around 10% instead of 0%. Yet the salesperson submitted all the financing paperwork, congratulated Kelly on her “purchase”, and sent her home with the new vehicle even though the sale was still subject to financing.
Kelly was buzzing around in her new SUV for a week before the dealer called to tell her that her application for a low finance rate was rejected. Then, not only was she left without a way to finance her purchase, but her credit score had dropped further due to the rejection.
3. Since her financing fell through Kelly may have had the option to return the SUV to the dealership. The dealer, intent on wrapping up the sale, did not volunteer this information, and Kelly never researched her options.
4. Kelly’s next mistake was to accept the high financing rate that the dealer offered her. She would have been better off contacting a local credit union or even searching online for a better rate. By then, though, she was panicking at the thought of the SUV in her driveway that she couldn’t pay for. She took the bait and agreed to the dealer’s rate of 10.4%. In addition, the dealer charged her a $900 “fee” to process the additional paperwork.
5. When Kelly signed the finance contract she also agreed to the fine print-which she didn’t read-permitting the lender to repossess the SUV without notice one day after her payment was due. She assumed that someone would contact her before such a thing would happen.
Kelly was very lucky that the lender wasn’t aggressive in repossessing the SUV and that she maintained possession of the vehicle for nearly two months without making payments. All finance contracts or “security agreements” outline the lender’s rights to take possession of collateral, and should be carefully read.
Between the high interest rate on her payment and the increase in insurance, Kelly was paying approximately $300 more per month than she planned to. In addition, she paid $900 in out-of-pocket fees to the dealer. Over time, that extra $300 per month put a huge strain on Kelly’s finances, and by the end of the year she had to choose between paying rent, credit card bills and her car payment. Yet she still had the opportunity to avoid repossession.
6. Kelly’s final mistake was letting her debt take control of her. At any time, Kelly could have contacted her auto loan lender to discuss payment options. The lender may have been able to adjust the plan-permanently or temporarily – to reduce the monthly payments. Better yet, she could have contacted other lenders to see if she qualified for a better interest rate.
Kelly’s lack of preparation led her to make many mistakes that are common among auto consumers. Now that her SUV has been repossessed, she has a whole host of other costs and hassles ahead of her.
Next: Auto Repossession and Consumer Rights: Kelly’s Story, Part II
