Auto Loan Delinquencies Jump in May

[Jul 1, 2009.]

 

The Wall Street Journal reports that auto loan delinquencies increased by 22% during May, as compared to delinquency rates reported in April. Ongoing high unemployment rates are seen as a major reason for the increase. Another potential cause of delinquent auto loans arises when consumers focus on getting quick auto loans without understanding loan terms and conditions.

Auto Loans: Understand Terms Before Signing

The traditional sequence of finding a car and then getting financing for buying it can lead to problems: rushing through the loan process can lead to misunderstandings about auto loans work. Before shopping for a car, check out auto loans online, and by contacting banks and credit unions.

Quick Auto Loans: Not so Fast!

An auto loan is a binding contract to repay the loan over a period of several years according to  specific terms, so getting a quick loan without fully understanding loan terms can be risky. Ask if and when loan terms change over the repayment period. Here are some questions to ask before accepting an auto loan:

• What is the annual percentage rate (APR)? The annual percentage rate is the amount of finance charges you pay including interest, dealer fees and other charges expressed as an annual percentage of the amount you're borrowing. The APR provides an accurate statement of all finance charges associated with your auto loan.


• Will the APR change? If so, how and when?  Although auto finance companies typically offer standardized new car loans, buyers with bad credit may find loan terms designed for getting them into a new ride at a price they can afford--until the loan terms change.


• Will the interest rate increase? When, and by how much? Ask to see the loan contract and  a schedule of all auto loan payments. Read these documents carefully  and clear up any concerns before siging anything.


• Understand lender's security interest: Auto finance companies hold a security interest in vehile financed (and its title certificate) until the loan is paid off. This is what gives an auto finance company the right to repossess vehicles after payments are missed. Calling the auto loan company to request repayment arrangements beats finding an empty driveway or parking spot!

Too Broke to Pay

Communicating honestly with auto lenders can help in arranging repayment plans or other assistance. Be prepared to provide facts and proof of financial hardship. Depending on individual circumstances, auto loan companies may modify loan terms by adding past due amounts to the loan balance and adjusting payment due dates. Those also struggling with credit card debt,can seek help with budgeting and debt management  through a professional credit counseling service.

 

About Author:

Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage lending and loss mitigation. She enjoys writing articles about personal finance and debt management. Karen holds an MA degree in English from the University of Nevada, Reno.