For post-bankruptcy debtors, the time after bankruptcy is an opportunity to rebuild their credit. But unfortunately there are many schemes out there designed to exploit post-bankruptcy debtors and others who may have no or poor credit histories. One of the most vulnerable places where the post-bankruptcy debtor finds trouble is when attempting to finance a car.
Avoid These Predatory Lending Practices
Below are three predatory lending schemes that post-bankruptcy debtors need to avoid when financing a car:
Bait and Switch Car Loan Schemes
Many post-bankruptcy debtors may be convinced by a car dealer to enter into what's called a conditional sales agreement and then drive their car home. But later that day or a few days later, the car dealer contacts the buyer saying that they cannot fund the loan based on the terms offered in the conditional sales agreement and force the buyer to negotiate and enter into a much more costly loan.
Buy Here Pay Here (BHPH) Dealerships
Many debtors exiting bankruptcy are desperate to get access to car loans. Unfortunately, their impatience will often land them into the hands of BHPH dealerships who offer much higher interest rates than either banks or credit unions, in addition to very high down payments on vehicles that are often nothing more than lemons. Post-bankruptcy debtors should avoid these types of dealerships when looking for a car loan. Because BHPH dealerships depend on a business model that profits off of the repossession
of the very vehicles they finance and high upfront costs, debtors just out of bankruptcy could be setting up themselves for more financial trouble if they get involved with these businesses to finance a car.
Mandatory Arbitration Clauses
Debtors just out bankruptcy who are depending on car loans that are less than prime need to be especially careful about signing mandatory arbitration clauses that waive their right to sue the car dealer or car finance company when something goes wrong.