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Car Finance: How Customers Avoid Getting Cheated

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Car Finance

Photo by Pixabay, CC0 1.0

As far as things go, navigating the motor industry isn’t particularly easy.

For most of us, buying a car is the second big purchase after a house. Buying that shiny, new SUV though is unlikely to be affordable without car finance to help you out.

When looking for car finance, it is easy to get caught up in the buying frenzy. I mean, who doesn’t want an instant new ride without any hassle? Then, there’s no guarantee that you can even have finance in the first place!

It may surprise you that even the best car finance dealers, credit brokers, and finance companies out there can’t promise you car finance. Specific borrowing criteria have to be taken into account for any prospective loan deal.

So all the “Guaranteed Car Finance for Bad Credit with No Deposit” advertisements we are bombarded with daily, are potentially giving us all false hope. With this in mind, how do you avoid getting cheated when looking for car finance? Let’s take a look at some of the chinks in the car finance deal armor:

Guaranteed car finance: Debunking the myth

So, let’s get this straight. Lenders are the final decision-makers when it comes to you being approved for car finance. No dealer or broker has the power to approve your loan – so why do so many of them claim that they can guarantee your car finance? Is there such a thing as guaranteed car finance?

Lenders have to look at your credit score to determine if you can make repayments on the loan amount you are looking to borrow. So when they search your credit history and see that there is no way you can make those repayments, that once promised guarantee is shattered instantly.

So, don’t get caught in the misleading “truths” that car dealers and brokers want you to believe.

What application fee?

Dazzled by the “money-back guarantee” on offer with your “guaranteed car finance loan?” Well, the first rule of not being cheated is not to snap up all the dangling carrots that are out for the supposed taking!

Application fees can put you back £299 with the “promise” of getting it back once approved. Unless you’ve meticulously read the terms and conditions, you are unlikely to get this money back – except for the legal geniuses out there! They might stand a chance!

High rates and the need for a guarantor may now separate you from getting that once promised and “guaranteed” loan.

What does the law say?

The FCA (Financial Conduct Authority) take misleading and false consumer credit claims very seriously. Not only is it an offense according to the 2010 consumer credit act, but any dealer or broker promoting “guaranteed” car finance is also likely in breach of the act.

A loan can only be guaranteed if there are no conditions to the borrower’s creditworthiness. Have you ever seen a loan like that?

Any broker or lender found breaking the credit act will lead to a full FCA investigation and enforcements will be made. Essentially, this protects you as the customer as any credit deal has to Treat Customers Fairly (TCF) by law.

But, the law isn’t perfect. Car dealers and brokers that are offering “guaranteed” finance loans still slip through the net.

How to spot a false deal

A deal that sounds too good to be true is usually just that. If you have a poor credit history or have never borrowed at all, the idea of having something “guaranteed” is definitely appealing. I mean, who doesn’t want life to be easy?

If you are on the hunt for a car finance deal, a credit check has to happen. No credit check, no deal. It’s as simple as that.

False deals are always well crafted, but you can spot the cracks. First off, what language is being used?

  • We can “guarantee” your car finance loan in less than 5 minutes
  • Bad credit no problem – all applications are welcome here
  • No credit history – your loan will be accepted by our trusted partners

You get the gist. Reputable car finance brokers and lenders will be transparent with you from the start. Fees will not be hidden from you, and the idea of a “guaranteed” loan to someone with bad credit won’t even be put on the table. What they will do is look at the bigger picture, and see what rates they can offer you instead. This will be based on what you can actually afford to pay back.

Enter the unsecured loan

Cheating you out of your house and home is not a phrase to be used lightly.

When you are in the market for a new vehicle, getting an unsecured loan may be the only viable option to get what you want. A loan without being tied to any of your assets, like your home is undoubtedly better in the long run?

Although the term “unsecured” sounds a bit daunting, it’s not as bad as it sounds. The finance company is in the driving seat for this one, not the borrower. So, fear not.

Do your research

Familiarising yourself with the terms car finance lenders and brokers use is going to help you find the right deal for you. Not only will you avoid being cheated, but you will also feel more confident when purchasing your new car.

Some questions to think about:

  • What can this car loan offer me?
  • What are the terms and conditions?
  • How long will my repayments take?
  • Can I get out of this deal early?
  • Are there any hidden fees and charges?
  • What is “guaranteed?”
  • Will I need a guarantor?

Knowledge is power, after all.

Already got a new car in mind? Not quite sure how to get a car finance deal? As the motor industry grows and advances, knowing which vehicle to buy has become harder than ever before. Fooling for the gimmicky promise of the “guaranteed” finance deal is easy to avoid. So, don’t get cheated at the dealership or online! Be prepared!

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Loans Bad Credit Online – Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom | Fintech Zoom

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Loans Bad Credit Online – Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom

Loans Bad Credit Online – Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom



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Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom

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The government’s incentive to step in and bail out depositors when banks fail is clear from past experience.

By Anusha Chari & Amiyatosh Purnanandam

The failure of the Punjab and Maharashtra Co-operative Bank (PMC) in September 2019 shone a light on the limitations of India’s deposit insurance system. With over Rs 11,000 crore in deposits, PMC bank was one of the largest co-op banks. That the Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance covered depositors, provided little solace when the realisation hit that the insurance amounted to a mere Rs 1 lakh per deposit.

The predicament of PMC depositors is, unfortunately, not an anomaly. Several bank failures over the years have severely strained RBI and central government resources. While co-operative banks account for a predominant share of failures, other prime examples include the Global Trust Bank and Yes Bank failures. These failures entail a direct cost to the taxpayer—the DICGC payment or a government bailout. More importantly, bank failures impose long-term indirect costs. They erode depositor confidence and threaten financial stability, presenting an urgent need for deposit insurance reform in the country.

A sound deposit insurance system requires balancing two opposing forces: maintaining depositor confidence while minimising deposit insurance’s direct and indirect costs. At one extreme, the regulator can insure all the deposits, which will undoubtedly strengthen depositor confidence. But such a system would be very expensive.

A bank with full deposit insurance has minimal incentive to be prudent while making loans. Taxpayers bear the losses in the eventuality that risky loans go bad. Depositors also have little incentive to be careful. They can simply make deposits in the banks offering high interest rates regardless of the risks these banks take on the lending side.

Boosting depositor confidence and reducing direct and indirect costs require careful structuring of both the quantity and pricing of deposit insurance. Some relatively quick and straightforward fixes could help alleviate the public’s mistrust while improving the deposit insurance framework’s efficiency.

India has made some progress on this front over the last couple of years. First, the insurance limit increased to `5 lakh in 2020. Second, the 2021 Union Budget amended the DICGC Act of 1961, allowing the immediate withdrawal of insured deposits without waiting for complete resolution. These are very welcome moves. Several additional steps could bring India’s deposit insurance system in line with best practices around the world. Even with the increased coverage limit, India remains an outlier, as the accompanying graphic shows.

The government’s incentive to step in and bail out depositors when banks fail is clear from past experience. However, these ex-post bailouts are costly. The bailout process also tends to be long, complicated, and uncertain, further eroding depositor confidence in the banking system. A better alternative would be to increase the deposit insurance limit substantially and, at the same time, charge the insured banks a risk-based premium for this insurance. Under the current flat-fee based system, the SBI pays144 the same premium to the DICGC—12 paise per 100 rupees of insured deposits—as does any other bank!

A risk-based approach will achieve two objectives. First, it will ensure that the deposit insurance fund of the DICGC has sufficient funds to make quick and timely repayments to depositors. Second, the risk-based premia will curb excessive risk-taking by banks, given that they will be required to pay a higher cost for taking on risk.

India is not alone in trying to address the issue of improving the efficiency of deposit insurance. The Federal Deposit Insurance Corporation (FDIC) recognizes that the regulatory framework governing deposit insurance is far from perfect and the United States is moving towards risk-based premia. The concept is similar to pricing car insurance premia according to the risk profile of the driver. The FDIC computes deposit insurance premia based on factors such as the bank’s capital position, asset quality, earnings, liquidity positions, and the types of deposits.

In India, too, banks can be placed into buckets or tiers along these different dimensions. The deposit premium can depend on these factors. It is easy to see that a bank with a worsening capital position and a high NPA ratio should pay a higher deposit insurance premium than a well-capitalized bank with a healthy lending portfolio. The idea is not dissimilar to a risky driver paying more for car insurance than a safe driver.

Risk-sensitive pricing can go hand-in-hand with the increase in the insured deposit coverage limits bringing India in line with its emerging market peers. In a credit-hungry country like India, these moves would build depositor confidence, possibly increasing the volume of deposits and achieving the happy result of the banking system channeling more savings to productive use.

Chari is professor of economics and finance, and director of the Modern Indian Studies Initiative, University of North Carolina at Chapel Hill and Purnanandam is the Michael Stark Professor of Finance at the Ross School of Business, University of Michigan

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5 Signs You’re Not Ready to Own a Home, According to a CFP

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The housing market has boomed over the last year, despite a global pandemic and millions of Americans struggling to make ends meet. 

Many people are spending less on entertainment, clothing, travel, and other discretionary purchases during COVID. Federal student loan borrowers have seen temporary relief from their loan payments. These expenses will most likely rise again after the pandemic, and many people who committed to a new home with a large mortgage will struggle to keep up. 

I often speak with clients and prospective clients who want to buy a home before they have a strong financial foundation. Buying a home is not only one of the largest purchases you’ll make in your lifetime, but it’s also a huge commitment that’s extremely hard to undo if you have buyer’s remorse

It’s important to make a thoughtful, informed decision when it comes to a home purchase. Before you take the plunge into homeownership, check for these signs that you’re not quite ready to buy. 

1. You have credit card debt

Credit card debt can be a drain on your monthly budget, and when combined with student loans and a car loan, it can lead to high levels of stress. 

Generally, more debt means higher fixed expenses and little opportunity to save for long-term financial goals. Your financial situation will only get worse with the addition of a mortgage. I always recommend that clients be free of credit card or other high-interest debt before they consider buying a home. 

To rid yourself of credit card debt, take some time to get a good handle on your cash flow. Take an inventory of your spending over the last six to 12 months and see where you can cut back. From there, develop a realistic budget that includes aggressive payments to your credit cards. 

There are several strategies to help you knock out credit card debt fast. Regardless of the method you choose, stick with the plan and track your progress along the way. Once you pay off your credit cards, you can allocate your debt payments to savings, which can help you avoid this situation in the future.  

2. You have bad credit

Bad credit is not only a sign that you may not be ready to take on a mortgage, it can also signal a high risk to

mortgage lenders
. A high-risk status results in higher interest rates and more strict requirements to qualify for a loan. A mortgage is one of the largest loans you’ll take out in your lifetime, and if you get behind on payments, you could lose your home. 

Just as with credit card debt, bad credit could be a result of past financial mistakes. Dedicating the time to repair bad credit and improve your credit score will help you beyond purchasing your dream home. 

Start by pulling a recent credit report from each of the three credit bureaus so you can review it for errors. Dispute any errors, address past-due accounts, and bring your overall debt balances down. It’s helpful to learn what has a negative effect on your credit score so you can avoid these mistakes in the future. 

3. You don’t have an emergency fund (or an inadequate one)

If you’re unable to save for a rainy day, you probably don’t have enough money to buy a house. Owning a home is a big responsibility, and unexpected expenses pop up all the time. In addition, you could lose your job, have a medical emergency, or another unexpected expense unrelated to the home. Maintaining an emergency fund is a good sign that you have discipline and are prepared for the responsibility of homeownership.

Many financial experts recommend saving at least six months of living expenses in an emergency fund. If you have variable income, own a business, or own a house, you should save more. To build an emergency fund, set money aside from each paycheck and automate transfers to make the process easier. Give your emergency fund a boost when you receive lump sums such as bonuses or tax refunds. Start by saving one month of living expenses and build from there. 

4. You don’t have separate savings for your home

I always advise clients to set aside savings for a home in addition to an emergency fund. It’s a bad idea to start homeownership with no savings. Whether you have unexpected expenses related or unrelated to the home, having no emergency fund after a home purchase will lead to unnecessary stress — and possibly more debt. 

When purchasing a home, you’re responsible for a down payment and closing costs. While a 20% down payment is ideal to avoid private mortgage insurance, a down payment of at least 3.5% is typically required. Closing costs can range from 2 to 5% of the home’s value. 

Also, you will have moving costs, costs to spruce up your new place (like new furniture or light cosmetic updates), and any initial maintenance and repairs. Be sure to budget for these items to know how much to save on top of your emergency fund. It doesn’t hurt to boost your emergency fund, too, in preparation for homeownership. 

5. You have a low savings rate

It’s much easier to develop good savings habits before you have a lot of responsibilities. To get on track for financial independence, several studies show that you should save at least 15% of your income. The longer you wait, the more you’ll need to save. 

If your savings rate is low before you purchase a home, it will most likely worsen after becoming a homeowner. Even if your mortgage is similar to your rent, ongoing maintenance and repairs, higher utilities, and homeowners association fees can wreak havoc on your budget. 

Take a look at your current savings rate and see if you’re on track for financial independence. If you’re saving less than 15 to 20% of your income, work to improve your savings rate before you consider buying a home. A strong savings habit can help you build your home savings fund faster and ensure that a home purchase doesn’t impede your long-term financial goals. Finally, understand how much house you can afford so you can avoid being house poor. 

Buying a home can be rewarding, and when done the right way, it’s a way to build wealth. Before you decide to buy a home, it’s important to understand your numbers and ensure that you’re ready for the commitment. Without preparation, your dream home could be detrimental to your long-term financial goals.

Chloe A. Moore, CFP, is the founder of Financial Staples, a virtual, fee-only financial planning firm based in Atlanta, Georgia and serving clients nationwide.

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