Sep 26 2008
Car-dealer tricks- The balloon bamboozle
There’s nothing illegal or even deceptive about dealers offering loan periods extending out six or seven years. After all, many cars last longer than they used to, and longer loan terms mean your monthly payments are lower than they otherwise would be.
Still, there’s a danger. “These loans take forever to pay off,” says Mark Perleberg, lead automotive expert with NADAGuides.com. You’re likely to continually owe more on your car than it’s worth, because your car is depreciating faster than you’re paying it off. If you’re considering a long loan period, you may want to consider a less expensive car better suited to your budget.
Similarly, some dealers will encourage you to purchase a car for unrealistically low monthly payments now, but with a balloon (inflated or much larger) payment at the end of the loan period. In a few cases, this can be a legitimate way to finance a car. For instance, you may just have graduated and can realistically assume that your income will rise by the time the balloon payment comes due.
Be wary, however. “Make sure you know what you’re doing,” says Wiesenfelder. “If you’re only paying $198 a month on a $35,000 car, there’s a reason. Eventually, you have to pay the principal.”
How can you avoid all of these come-ons? Educate yourself. “Many dealers are good and honest, but there are some that you need to be more careful of,” says Reed of Capital One. “Know what you want to buy and know your alternatives to dealer financing. Then, be careful of the dealer selling you things you don’t want.”