If your credit is less than amazing, but that new car is just so shiny, what do you do? Well, if you really have to own it, what options do you have? You can always appeal to the almighty consumer finance companies in the United States. In a good ten to twenty years, you too can be the proud owner of that shiny new car.
While the Consumer Finance Industry has been responsible for making some loans more accessible to those with crappy credit in the United States, it has also been partially responsible for a few undesirable, recent economic downturns. Fraudulent subprime mortgage lending practices led to the limited death of the housing market in the country, which ultimately led to a credit crunch.
In the United States, the term “Consumer Finance” carries a different meaning than in most of the other counties in the world. Because United States banks are less willing to lend money to those with less than stellar credit, the term “Consumer Finance” generally refers to the industry focused on subprime lending. Subprime lending basically refers to the above – getting those with subprime, or less than desirable, credit loans. In the United States, there’s an entire industry based on this practice.
In this industry, the focus is on lowering monthly payments on loans at the expense of a higher interest rate. Sure consumers under these plans technically pay less every month, but for a dramatically longer period. Due to the increased interest rates, consumers end up paying astronomically more. Sometimes the companies will tell consumer that they need to pay much more than they actually need to, so be sure you are well-informed of your credit score. Also be sure to shop around for loans if you absolutely must take one out.
Ideally, a consumer should keep his or her finances in enough order, and have enough personal spending responsibility so as to avoid these kinds of loans. In the long run, you are just paying much more money for the same product. However, sometimes economic downturns facilitate these kinds of loans, so it is understandable that some unforeseen circumstances can and will come up. The best thing to do, however, is to wait, and pay for that shiny new car for money you actually have, and not resort to these high interest rate loans.
Note: Credit scoring models generally penalize borrowers that have too many consumer finance company accounts.