If you’re in the market for a car, you may think it doesn’t really matter which auto lender you choose. However, not all loans are created equal, and choosing a reliable auto lender can save you hundreds or even thousands of dollars in the long run. “Even in the world of auto loans, predatory practices can trap borrowers in a snowballing cycle of debt,” says Joe Pendergast, AVP Consumer Lending at Navy Federal Credit Union. “The best thing consumers can do to avoid potential pitfalls is to know what to watch out for and find a trustworthy lender.”

Armed with Knowledge

“Predatory lending takes a variety of forms, from payday loans, which offer fast cash at a huge overall price, to more subtle but costly methods in auto loans,” says Pendergast. “There are several ways people can spot—and avoid—high-risk or predatory car loans that may embroil them in a cycle of debt.”

Fortunately, finding a trustworthy lender is often a simple matter of doing your research. When you know what to expect before talking to a potential lender, you’re more likely to get a loan with a reasonable rate and favorable terms.

Here is what to watch for as you select a lender:

  • High interest rates. Research current interest rates so you’ll be able to recognize and avoid those that are unreasonably high.
  • Add-on products. Expensive features, insurance packages and service contracts can jack up the loan amount without benefiting the buyer. Research car features and pricing before you shop so you can avoid being lured or tricked into unnecessary expenses.
  • Yo-yo scams. Fraudulent dealers may encourage a buyer to take a car home before the financing is settled and then require the buyer to re-negotiate the deal at a higher rate or cost. Don’t leave with your car until the loan is finalized.
  • High-pressure tactics. Be wary of deals in which you’re pressured to take on more debt than you can afford or to sign agreements quickly. Use auto loan calculators before you shop, so you know your budget. If you sense pressure, trust your gut instinct and walk away to re-evaluate before you sign. 
  • A promise of credit regardless of your credit history. Lenders that cater to consumers with bad credit may be charging higher interest rates than necessary. Know your credit score and what it means for your borrowing power so you can recognize when a lender is exploiting your history.

An Ideal Option

Using a reliable lender is one of the best means of protecting yourself from predatory lending. “If you need a loan, credit unions are an ideal option because our duty is to serve our members rather than to make a profit,” Pendergast explains. Navy Federal has many auto loan options that can help you get behind the wheel without falling behind financially. Learn more about navigating auto loans and when you're ready, find an auto loan suited to your needs.