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CAR SALES "CHURNING" AND GAP INSURANCE
Car advertisements may promise that with very few, if any, dollars can allow you to drive
away in a new car even if you have bad credit or no credit. however, when you get on the
car lot and "take the bait", so to speak, the salesperson may tell you it will cost $1000 to
drive away in a new car.
The "churn" begins when you may not qualify for a loan amount on the car you want so
the salesperson may suggest that you double the amount of income you say you earn
when filling out the loan application! This is illegal if you sign off on it but if you do sign
the deal it is not the sales rep or new car dealer that may end up getting in trouble with
the law, it is you!
Salespeople may not mind selling cars to those who cannot afford them because even if
the cars get re-possessed for non-payment it is the car buyer that gets hit with all kinds of
"repo-fees" at up to 40% interest! So a $500 car can actually end up costing you
thousands!
Car dealers have been known to be able to re-sell and repossess the same car numerous
times, thus earning tens of thousands of dollars on just one car!
The key here is you should never buy a car that will cost you more than 20% of your total
income. Sales reps have been accused of suggesting that you can spend up to 40% to 60%
of your total income on a car! What do they care if you cannot really afford the
payments?
In addition, always consider getting GAP liability insurance especially if you lease a
vehicle even though it may cost you an extra $100 to $200 a year for the coverage
because if the vehicle gets stolen or totaled in an accident, you still have to pay-off what
you owe on the car loan plus whatever the vehicle would have been worth at the end of
the lease BEFORE it was stolen or totaled.
SUPPLEMENTAL SOURCE: HARD COPY TV NEWS 7/7/98
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