In my practice the biggest causes of Bankruptcy are Credit Card Debt, Medical Debt, Divorce, Car loans and repossessions and student loans. Unfortunately, people in financial straights don’t have the luxury of shopping for a reliable vehicle and buying it at a good interest rate. For example a person with good credit can purchase a $10,000 car at 7% and pay $239 a month. A person with bad credit can not get a standard loan and ends up buying from a dealer who finances the loan, often at a rate of 20% or more. The end result, a $332 a month payment. However, many seller financed loans charge “Add on Interest”, instead of “Simple Interest”. With an add on interest loan, the lender adds the interest for the entire life of the loan on to the balance due. On a $10,000 loan at 20% this would mean that you pay $375 a month for your car. No wonder many people can’t afford to buy even a cheap car, especially when repairs are needed. Be careful when you purchase a car with bad credit. Shop around, or buy a beater on Craig’s List. Get your financial house in order before you buy the car of your dreams.
