Question on loan website.

I'm not familiar with the particular website but I'm an accountant by education and have had lots of mortgages, car loans, and other credit accounts in my life.

There are a couple of general things to watch out for. One is, as has been pointed out, the fact that with no credit history and other factors working against you such as your age, you simply will have to settle for a much higher interest rate than, say, I would. They're practically giving away stuff these days to people with good credit. No interest and no payments for a year on cars and other major purchases, which is like having it free for a year and then buying it. You'll be assessed as much as 12 percent interest, or goddess forbid even more, because you're considered a bad risk. They have to make a lot of money quickly in the early payments in case you default after not taking good care of the car because you can't even afford a quart of oil. That really makes a dent in your budget and decreases the maximum price you can pay for a car. And this is the perfectly ethical stuff they can do to you, just normal everyday business practice for people with bad credit or no credit.

Then there's the unethical but legal stuff. They can give you a loan that starts of with monthly payments that don't actually amortize the loan. In other words, if you buy a car for $5,000 at 12 percent interest, they're charging you fifty bucks a month interest. If for the first year your monthly payments are only thirty bucks, then at the end of the year you'll actually owe more money than when you started, because you're only paying off thirty of the fifty bucks each time. (And we won't talk about compounding the interest. Either you already understand the concept or it will just give you a headache.) So the payments really get jacked up in the second year. They may actually double. For some people that's okay because having the car allows them to get a job and earn some money so they can manage the escalating payments next year. It's a tough tradeoff because when you're poor and have no credit, life really is tough.

In general, as the previous posting said, you should try to get a loan from the most ordinary possible sources first, like a bank or a credit union. They really do charge less interest than these other places. If you have enough to make a 20 percent down payment and your salary is enough to make the monthly payments, who knows, a bank may be willing to work with you. If not, then you're stuck with what you can get. In that case, what matters most is the interest rate. The lower the rate, the better a deal for you because you will end up paying less for the car in the long run. However, be careful of fees and service charges they may add to your loan. That's just free money for the lender. They may add ten percent just because you're desperate and have no choice, but if that's true then shop the service charges the same way you shop the interest and go to the place that charges the least.

Oh, and be careful with used car dealers that carry their own loans. (They don't really, they sell them to investors, but they make the credit decisions.) They're famous for having really high interest rates. But they are not necessarily the worst you'll find, so at least consider their offer. They are certainly motivated to make the loan because it's the only way they'll be able to sell you the car.

It really helps if you know enough math to be able to calculate compound interest and stuff like that. But generally, you'll probably get a loan that has a constant payment throughout its entire life. If they all have the same payback period and the same principal (price of the car plus fees minus down payment), then the loan with the lowest monthly payment is best. If they have different down payments and different payback periods, then you really do have to do the math to figure out which one is a better deal.

I assume anybody on SciForums can compute compound interest, but if you can't, just come back here with the numbers you are offered, ask nicely, and I'm sure I or somebody else will do it for you. Be really wary of anybody who says this offer is only good right now and if you walk out the door to check it they can't promise it will still be valid. There's absolutely no reason for any honest businessman to work that way, he just doesn't want you talking to somebody who will tell you how bad his deal is, so let it go and don't worry about it.

Amid all these financial considerations, don't forget that the quality of the car matters a lot too. If it needs tires or brakes or an air conditioner compressor or shock absorbers, that can cost you as much or more than a bad loan. Don't just buy a car because it's cheap or because the dealer will finance it. It has to run for as long as you have to pay the loan or it's not much of a deal!

Good luck. Life really is tough. I'm sorry.