Sometimes a car buyer, especially a first-time buyer is surprised to see how much more the final price of a vehicle is after paying interest for years. Sometimes the amount of interest is nearly equal to the principal amount.
When you finance a purchase that is of substantial value, the two primary numbers are the principal and the amount of interest. Especially in agreements in which the debt is financed for several years at a time, such as in the case of a car or house, the amount of interest can add up to a sizable amount of the total price.
Rule of Law
The general rule that applies is that a person who signs a contract is presumed to know its content. Furthermore, he or she is bound to the terms in the contract as he or she would have known these terms had he or she read it. Failing to read a contract is not usually a defense.
Contract Defenses
Assuming that the contract was valid, individuals may be able to get out of a contract depending on the contract defenses that are available at the state level. One potential defense is lack of capacity. If you were drunk or under the influence of drugs at the time that you signed the contract and the dealership knew this and took advantage of it, the contract may be able to be avoided.
If you signed the contract under duress or because of undue influence, this is another potential defense. There is such thing as “economic duress” that is recognized in some states. This type of defense is usually made when there is already a contract in place and one party threatens to cancel it unless the other party agrees to agree to the first party’s demand and there is no practical alternative than to agree to the terms of the new contract.
Another common contract defense is misrepresentation, which refers to a party making a false statement or deliberately hiding information during the bargaining process. For example, if the dealership tried to bury the interest rate in the contract, this may be representation.
Unconscionability is a contract defense that applies when the contract was not fair in its formation or in the substantive terms of the contract that enforcing the contract would “shock the conscience of the court.” This can result when the parties to the contract had very different degrees of bargaining power, making the contract much more favorable to the more powerful party and is unreasonable in its terms to the weaker party.
Avoiding Issues in the Future
Try to get a better interest rate the next time that you make a large purchase by shopping around for a loan from a variety of financial institutions. According to the Fair Credit Reporting Act, you have the right to request one free credit report each year through each of the major credit bureaus. Review your credit report and try to increase your score before you look into financing.
Before you make the next purchase, have your financing all lined up. You can pursue financing through entities outside the dealership, such as a bank or credit union. Be sure that the interest rate is clearly outlined in the documents that you sign. Also, look for any other costs or fees, such as a loan processing fee or an early payment penalty. Try to get a loan for fewer years so that the interest will not have as long to accumulate.
