“Forget EVERYTHING You Thought You Knew
About Buying a Car with Bad Credit…”
Most of the information that is found online about buying a car with bad credit, is published by marketers that don’t have any real world experience in sub-prime auto lending. As a former finance manager at a high volume car dealership, I can help.
Before I break the law! The information provided here is not legal or financial advice. You can only get that by talking to a lawyer or a financial adviser. What I can provide you with are real world answers to the common questions that you probably have, and also some information to help you to get approved easier, with lower payments, interest rates, and a lower price tag on the vehicle of your choice.
Finance First… Car Second.
Don’t put the cart (car) before the horse (finance). You will save yourself thousands by following this rule. You need to find out what you can get approved for first, and then choose a car that fits within those limits. So many people get caught up in the dealership game before they get the most important part of a bad credit car purchase handled first, getting approved for good financing terms. When you’re already approved for a car loan, then buying a car that fits within the monthly payment that you can afford is much easier.
Needs vs Wants…
Don’t make an emotional purchase based on what you “want”, but sit down and figure out what you really need in a vehicle. Do you really need that DVD player console? Do you really need that gas guzzling full size SUV? Or, could you work with a reasonably priced 2-3 year old midsized sedan with 40,000 miles? Maybe something like that with the balance of a 5 year, 100,000 mile warranty remaining? Sub-prime lenders look at what you’re trying to buy as much as they look at other factors. If you look like you’re trying to stay within your means and be responsible, you’ll get a more favorable response, no doubt.
Know What You’re Up Against
You wouldn’t apply for a job without knowing your job history, would you?
Buying a car with bad credit without knowing what is on your credit report is like applying for a job without knowing your employment history. Find out how to get your credit score with your reports for free.
How to Get the Best Sale Price
How to Use the Market to Your Advantage…
The most popular models are usually the vehicles that dealers will not give deep discounts on. There are many makes/models of cars, trucks and SUV’s that are not the “hottest thing on the market”, however they may represent some of the best values available. By choosing a vehicle (after you’ve got your financing arranged) that is not trendy, you’re likely to save money and thus, have a lower payment.
How to Find Aged Inventory Deals…
Ask the dealer about their aged inventory. These are cars that have been on the lot for more than 30 days. It doesn’t mean that there is anything wrong with them, it just means that they haven’t sold yet. I bought a $33.000.00 Chevrolet Silverado (loaded) for 26,000.00 because it had been on the lot for more than 45 days.
Why?
Who knows. I just know I saved $7,000.00 and the dealership was eager to pull strings to get the best financing deal I could get, because they wanted to “move the unit”. See, dealerships usually don’t own the vehicles that they have for sale. The vehicles are actually owned by a bank that “floorplans” the dealership (provides money for the dealer to buy cars to be sold). Once a vehicle has been on the lot for more than 30 days, the dealership has to start paying interest on the amount that they have purchased the vehicle for, thus giving them an incentive to get it gone! In many cases, especially with large volume dealerships, a dealer will discount a vehicle below cost just to avoid having to pay interest on aged inventory.
Rebates & Dealer Incentives
It may come as a surprise, but you’ll do well to buy a car that has a dealer rebate/incentive (these can be in the thousands of dollars that you can save), as well as, over 30 days old. It’s new – it has a rebate and you benefit from not only having lower payments, a lower interest rate (the newer the car, the lower the interest rate), but you’ll also enjoy having that new car factory warranty. Choose a model that has a 5 year, 100,000 mile powertrain warranty if you can. Be conservative, there are some great buys on new vehicles that might not have all the bells and whistles, but will be a dependable, economic means of getting around while you work on rebuilding your credit history. Work within your approval limits.
Remember… financing first and car shopping second! You’ll keep more money in your pocket each month.
The Vehicle You’re Trading
Are you “upside down” on your trade in, owing more on it than it’s worth? That may not be the case if you sell it outright to an individual in the local paper, although that is time consuming and a bit of a hassle. Use the Market Advantages, Aged Inventory Tips and Rebates I spoke about above to balance out the equity in your vehicle and cover anything owed above the trade in allowance. Once your financing is approved, you’ll be better equipped to make that decision.
If you are among the minority of car buyers that owes less on your trade than your vehicle is worth, then congratulations. You can definitely use this to your advantage. Here’s a little tip… Overestimate your payoff amount when talking price and trade in numbers with the dealer. You may find you’ll get a better offer for your trade in! This is because dealers will try to only give you enough to pay off your trade, in some cases… so always tell the dealer you owe more on your trade than you do.
Find Out What It’s Really Worth…
Don’t take the dealer’s word for it. Find out what your trade is really worth. Having that information can help you when discussing numbers with the dealer.
Bad Credit Car Loan Interest Rates
Here’s a surprise…
Some dealerships mark up the interest rate on your auto loan. If approved at 8%, they may sell you the loan at 11%, with the 3% difference resulting in additional profit for the dealership, and higher monthly payments for you. Be wise. You need not take the first offer for financing.
Down Payments
Unless your a small minority of car buyers, you’re probably not interested in putting a substantial amount of money down. After all, who has a few thousand laying around to use for their first car payment? Refer to the above tips on using market advantages, dealer rebates and aged inventory, above. It can be done with the right combination of credit score, vehicle book value, trade in and dealer rebates and incentives. This is one reason to get approved first, before you shop because all of the variables need to work together to get the lowest payments on the most car. You’ll be better off keeping that cash in your pocket for a rainy day… or at least to pay your car payment ahead a month or two to ensure your credit history improves as you go.
Buy Here Pay Here Financing – Is It Worth It?
Typical Buy Here Pay Here Car Lots…
These may be an option, albeit a very expensive one. Many people are surprised to find that there are good options for them to get approved and start car shopping, without having to go to dealers that finance their own cars. It may seem like the easy road when you have bad credit, but buy here pay here car lots always want down payments and the interest rates can be as high or higher than credit cards.
National Buy Here Pay Here Chains
Larger dealerships that offer in house financing for cars are a better deal than your typical buy here pay here car lot, although it’s still better to get a “real car loan”. The number one reason being is that most dealerships or buy here pay here places that have in house financing DO NOT report your good payment history to Equifax, Trans Union or Experian (the three major credit bureaus), rendering your timely payments to improve your credit history null and void.
Get a real loan unless you just absolutely cannot.
