Overview
Buying a car with less than perfect credit is similar to qualifying for other bad credit loans – with the added wrinkle that often dealerships make their money at the financing table. It is important to separate the negotiation of price from the discussion of how you’re going to pay for your new set of wheels.
Be Prepared
Know what you can afford in terms of total cost and monthly payment before you go car shopping. When shopping for a new car it can be so easy to fall in love with your perfect vehicle and get seduced by promises of low monthly payments – only to find out you’ve signed up for a seven year car loan with a balloon payment at the end. If you do your research and go prepared, you are much more likely to keep a clear head and know when to walk away from a bad deal. It’s a good idea to also know your credit score and what your credit score means. That way, you will be prepared for the types of loans offered to you.
Types of Bad Credit Car Loans
- Secured vs. Unsecured loans – Nearly every kind of car loan is secured by the vehicle you are purchasing. However, sometimes lenders ask for an added layer of security such as the equity in your home or in another vehicle that you own free and clear. Be very clear when you sign your loan paperwork what is being listed as security for the loan.
- Pre-Approved bad credit car loans – It can be a good idea to try for a pre-approval with a bank or credit union before shopping for a car. Often banks and credit unions can help you even if you have less than perfect credit. If you are pre-approved, you can shop for your car and focus on price rather than worrying about whether or not you can get qualified for a loan.
- Dealership bad credit auto loans – Dealerships almost always have bad credit loan programs. Be wary of the financing table at a car dealership however – it is generally where they make the most money. Try to keep the negotiation of the car separate from that of the loan. Do not be afraid to walk away from a bad loan.
Car Buying Tips
- Negotiate the price and the terms separately – When you arrive at the dealership, act as though you will be paying cash for the car. Negotiate the very best price possible before mentioning anything about financing. If you are pre-approved, you can mention you will need to finance the car but don’t say you are pre-approved as the salesperson may give you a great deal on the price of the car expecting to make his profit in financing. Once you’ve locked the price of the car and have it in writing, then inform them that you have a loan lined up.
- Don’t be afraid to walk away – The dealer needs your money more than you need his car. You have a lot of options to choose from when it comes to car buying. Don’t be afraid to take a break and walk away. Many people return to the same dealer three or four times over a month to continue to negotiate the price of the car – all the while reminding the salesperson that the car in question is still on the lot costing them money.
- Trade-Ins – If you have a car you plan on trading in, do not let the dealership know until you’ve negotiated the lowest price possible on your new vehicle. If you don’t often the dealership will not give you the proper value for your trade in. Also make sure you know the value of your trade by checking what it is worth on Kelly Blue Book.
- Look at the total cost, not the payment – Dealership salespeople are professionals. Don’t let them lure you into a car because they can offer you a low payment. Look at the total cost of the loan before signing anything. A low payment per month does not mean a good deal.
Summary
It is to your advantage to negotiate the price of the car separately from the terms of a car loan for people with bad credit. If you can, try to get pre-approved through a bank or credit union or if that is not possible, only discuss financing with a dealership once you are certain you have obtained the best pricing available on the car in question. Having bad credit should not keep you from owning the vehicle you’ve been thinking about – but if you plan a little more and do a little research you can end up paying thousands less by getting the best loan possible.
In our next article, we will be discussing personal loans for people with bad credit.
Bad Credit Loans| Part Four: Personal Loans for People with Bad Credit
For reference, the entire series of articles is listed below.
Bad Credit Loans | Part One: Loans for People with Bad Credit
Bad Credit Loans | Part Two: Mortgage Loans for People with Bad Credit
Bad Credit Loans | Part Three: Car Loans for People with Bad Credit
Bad Credit Loans| Part Four: Personal Loans for People with Bad Credit
Bad Credit Loans| Part Five: Bad Credit Refinance
photo credit: Ian Muttoo