So you want to start shopping for a used car, but you have a bit of a dilemma: your credit score is awful. This won’t prevent you from purchasing a vehicle, but the task will be significantly more difficult. Considering your credit score, dealerships will assume that they can easily take advantage of you. Taking into account your lack of options, you’re left very vulnerable to these scams.
There’s absolutely no incentive to purchasing a car with bad credit (compared to purchasing a car with good credit). However, there are ways to minimize the negatives.
Take a look at some of the realities you should be keeping in mind as you’re seeking a new ride. You’ll always find that a lot of dealerships won’t work with bad credit, and you’ll also find that many are specialized bad credit car dealerships that embrace this. You want to focus on the middle man, someone who is willing to work with you (and won’t screw you out of big bucks). To see what you should be keeping an eye out for, take a look at the tips following the break…
Expect a Lack of Trust From a Dealer
You can’t blame a car dealer for covering their tracks, especially when they’re dealing with people who have bad credit. While it may not necessarily be fair, people with poor credit are often accompanied by a stigma, and car dealers don’t want to be duped by a potential thief.
For instance, some dealers will outfit their vehicles with engine disablers. This means if a payment’s late, the powers that be can easily make your car inoperable. There’s certainly a place for this technology, as buyers consistently try to take advantage of car loans. Reversely, this could be damaging to an everyday driver, especially since this technology doesn’t discriminate when it comes to unpaid bills. Even if you’ve consistently paid your monthly fee, you’ll probably find yourself with a dead engine if you fail to pay.
Watch Out For Sneaky, Cash-Grab Scams
This distrustfulness can obviously go both ways, and you should remain relatively cautious when purchasing a car. Some of these “buy here, pay here” dealerships are constantly looking to squeeze out every last penny, and some of their cash-grabbing schemes are legal, but very unethical.
You should never drive off with your purchased car before the financing terms are finalized. Sometimes the dealership will have you sign a financing agreement that is “subject to final approval.” This is not a binding deal, and the contract is not final at this point. A dealer could easily call you back and say the financing wasn’t approved, which means you’d be hit with a significantly higher interest rate.
Also don’t rely on verbal agreements, as the dealership can easily pull a fast one and switch up the specifics. Only drive your purchased car if you’ve signed a document detailing the financing terms.
Finally, don’t buy into a dealerships claims that you’re “required” to purchase a specific add-on, whether it be an extended warranty, credit life insurance, or something similar. These are clear attempts to get more money from the buyer, and they rarely end up paying off. If you refuse, it’d be surprising if the dealer doesn’t still go through with the deal. If they allow you to walk, do just that! There’s nothing wrong with shopping around and surveying your options.
These dealership strategies are called “yo-yo scams,” and the Center for Responsible Lending estimates that victims of the scam often pay an average of 5-percent more in interest.
There Will Be High Interest Rates/Down Payment
While you should be aware of all these cash-grab attempts, there are a couple charges that you won’t be able to avoid: an interest rate and a down payment.
Both totals should be relatively large, assuming you don’t have good credit. There are ways to reduce the interest rate, however, and it starts with shopping around for multiple lenders. There are plenty of dealers that are willing to finance potential buyers, regardless of credit. This is often the main selling point of some dealerships, so it shouldn’t be hard to identify your potential options.
Furthermore, check with your bank or credit union, since your established financial relationship may lead to them approving you for a loan.
Of course, you’ll want to get this work done in a two-week window. Lenders are aware that you’ll shop around for the best rate, so they’ll only count one “hard credit inquiry” against your report. Take any longer, and you could be facing multiple hard inquiries, which never reflect well on your report.
The down payment may be non-negotiable, and it can certainly be pricey, as some dealerships require 10-percent of the car’s value upfront. Your attempts at negotiations will likely be fruitless, and you’ll likely find similar rates at rival dealerships (especially if you have bad credit). In these situations, just keep in mind the value of the down payment, and then subtract this value from your estimated cost of the car. When you’re ultimately haggling over the price, you can refer back to your pricey down payment.
When it ultimately comes down to it, you want to shop and haggle for the lowest total price possible. This won’t necessarily be reflected in your monthly payments, but that’s alright. You want the lowest annual percentage rate (APR) over the shortest period of time. If the only way you can make the purchase work is by taking out a long-term loan, the car probably isn’t in your budget. While the allure of a nice car is certainly inviting, remember how you got in your bad credit situation. You don’t want to make that matter any worse than it already is.
The Selection Will Be Limited
Whenever you search for a used car, your selection is obviously limited compared to shopping for a new car. Just imagine how much the selection decreases if you’re buying from a “buy here, pay here” dealership!
These car sellers aren’t going to risk selling their nicest cars to people with poor credit, no matter how responsible you may seem. However, you don’t have to settle for whatever’s on the lot. If you’re not a fan of any of the selections, shop around!
It’s generally a good idea to survey the market, regardless, especially when making a costly purchase. Besides expanding your options, you may also come across a dealership that is more willing to be flexible in regards to your poor credit.
As you can see, it’s not impossible to purchase a car with bad credit… it’s just difficult. There are plenty of obstacles to get around, and some of them are avoidable. The best course of action is to find the best deal, assure that you won’t have any issues with the monthly payment, and sign the agreement! Otherwise, you may be facing a number of pesky loopsholes and scams.
The other helpful lesson? Be prepared. These dealerships are going to assume you haven’t done your homework, and they’ll lie to you about the price of the car, their “required” add-ons, and even your credit report! If you understand what you’re walking into, and if you’re accompanied by the information they may be lying to you about, you should be just fine.