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Buying a New Car Even When You Have Bad Credit

Christine Spencer

Auto Loan Expert

If you're going to buy new or used car and you know you have poor credit, you may be tempted to accept the first bad credit car loans you come across at a local dealership, regardless of the exorbitant interest rate. Before you do, however, you may not realize there are alternatives you can take advantage of that won't break the bank, and researching these options ahead of time could save you hundreds of dollars in interest.

How to Shop for a Subprime Loan

If your credit falls into the subprime category, usually a score of 620 or lower, then you should still be able to get a decent auto loan, but before you start car shopping, it's important to start looking outside of the dealership networks since most only have their profits in mind and will use your high credit score against you.

Although the dealer may have access to a few low-interest car loan options, there's probably a good chance you won't qualify for the loan since your credit score in the subprime territory. So before you get excited talking to a sales agent over the phone, it's very important to know that your credit score will affect your car buying experience.

If at all possible, try to get pre-approved ahead of time to know what interest rate you may be able to get. That way, if you were to go into a dealership and you know you're able to get a nine percent interest rate, then you can use this to your advantage when the dealer comes back and tells you he can only get you 16 percent. When you tell him the news you found something much lower, most of the time they will come back and match the loan offer, taking a hit in their commission to close the sale.

Stick a Limit

Even if you have bad credit, don't get excited when you get approved for an auto loan because this is just the beginning of your car shopping checklist.

Due to the higher interest rates, you're more than likely going to pay hundreds of dollars more in interest compared to someone who may have a higher credit score, and because of this, you're going to want to make sure you know how much interest you're going to paying every month.

Aside from shopping for a car loan, you're going to want to stick to a monthly payment you're comfortable with paying every month. When calculating this number, which can be found by using car payment calculator online, don't forget to factor in the taxes, registration fees and insurance to get a final total. Once you have been preapproved for auto loans online and a number you're comfortable with, then you should feel comfortable driving to a few local car dealer lots to begin your shopping. Remember to stick to this number and don't let your emotions get in your way. The last thing you want to have is a car bill in your mailbox every month that you can barely afford.

Beware of the Scams

Dealers who work with those with bad credit often try to take advantage of their desperation by using special terms and techniques to get you to sign the financing contract.

One example, in particular, is something known as “spot delivery.” This happens when the dealer has a hard time finding a lender for your loan, but instead of keeping you hung out to dry for the day, they allow you to take the car home in hopes they can find someone to finance your car. If the dealer is unable to find someone, then you, unfortunately, have to bring the car back.

Another strategy many car dealers use is simply by upselling you many unnecessary add-ons when you're ready to sign your purchase agreement. This can include an extended warranty, upholstery protection or some sort of paint guarantee. All of these add-ons have very lucrative commissions, often forcing dealerships to use some unethical strategies to tie these items into your car loan.

Since there's a good chance it's going to be hard to just pay the car payment, it's best to walk into the office and saying no to anything they want to sell you. Even when saying no, just pay very close attention to the sales contract when signing the dotted line and ask about every itemized charge to make sure it's something that makes sense or it's something you agreed to.

No Credit? This Is the Last Resort

No matter where you live, there's probably a good chance you have seen one of those “buy here, pay here” car lots. While these dealers can work with those who have no credit or the worst credit on the block, it's so important to make this your absolute last resort.

At these lots, the main problem is that the loan rates will be double or even triple than the national average and the cars may be overpriced as well. Experts warn that if you were to take this option, consider paying the loan for a year and refinancing in the future when your credit improves.

Summing It Up

Using a bit of discipline and a bit of research can greatly increase your chances of landing a decent car loan. Remember, the more time you spend researching ahead of time, the more you can save in the future.