Bad credit does not necessary bar one from purchasing a car, but it does come with a few compromises. Knowing and understanding these compromises can be the key to making the best deal possible for those who plan on buying a car with bad credit. Following a few simple rules will help one not only get the best deal today, but perhaps find a better deal down the road while simultaneously repairing their credit. Be ready to find the right lender, shop wisely, save and borrow judiciously, argue reasonably, and be prepared to start the process over as many times as necessary.
The first rule to buying an automobile with bad credit is to ensure that the company doing the financing reports to the major credit bureaus. Larger lenders that report payment histories are good for a number of reasons, but one of the primary reasons that they are desirable is so that one never has to buy a second car with bad credit. After all, the compromises needed to buy the first car on bad credit were probably bad enough. By reporting payments that are made on time, credit scores will likely benefit in the long run. Secondly, larger lenders often allow for contracts to be sold to other lenders. This means that once one does eventually get a handle on their credit, they can refinance at better rates.
The next rule for purchasing a car with bad credit is to only get what is necessary. Sure, that Ford Mustang might be a lot cooler than the Ford Focus, but it will probably cost a lot more initially and an incredible amount over the long run. Many lenders charge annual interest rates of up to 30% compounded monthly to consumers with bad credit. What does that mean for lenders? $100 will become $180.87 in just two years, which is not an uncommon length for car loans with bad credit. Add another year and the total amount will grow to $243.25. Knowing this, look at the Ford Focus and Mustang and realize that with every dollar financed there will be approximately two or three dollars paid when all is said and done. A $2000 poor credit car loan on the Focus might end up being nearly $5000, while a $5000 loan on the Mustang could result in a repayment schedule greater than $10,000. The bottom line is that choosing a modest vehicle is a far better strategy.
This logic also serves as an excellent segue for rule three: come up with as much cash for a down payment as possible. Remember that every dollar financed will result in a payback that is likely to be far greater than one dollar. Borrowing a few dollars from friends and family who do not charge interest may be not be a bad plan of action in many cases, but be sure to work out amicable payment arrangements before signing any loan contracts. After all, for a while one will probably have to pay off the auto loan and friends and family. Damaging credit is one thing, and many people do that at one point in their lives, but damaging relationships with family and friends can have lasting repercussions that run much deeper and are more difficult to address.
Being reasonable with expectations is the fourth step to acquiring an automobile with sub-par credit. Expecting to get the very best deals, low-initial payments, and low monthly payments is probably not reasonable. Lenders and automobile sales agents want as much security as they can, and in lieu of good credit will want something in exchange. This situation can be worked to one’s advantage however, especially if there are references and signs of security and stability available. Bring in rental agreements, complete contact details for friends and family members that will be willing to vouch for you, notes from professional contacts, and anything else that might show a potential lender that they are dealing with someone who is not going to drive off with a partially-paid for vehicle, never to be seen or heard from again. Being prepared and professional can help one argue effectively over price or interest, but so can the final rule.
The last rule is to never be too sold on one vehicle or lender. Be prepared to walk away from the bargaining table in a peaceful and professional manner, as suggested by Harvard Negotiation Project member and Harvard Law Professor, William Ury. Simply ask for time to rethink the deal, especially if last minute changes are in favor of the lender/sales floor. Always leave the door open to further talks, but wise shoppers will look around for the best deal. After all, buying a card with bad credit may not be easy, and saving money might require a good deal of trial and error.
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