A step-by-step guide: How to buy a car with bad credit without it becoming a nightmare.
Tired of hearing the word? “No” When it comes to a car loan? I’ve set up “How to Buy a Car with Bad Credit” specifically so you can hear the words “yes.” Who am I, you ask?
I’ve spent 14 years in the automotive business as a financial manager, so I think it’s fair to say that I know a thing or two about how to finance a loan, regardless of your previous credit history.
Remember, regardless of your previous credit history, you still need a car, you want a car and most importantly, you deserve a car. They should also be treated with respect and make decisions. I will teach you how to have a choice with car bath loan financing loans.
First of all, all lenders now buy offers based on a so-called beacon score, which is identical to your credit score. There are three credit reference agencies that make up the package. Each lender chooses which credit bureau(s) they prefer when looking at your loan or a combination of offices.
I advise everyone to let all three credit reference agencies go when reviewing your credit and pay for creditworthiness. If you only look at one office, you only see part of the big picture.
With the exception of a few minor things, the beacon score plays a big role in your approval. Staying within your financial means is another, so be realistic. If you’re making $2500 a month and going out $1200, don’t all go up and power and tell the financial manager you’re just going to have one expedition or nothing. They will end up with nothing.
To use car bathroom loan financing effectively, you need to know what your loan looks like and what your credit score actually is. Otherwise, work in the dark.
Pay for the credit score or it’s just almost useless. With credit score, you know whether or not you qualify for a lender like Ford. The higher the score, the lower the interest rate. I got it? In the case of a car loan with bad credit, the higher the beacon score, the better.
Let me explain websites like cars.com and the like: they collect applications for car loans online. They then have a network of merchants who pay them for the leads. These are usually merchants who have departments that specialize in financing you, regardless of your loan. These departments pay for these leads, so most take them very seriously as they are their bread and butter, so to speak.
If you have a lower credit score than usual, a current repo, or just an all-around bad credit, this could be the way to go. If your credit is really that bad, remember that you need some cash or a paid trade that is actually worth something.
OK, now for the step-by-step system I promised. Take control of your car business first! You must sit in the driver’s seat if at all possible. Go online and make a copy of a tri-merge, which is all three credit reference agencies, and pay for your credit score. You can get a FREE copy of your credit report once a year HERE:
http://www.annualcreditreport.com
This is the new federal law that actually entitles you to get a FREE copy of your credit bureau once a year and with some other exceptions. This is not a credit monitoring site. You must run each office separately; Experian, Equifax and TransUnion. Then you have to pay for the creditworthiness.
To avoid confusion, here’s the scoop: every credit score for every single office will be different. That’s why a tri-merge is called what it’s called. You can run a specific office called Tri-Merge from one company (there are many – just do a Google search) and you actually get an office (it’s actually all three combined, but the credit score is also a credit score). It’s more expensive and generally costs $34.00, but it just depends on your preferences.
Now, with your credit score in hand and a copy(s) of your credit bureau,Do you have something strange there that is not yours? If so, it’s time to fix it. You should check your credit bureau at least every 6 months to a year. If your identity has been stolen, you’ll know quickly. P.S. You can also have a liner placed on the bottom of your office that simply says, “Don’t renew a loan in my name without contacting me first. Work # (111) 222-3333 Home # (222) 333-4444 Cell # (333) 444-5555.” Call or write to the credit reference agencies and request it. You can now do this online for free. Again, do a Google search for all three offices listed above.
How do you fix your loan, you ask? I’m giving away a completely FREE book I’ve written on this topic, just for the question. Send me an email with Free Credit Repair Book in the headline and I will email it to you.
Next in line: Know what you want to buy BEFORE you even go shopping! Let me be very clear. The job of the car dealer is to sell you a car on your first visit. A salesperson and their sales manager believe that if you go to their dealership and don’t go with a car, you will never come back. They will hammer on you until they either A) make you angry and you get up and leave, or B) sell you a car. It is the nature of the animal. Accept it in advance.
What do you want to buy? Where can you get unbiased information about the car? Again, Google for Kelley Blue Book or NADA and you can get costs, warranty repairs, callbacks, and information about issues and tons of information up front. Limit your purchase to three models. Keep it simple. These will be the ones you will be shopping for.
Can you afford the car? You may think you can afford the car, but the bank may think differently! I’ve seen this so many times in my career. Automotive Economics 101: Take your gross income (what you earn per year BEFORE Uncle Sam taxes you) and remember that this income must be verifiable tax returns, check stubs with exempt taxes or a W-2. If you are self-employed, you will need two years of tax returns with Schedule C’s. This is the income on which you have actually paid taxes. Being self-employed can be hard. You may need to combine a spouse’s income if you are self-employed.
Now that your gross income is figured out, find out what all your debt is that runs out each month. Include everything… It is listed on your credit bureau. Example: Car license = $ 450.00 + house note = $ 560.00 + credit card debt = $ 425.00
Boat note = $310.00 charge-offs = $1200.00 (yes, charges; these are bills you never paid and that have been written off). Add up all your debts. With only your obvious debts (including the debits), you have $1805.00 per month. I came to this number by adding up all the monthly notes and taking 5% of the charges. 5% from $1200.00 = $60.00. But we’re not through yet. Now we need to calculate the cost of living of utilities. Each lender has its own algorithm for utilities, but a good range would be estimated to add $300.00. Now we have a total output of $2105.00. This is what you need to pay your current bills before taking on other debt.
Almost all lenders do not allow your new car license to exceed 20% of your current income. For our example, let’s say your gross income is $5300.00 per month. Let’s take $5300.00 and deduct your debt, which is $2105.00. That leaves you at $3195.00. To make it easy, take $2105.00 and double it. That would be $4210.00. That would leave you with a disposable income of $1090.00. What the lender is looking at here is called debt-to-income. You want to know if you need to go out more than you can handle. Strictly speaking, this is a case of numbers and provable numbers. If your gross income was $4500.00 and you had $2105.00 in debt per month, you need to be prepared for one of two things; Add your spouse’s and spouse’s income to the deal or trade the other car. If youIf you get too close to 50% in debt, you will have a hard time getting a loan for anything. Make sense? The way the bank looks at it is this: you can’t afford both cars, so they assume you’ll let the other (older) car return to the lender’s repossession. That is their opinion. Debt-to-income is a HUGE thing.
In this case, your remaining disposable income is $1090.00. 20% of that would be $1060.00. Whoa! Let me be the first to inform you that you will NOT receive a car payment of $1060.00! Why? Well, you only have $1090.00 left for the beginning. Let’s be realistic here. Most lenders will cut that in half, which equates to $530.00. Your payment call should be around that number, give or take a few dollars.
How much can I buy a car with a payment of $530.00? Good question and one that you absolutely need to know so that you can choose the right car. An answer depends on the term of the loan. For example, you can fund for 36, 48, 60, or 72 months. This corresponds to 3 years, 4 years, 5 years and 6 years. I’ll tell you this: The worst thing you can do is to extend the note the longest to get the payment to where you can afford it. That creates a syndrome that now affects over 75% of car owners referred to as “upside down.” It means you owe your car more than it’s worth. It also means that you need more money when you exchange it. The only way around this is to get a lot of money down or a short-term loan.
You can do a Google search for a “car loan calculator” again. You will enter the loan amount you want to borrow, the term (48.60, etc.) and the interest rate. If you have not yet been approved and know the tariff, you need to guess. Here’s a rule of thumb for you — it’s not an exact science without knowing your credit, but it’s a guide you can follow to get you closer. Let’s base the interest rate on your beacon score: that’s what most lenders will look at.
If your beacon (credit score) is in the range of 400 or less, you’ll need to calculate your interest rate on a new car at 21% (government maxima are different – it could be 18%). If you look at a used car, you pay 33%. If your beacon score is in the low 500 range, calculate your new car loan as for the 400 beacon mentioned above. If your beacon score is in the mid to high 500 range, put a new car at 18% and a used car at 27%. If you have a beacon of 600 to 649, expect a new car at 16% and a used car at 20%. If you have a beacon score of 650 to 699, expect a new car rate of 12% and a used car rate of 16%. I may beat too high on some of them, but I live in a state that has the highest rates in the nation. Better safe than forbearance.
Be approved in advance Before They start shopping. That’s kind of the easy part. Keep in mind that I told you at the beginning of this article that you should take responsibility for your car business instead of letting the dealer guide you by the hand. It all boils down to financing. If you can enter with a check in hand, you’re in control. I’m going to recommend a few companies that are reputable, have a proven track record of subprime lending, and all send the check to you at home. You then go to a dealership and choose your vehicle, negotiate and buy like a cash buyer! These companies are Household Finance, Capital One Finance, Americredit and E-Loan. You can do a Google search for all four, apply online, and get either instant approval or one very quickly. If approved, they will send you the contract and then the check. It’s that simple.
On the final decision for the car work smart here. There is nothing more valuable than time and nothing more rewarding than a piece of spirit. Please do not run from dealer to dealer. False. Choose the 3 car models you can afford. If you are looking for a program car (rental), call dealers and inquire whether they have any or not. If you want a new model, ask other people who drive this model where they bought it and would buy it there again. WeIf you start to hear a lot about “I’ll never buy from them again,” keep going. Something is wrong. Your new car is only as good as the service you receive AFTER the sale.
Negotiate – Most people hate this. I have only met 2 people in 14 years who have enjoyed it; They were both retired and had nothing better to do. You did it for fun and didn’t even buy if you agreed to your price. Don’t waste other people’s time. If you don’t like the car, don’t negotiate about it. If you find a car you would own, tell the seller that you would buy it immediately if the price is right and if they provided you with a car fax. The key word here is: “If the price is right”. How do you know what a good price is? Well… Glad you asked. If it’s a new car, Kelley Blue Book has dealership costs. Go to:
If it is a used car, compare the used car numbers at
And
[http://www.nadaguides.com]
What’s the difference? Most traders (with the exception of the West Coast) will use NADA as a guide.
Here’s what’s happened so far:
Before you drove the car, you went to the dealer on Sunday when there are no sellers and you got the Vin# of the car and the equipment, the annual model and took a close look at it. You already know, if you like the car, if you drive it, that you would buy it. The list price is in your pre-approved check category. They have already gone online and received wholesale, trade-in and retail values for the car.
Retail is what the dealer should charge for the car. This will help you know if the seller is trying to put money in the car, or if the dealer is. Trade-in is a number to measure approximately what the dealer traded for for the car. It gives you an idea of what the dealer paid for the car, before the overtaking fees and each ticket from the service. Well, not every car brand will bring trade-in value. Two that will be a Honda and a Toyota at this point. These cars will bring a trade-in value. Domestic cars generally do not bring any trade-in value, with the exception of new, hot models. Other models only bring wholesale. For example, Kia makes a great car, but most won’t come close to the trade-in value. Mitsubishi is goThe President. – The next item is the joint debate on the following motions for resolutions: there are exceptions to the rule: Katrina and Rita hurricanes which caused a shortage of used cars. If you live in the south, that will be the case for a while. With the exception of a Honda and a Toyota, you can probably be sure to offer less than just trade-in. Not thousands, mind you, but less.
Consider the other costs of trading for a car. Also ask the seller how long he has had the car. If the seller slips and tells you they’ve had it for a while, your negotiation should be easier. The reason for this is that every month the dealer does not sell pays interest on the car. The book value also decreases every month, so it has to go.
Throughout the car business, make sure they know you’re paying cash. Don’t mention that you have a check from Americredit or whoever. That is none of their business. When closing a deal, insist that the used car manager execute an autofax before signing paperwork. An autofax indicates whether the vehicle was involved in a heavy wreck, was bought back by the original customer, or was recovered. This will calm your mind. If you don’t like the autofax, don’t buy the car.
During your shopping, I can’t stress this enough – Do Not Fill out loan applications at any merchant. Every time you sign a loan application, the merchant pulls your credit report and your beacon score drops. That’s why I advise you to get approved in advance. There are numerous benefits to getting approved in advance. The main advantage is that you are in control, not the dealership. That in itself is worth a fortune. Your job is to take control of you from the beginning of each meeting. Believe me; I know what I’m telling you. I have lived this life for a long time.
If, for some reason, you are unable to obtain pre-approval because your loan is extremely bad (an unloaded bankruptcy, by the way, is an immediate approval), and you have to go through an online clearing house like cars.com, do not despair. Continue to follow my previous steps and advice and negotiate and insist on a car fax report.
If you decide to buy a car and go to the tax office to sign the papers, I want everyone to know that you don’t have to buy products to get the loan. If someone in Finance tells you that you need to buy a guarantee and a credit life to get the loan, it’s a bold lie. Why would a financial manager do that? Because they also work on behalf of the company. Surprised? Don’t be it. That’s the way traders set up financial offices from the very beginning, when they realized how much money could be made. The financial manager makes money from the price he offers you, the guarantee he sells you, the gap insurance, and the credit life and disability you buy. This is how they earn their living.
However, I’m not saying that any of these products are bad. I believe in extended guarantees. I’m just telling you to shop first. If you find a cheap warranty, check the company and make sure they give the merchant a credit card over the phone immediately if repairs are needed in any state. All in all, I will say that this manufacturer’s warranty is always better than an aftermarket warranty. Always. Just negotiate about it if you want it.
The only reason you don’t want gap insurance would be if you literally paid cash for the car. Otherwise, the gap is cheap (should sell for $495) and pays the part that the insurance doesn’t pay when it’s summed up. Think of what I said about the book that falls on a car every month. It will never be worth what you owe unless you put down a lot of money at the time of purchase.
Credit life and disability insurance is a personal matter. If you have life insurance, it can be used to pay off the car in case of your death. If you’re single, why do you need Credit Life? The only advantage would be that if you are married to a family, the payout time will be shortened. In this situation, your spouse would not lose the car.
The occupational disability insurance pays for a certain period of time. It is not paid out for the entire creditworthiness. It also has a specified start date from the time you are disabled. It doesn’t start immediately.
This is a long article, but the core of it is this: Do your homework at home first. Then get approved online. Then shop on Sunday. Then get your car and negotiate everything. It will be the easiest car buying experience you’ve ever had.
Regardless of your credit situation, if you follow my steps, you will have a car in no time and you will be an educated and informed customer during the process. Good luck!
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Wendy is now a financial analyst and writer. Wendy has been writing about finance and personal finance since she was a sophomore in high school. She has also been writing for several online publications and published in The Huffington Post, and Forbes Woman.
Wendy is a credentialed financial analyst and has experience working with financial institutions and businesses. Wendy is also a certified financial planner. When Wendy's not writing, she enjoys tending to her many plants, watching TV, and spending time with her family.
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