So you finally have that job you applied for, got the bonus or raise you have been waiting on or paid off your heavy amount of debt. Whatever the reason is you have extra money in your pocket and the day you have been waiting for is here. When you are ready to buy yourself a new car and don't be mistaken you don't want any new car you want a new luxury car that is just right for you. There is nothing that is going to stand in the way of you and your new fancy car that you have been dreaming about, except for that poor or in some cases very bad credit. Fear not weary credit consumer I have been where you are and escaped that situation with a master plan in hand
that I am going to share with you.
The closer you get to purchasing that shiny new auto you are perplexed by more unanswered auto purchasing questions like how much money should I put down or if I even should, will I need a co-signer and what if I can't get a co-signer and the more financial savvy of are often thinking should I get financing before I start shopping or let the dealership handle the financing and just cross my fingers for some good luck from the credit goods. Its time to uncross your fingers and open your eyes and read this plan to get you in the driver seat of your new car A.S.A.P because you can not wait another day until you are engulfed in that intoxicating new car smell.
Deciding the amount of your down payment can make a big difference in your car payment and amount of depreciation you can expect and how long that depreciation will last before you are back into positive equity. Financially speaking when you buy a new car you want to put about 20% down which will be $6,000 for a $30,000 dollar car or $8,000 for a $40,000 price tag. Don't let the 8k down on a 40k car scare you, because most really nice cars are in the low to mid 30's (e.g. Cadillac CTS & Lexus ES 350). Always keep in mind that when you are purchasing a new car on your own with less than quality credit your down payment is the strongest weapon in your. To get a close to accurate estimate on what your new car payment would be you can use online calculators provided by auto lenders for a pretty close estimate. I found a pretty good calculator on MyAutoLoan.com just go to the resource tools on the left side of their page. Of course when all else fails internet, internet, internet in the age of technology and information not only does someone know the answer to your question, someone is also out there willing and ready to share it with you at no cost.
Alright you know the amount you want to use as a down payment and you are at that dealership picking out the color car you like. You are ready and just minutes away from putting your new car on the road and then here comes the credit questions. First off in my opinion when a sales person or anyone at a dealership queries you on your credit & your score before that time has come is inappropriate. When they pull your credit and have it right in front of them all questions will be answered without meaningless assumptions. You should never discuss your credit woes with a car dealership or its associates before the time comes, it will just add more aggravation and discouragement to your current situation and give the sales person an opportunity to pre-judge you based on your assumptive credit. If the credit question comes up you should simply answer "I'm not sure, but I am not concerned with that right now" then refer back to your vehicle of interest, this is a perfectly honest answer to the question regarding your credit. Your credit report can change on a day to day basis, so unless you checked your report minutes before that question was asked your assumption on your credit score or report is more than likely incorrect. I once applied for an auto loan under the assumption my score was around 588 which is nothing to brag about, and then found out after my application my score was 677 and I had just checked my credit report that week. Regardless if credit questions continue to surface just remind your sales person that you have not yet decided to buy there and not sure if you will until you get all the information you are seeking on your vehicle of choice.
When applying for a loan like I said earlier your down payment is your biggest strength, the idea is the more risk you are willing to take off of the bank the more comfortable they are extending finance offers to you. So you picked out your car and completed the credit application and the finance rep is back with your paperwork. The first question he asks you before he even sits down is "Do you have a co-signer" yes that phrase annoys me to no end as well. In my experience I always say no for two reasons. First reason is that the co-signer you obtained prior to your car shopping saga has gotten cold feet or has had an unforeseen issue arise that effects their ability to help up you out, so while you are there saying yes your co-signer might be saying no now for whatever reason. The second reason is that finance managers often just pull your credit and look at it and make there own judgment, while they do have a certain amount of training and experience with credit scores and financing please keep in mind that they are not the bank. I have had more than 2 occasions where the dealership sold me a car or SUV and quoted me an interest rate that the back came back around and rejected. Luckily with me the banks always lowered the interest rates instead of raising it. So after you burst the finance manager's co-signer bubble and he submits your application and you are either declined or approved there are more actions left to take.
If you are approved and the interest & monthly payments seem acceptable to you compared to your research that you have done regarding bad credit auto loans prior to showing up at the dealership then by all means accept their offer and take your dream on 4 wheels home. There are a few things you need to keep in mind when accepting special financing at a dealership. One is that your interest is going to be higher than average because of your credit situation at the time, but interest rates are governed by most states so you can't be charged just any exuberantly high rate. When you are offered add on items like extended warranties, dent coverage and tire repair keep in mind that while that is your dream car now, 2 years down the road it may not be so don't overload your payment with extra warranties and various service plans you don't need. In my opinion the idea is to keep that dream car for 2 years then buy a new one with your improved credit score. Of course you could refinance, but unless you shorten the term on your refinance loan which will result in higher monthly payments for the duration of your loan period, you will pay even more for your car once it is refinanced for lower payments at a longer term and no dream should cost that much.
In my experience it has always been better just to buy a new car. For starters you get a new car and because of your good down payment you are not upside down and finally your new improved credit made possible by the prior car makes you eligible for lower interest rate auto loans possibly even a 0% interest auto loan. So with that said I usually only recommend adding on gap insurance. Gap Insurance will protect you by paying off the remainder of your auto loan that your auto insurance does not cover in the event of a total loss. If you must purchase extras choose them wisely and ask yourself will you need it over the next 2 and half years or will it be just increasing your loan amount which will increase your risk of being upside down if you decide to purchase a new car in 2 years time.
Now in the event you are declined there is more information for you to obtain. Most banks do not just decline you for an auto loan without a response. Truth is auto loans are easier to get then most credit cards. I financed 3 new cars before I ever got my first credit card hence my point, but this is not always the case. Usually when a bank declines a new auto loan application there is a response like "Will only finance 70% of loan" or whatever amount the bank determines they will finance. This information is useful to you because it lets you know how much you should increase your down payment to or if you should consider other dream cars you have in mind that are closer to 70% or whatever percentage the auto loan company offers to finance.
Either way at this point it is time to go home and research bad credit auto loans. The best thing to do is find a website that compares auto loan companies based on special financing or compare different features loan companies may offer to consumers with less then perfect credit. There is a good comparison of auto loan lenders on New Street Models you can use. The lenders on that site work with several financial institutions that specialize in poor or bad credit auto loans so if you do not fit their credit criteria they will offer you a loan from a bank that you do match up with. This type of auto loan shopping will increase your chance of getting a good special financing interest rate and also increases your rate of approval greatly.
One of the best things to do is get your credit report and determine if you are qualified as a special finance consumer. If you credit score is in the 500's or lower it is safe to assume you should seek special financing. If you are not considered special financing the tip I am going to give you right now is just as relevant if not more. Shop auto loans online!!!
Dealerships only work with a certain pool of financing companies and you can access more car loan lenders online. The best reason to shop for auto loans online is the possibility of lower interest rates, 0% interest rates and finding loans that have no extra fees that are charged to consumers for using special financing. Some auto loan companies offer special programs like interest free payment deferment, payment protection if you lose your job or some other type of catastrophic financial event and special finance programs for military or student consumers. You can find auto loan companies with these type of benefits on New Street Models as well.
Source: http://www.goarticles.com/cgi-bin/showa.cgi?C=901044
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