If you have bad credit due to unemployment, illness or any other type of dramatic life change, you're probably thinking that you're out of luck when it comes to buying a used car. However, that is simply not the case. According to a recent report from Experian Automotive, more auto lenders are taking the plunge on offering loans to customers in the subprime risk tier, with those loans representing more than one in four new vehicle loans for the second quarter of 2012. Given these circumstances, now is perhaps the right time to look for an auto loan that not only fits your needs, but also your budget.
You Have Options
The last thing you should do is let a less-than-perfect credit history in the way of your chances of buying a solid vehicle. Keep in mind that while you might not be able to get the newest vehicle on the showroom floor for 0.9-percent APR, there are plenty of excellent options for you to utilize in order to get yourself behind the wheel of a decent vehicle.
- Work with the Loan Specialist. Depending on who you talk to, the loan specialist may be able to work with you on a case-by-case basis, especially if you've been making efforts towards restoring your credit history.
- Go With a Cosigner. Having your loan backed by a cosigner with an excellent credit history and stable income can increase your chances of obtaining a reasonable car loan.
- Save Your Money. The more money you are able to put down as a down payment, the smaller your overall monthly payments become.
- Buy Smart and Sensible. It may be easier to obtain a loan for an affordable compact or midsize sedan rather than something that is a bit more extravagant.
Being turned down for an auto loan due to having no established credit history, leaves one shaking his head. How in the world does anyone get that first loan if no lender is willing to take a chance? In many cases, a potential borrower with poor credit has a better chance at securing auto financing than the person with no credit. It doesn’t seem to make any sense. What is the key to unlocking the credit mystery and getting approved for a car loan? Buy here, pay here car loans seem to have been designed to provide a solution for the first-time car buyer.
Buy here, pay here car loans is just another way of saying “in-house financing”. It simply means that the auto dealer is also willing to finance the car loan eliminating a third party lender. Because the seller is absorbing the risk, he can take a chance on customers with bad credit history of none at all. The term “buy here pay here” was coined due to the terms of the loan. Traditionally, this type of financing required that weekly or bi-weekly payments be made in person to the dealer.
The interest rate will usually be higher than the low rates offered by third party lenders. Of course, that is quite irrelevant when third party lenders won’t extend credit to the first-time buyer anyway. The upside is the opportunity for the first-time borrower to purchase much needed transportation and build credit at the same time.
There is another advantage to shopping at car dealers who do their own financing. The cars they sell must be affordable, so they aren’t squeamish about giving satisfactory value for the trade-ins they have a ready market for. It is easy to start in a low value, inexpensive car and once a payment history is established that auto can be traded in on a better one.
If you have very bad credit, buy here-pay here lots might be one of your only options. Unlike traditional lots, buy here-pay here lots will start with looking at your credit history and income, and then tell you which options you can afford. You'll only be presented with the options that the finance manager at the lot has determined will work within your budget. The cars at a buy here-pay here lot tend to be older, because they offer more profit to the dealer and are also more affordable car loans to buyers with bad credit. Rather than making payments once a month, payments are made once a week or every other week. If you think you might need to purchase your next car from a buy here-pay here lot, here are some additional details you should be aware of.
Chose your buy here-pay here lot based on its location.
Some buy here-pay here lots will permit you to set up payments via automatic withdrawal. Others require payment to be made in person. If the lot you choose falls into the latter category, you'll want to consider the location of the lot in relation to your home or work. The last thing you want to do is burn a lot of gas every week driving back and forth to the lot to make payments.
What to bring with you.
It's a good idea to contact the buy here-pay here lot in advance to see what documentation they require from buyers. In general however you'll need to bring the following with you: a driver's license, proof of insurance, proof of income, and proof of residence. It can also be a good idea to bring references with you. Work-related references or references from past lenders are ideal.
Know the late payment policy.
Policies on missed or late payments very greatly among buy here-pay lots. Some lots permit a grace period, while others will repossess the car within a day or two of the payment being late. Other lots are more creative in their policies. One lot has timers installed in all of its cars. Each time a payment is made, the timer is reset. If a payment is missed and the timer hits zero, the engine will not start. The reason that the late payment policy is so strict for most buy here-pay here lots is because their customers generally tend to be folks with bad credit, who have not shown that they are able to be responsible with a loan.
As you can see, there's a lot to be aware of if you opt to acquire car loans from a buy here-pay here lot. But if you go into the process knowing what to expect, you may find that it's a good way to help rebuild your credit.