How to Shop for Your Next New Car if You Have Poor Credit
You can find the right deal if you follow these guidelines
Buying a new car can be both fun and stressful. The notion of buying your next new car is exciting, but there's a lot to do, and that becomes more challenging when your credit is less than perfect. You've been trying to improve your credit score, but you need a car right away so you can do all the things you need to do to take car of your family. So, what can you do to get the right car at the right price when your credit is in need of repair?
New and Used Should Both be Considered
The depreciation on new cars can drop by 20% as soon as you drive it off the lot. That trend isn't as aggressive in subsequent years, but the first owner tends to take the biggest hit. The price of cars is crazier than ever, both new and used. Dealers are marking up new cars because of supply chain issues, and even used cars can cost more than new as a result. You have to shop around right now to figure out what works best for you.
Also, consider the fact that interest rates for loans are typically higher for used cars. If you have subprime credit when you apply for a loan, that application will get sent to subprime lenders for the best rate. Take the approval to your dealership where you want to buy, and go in knowing that your loan probably will not be approved for more than 60 months. Your monthly payment amount will definitely be affected.
Shop Around for the Right Subprime Auto Loan
Just like comparison shopping for any consumer good, don't just take the first loan you get. If you have bad credit, you have to shop around and be patient. You won't ruin your credit by applying for multiple loans because you generally have 30 days to shop without affecting your score long-term.
Don't expect the same low rates as those with good to excellent credit, so you should prepare yourself. But you also should not accept insanely high rates like 25% because that's like buying a car with a high-interest credit card. You'll get upside down faster than you can say, “repossession”. You don't need to finance at a dealership. Try credit unions, which are more lenient when it comes to poor credit car shoppers. You can also look at Buy-Here-Pay-Here dealers, as well as various subprime lenders on the web.
Consider Paying With Cash
The thought of purchasing your car with cash might sound totally outlandish, especially if you're struggling with finances. But if you don't need a car immediately, and you don't want to pay through the nose on a high interest rate for your new car, you should consider buying your car outright. Of course, you'll probably need to compromise on how new or fancy your next car will be since the idea of keeping your one-time cash payment as low as possible should be a priority. Instead of that 2019 Toyota Highlander Limited you were eyeing, you might have to drop down to a 2015 base model instead.
Paying in cash also means you won't have to shop around for an auto loan. Dealers want you to finance because they get a kickback from their lenders, but they won't ever turn down cash. You can avoid financing paperwork, as well, and you can cut down on the time you have to spend at the dealership when you're buying.