Are you tired of hearing the word 'No' when it comes to a car loan? I set up 'How to buy a car with bad credit' specifically so that you could hear the words 'yes'. Who am I, you ask?
First of all, all lenders now purchase deals based on what is called a beacon score, which is the same as your credit score. There are three credit bureaus that make up the package. Each lender will choose whichever credit bureau(s) they prefer when looking at your credit or a combination of bureaus.
I highly advise everyone to have all three credit bureaus pulled when checking your credit and to pay for the credit score. If you only look at one bureau, you're only seeing part of the whole picture.
With the exception of a few minor things, beacon score will play a large part in your approval. Staying within your financial means is another, so be realistic. If you make $2500 per month and have $1200 going out, don't walk in all high-and-mighty and tell the Finance Manager that you will only have an Expedition or nothing. You'll end up with nothing.
In order to effectively use auto bad credit financing, you are going to have to know what your credit looks like and what your credit score actually is. Otherwise, you are working in the dark. Pay for the credit score or it's just almost useless. With the credit score, you will know whether or not you qualify for a lender such as Ford. Also, the higher the score, the lower the interest rate. Got it? With an auto bad credit loan, the higher the beacon score, the better.
Let me explain websites like cars.com and the such: They collect applications for car loans online. They then have a network of dealerships that PAY them for the leads. These are generally dealerships that have departments that specialize in getting you financed, regardless of your credit. 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 than usual credit score, a current repo or just plain, all-around bad credit, this might be the way to go. If your credit is really that bad, remember that you are going to need some cash or a paid-for trade in that s actually worth something.
O.K., now for the step-by-step system that I promised. First, take control of
your car deal! You need to be in the driver s seat, if at all possible. Go
online and run a copy of a tri-merge, which is all three credit bureaus, plus
pay for your credit score. You can get a FREE copy of your credit report once
per year HERE: http://www.annualcreditreport.com
This is the new Federal law that actually entitles you to receive a FREE copy of your credit bureau once per year and with some other exceptions. This is not a credit monitoring site. You have to run each bureau separately; Experian, Equifax and TransUnion. Then, you have to pay for the credit score.
So as to hold down on confusion, here s the scoop: Each credit score for each separate bureau will be different. That s why a Tri-Merge is called what it is called. You can run a specific bureau called a Tri-Merge from one company (there are many-just do a Google search) and you actually get one bureau (it s actually all three combined but the credit score is also one credit score). It s more expensive and generally runs around $34.00 but it just depends on your preference.
Now, with your credit score in hand and a copy(s) of your credit bureau, look at your credit. Do you have anything strange on there that is not yours? If so, it s time to fix it. You should review your credit bureau at least every 6 months to a year. Plus, if your identity has been stolen, you will know quickly. P.S. you can also have a liner placed on the bottom of your bureau that simply states Do not extend any credit on my behalf without contacting me first. Work # (111)222-3333 Home#(222)333-4444 Cell# (333)444-5555. Call or write the credit bureaus and request that this is done. You can now do this online for free. Again, do a Google search for all three bureaus listed above.
How do you fix your credit, you ask? I give away a totally FREE book that I wrote on the subject simply for the asking. Email me with Free Credit Repair Book in the headline and I ll email it to you.
Next in line: Know what you want to buy BEFORE you even go out shopping! Let me make this very clear. Car dealer s jobs are to sell you a car on your very first visit. A salesman/woman and their sales manager believe that if you walk into their dealership and do not leave with a car, you will never come back again. They are going to hammer on you until they either A) Make you mad and you get up and leave or B) Sell you a car. It s the nature of the beast. Accept it ahead of time.
What do you want to buy? Where can you get unbiased information on the auto? Again, Google for Kelley Blue Book or NADA and you can get cost, warranty repairs, recalls, and information on problems and tons of info beforehand. Limit your shopping to three models. Keep it simple. Those will be the ones that you will shop for.
Can you afford the car? You may think you can afford the car, but the bank may think otherwise! I have seen this so many times in my career. Automobile economics 101: Take your gross income (what you make per year BEFORE Uncle Sam taxes you) and remember, this income needs to be provable-tax returns, check stubs with taxes taken out 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 that you actually paid taxes on. Being self-employed can be tough. You may need to combine a spouse s income if you are self-employed.
In this case, your disposable leftover income is $1090.00. 20% of that would be $1060.00. Whoa! Let me be the first to inform you that you are NOT getting a car payment of $1060.00! Why? Well, you only have $1090.00 left over for starters. Let s be realistic here. Most lenders will slice that in half which will equal $530.00. Your payment call should be around that figure, give or take a few dollars.
If your beacon (credit score) is in the 400 or lower range, you will need to figure your interest rate on a new car at 21% (state maximums differ-it could be 18%). If you are looking at a used car, figure on 33%. If your beacon score is in the low 500 range, figure your new car loan as you would for the above-mentioned 400 beacon. If your beacon score is in the mid to high 500-range, figure a new car at 18% and a used car at 27%. If you have a beacon of 600 to 649, figure a new car at 16% and a used car at 20%. If you have a beacon score of 650 to 699, figure a new car rate at 12% and a used car rate at 16%. I may be hitting too high on a few of these, but I live in a state that has the highest rates in the nation. Better safe than sorry.
Get Pre-Approved BEFORE you start shopping. This is the easy part, in a way. Remember I told you at the beginning of this article to take charge of your car deal instead of letting the dealer lead you by the hand. It all boils down to financing. If you can walk in with a check in your hand, you are in control. I will recommend a few companies that are reputable, have a proven track record in sub prime loans and all mail the check to you at home. You then go into a dealership and pick out 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 an instant approval or one really quickly. When you are approved, they mail the contract to you and then the check. It s that easy.
On the final decision for the car-work smart here. There is nothing more valuable than time and nothing more rewarding than piece of mind. Please don t go running from dealership to dealership. Wrong. Pick out the 3 models of auto that you can afford. If you are looking for a program car (rental), call dealerships and inquire as to whether or not they have any. If you want a new, ask other people that are driving that model where they bought theirs and would they purchase there again. If you start hearing a lot of I ll never buy from them again , move on. Something is wrong. Your new car is only as good as the service you will get AFTER the sale.
Negotiating - Most people hate this. I have only met 2 people in 14 years that
enjoyed it; they were both retired and had nothing better to do. One did it for
the fun of it and never even bought if you agreed to his price. Don t waste
other people s time. If you don t like the car, don t negotiate on it. When you
do find a car that you would own, tell the salesman you d buy it right then if
the price was right and if they provided you with a Car Fax. The keyword 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 will have dealer cost.
What s the difference? Most dealers (with the exception of the West coast) will use NADA as their guide.
Here's what's transpired so far:
Before you ever drove the car, you went by the dealership on Sunday, when there are no salespeople and you got the Vin# of the car and the equipment, year model and had a good look at it. You already know if you like the car when you drive it, that you would buy it. The list price is in your pre-approved check category, to boot. You ve already gone online and gotten wholesale, trade-in and retail values for the car.
When you do decide on a car and go into the Finance Office to sign the papers, I would like for everyone to know that you do not have to purchase any products in order to get the loan. If anyone in Finance tells you that you have to purchase a warranty and credit life to get the loan, which is a bold-faced lie. Why would a Finance Manager do that? Because they work on commission, also. Surprised? Don t be. That s the way dealers set up Finance Offices from the start when they realized how much money could be made. The Finance Manager makes money off of the rate they quote you, the warranty they sell you, the gap insurance and the credit life and disability you buy. That s how they make a living.
I m not saying that any of these products are bad, though. I believe in extended warranties. I m just telling you to shop around first. If you find a cheap warranty, check out the company and make sure they will give the dealer a credit card over the phone immediately when in need of repairs in any state. All in all, I will say this-A manufacturers warranty is always better than an after-market warranty. Always. Just negotiate on it if you want it.
The only reason why you would not want gap insurance would be if you literally paid cash for the car. Otherwise, gap is cheap (should retail around $495) and will pay the portion that insurance won t pay if it s totaled. Just remember what I said about the book dropping 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 are a personal matter. If you have a life insurance policy, it can be used to pay off the car in the event of your death. If you are single, why do you need Credit Life? The only benefit would be if you are married with a family, it cuts down the payout time. In this situation, your spouse would not lose the car.
Disability Insurance pays out for a specified amount of time. It will not pay out for the entirety of the loan. It also has a specified start date from the time you are disabled. It doesn t just kick in immediately.
This is a lengthy article, but the gist of it is this: do your homework at home first. Then get approved online. Then shop on Sunday. Then go get your car and negotiate on everything. It will be the easiest car-buying experience you have ever had.
Regardless of your credit situation, if you follow my steps, you ll have a car in no time and you ll be an educated and informed customer during the process. Good luck!
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