If you have not-so-stellar credit, the you may have to get financing for a new or used car through the dealership.
This isn't so bad, and you can still end up with a decent deal.
Hear me out and I'll explain why.
First, you'll have to accept the fact that you are going to be paying a high interest rate.
A bankruptcy may have your loan at a 10 - 16% interest rate.
So how can you save money with this scenario? Ideally, you'll be able to afford a down payment.
But even if you can't, just make sure the loan is not "front loaded.
" A front loaded loan has all the interest in the first several payments of the loan, so paying it off early is of no use.
So long as it's a "fixed rate" loan, you're fine.
Because now you can just make extra payments; you can 'double up' on your monthly payments and end up not much worse than if you got a low interest loan through your bank.
A word of caution here.
Don't fall victim to the following scam.
Most car dealers are honest, hard-working folks, but a few dealerships out there have given car dealers the reputation of, well, "car salesman.
" Here's how it works: Because they want to make the sale, they'll offer you a competitive interest rate.
After signing the papers, trading in your old car and driving home, you get a call from he dealership - a couple days or more later.
A clause in the contract you signed says the interest rate is based on "loan approval.
" So they inform you that the bank didn't approve your loan at the low interest rate.
But since you've gotten used to the car and it would be embarrassing to return it, you accept the higher payments.
If you are wondering why they would sell you the car at 5% APR if they knew you had bad credit, the simple reason is to sell the car.
Ideally, you could avoid any and all dealer car financing problems by getting your bank or other financial institution to approve a loan.
Even if you do have bad credit, go through your own bank first.
It's unlikely they will loan you money at any rate, but if they do, you're better off with a high interest rate loan from the bank than from the dealership.
For one thing, you'll be able to easily refinance this loan for a lower interest rate after a year.
But refinancing a bad credit car loan through the dealership could be asking for (more) trouble.
There is another 'scam' that corrupt dealerships have been known to pull on people who have bad credit.
And that is they will take a Factory-to-Consumer Rebate and apply it to the price of the car.
This makes them appear to you like they're doing you a favor by getting you a lower price on the car.
The reality is different, however: Because the Factory-to-Consumer Rebate is for YOU, so that you can apply it towards your down payment.
Don't let the dealer take this from you and use it as a negotiating tool on the car.
The Factory-to-Consumer Rebate is for you--to take as cash--or to apply it to your down payment.
And as always, remember that when you are negotiating with a car dealer - even the honest ones (which the large majority are) - remember to "haggle" (negotiate) the price of the car - NOT the monthly payments! Even if you are crawling to them for help because you have bad credit - such as a bankruptcy, don't let them get you to start talking monthly payments until you've already gotten the price of the car ironed out.
If you are asked how you will be paying for the car, answer, "I'm not sure yet.
" (You don't want them to know you will or will not be paying cash, financing it, or whatever until the price of the car has been negotiated.
)
This isn't so bad, and you can still end up with a decent deal.
Hear me out and I'll explain why.
First, you'll have to accept the fact that you are going to be paying a high interest rate.
A bankruptcy may have your loan at a 10 - 16% interest rate.
So how can you save money with this scenario? Ideally, you'll be able to afford a down payment.
But even if you can't, just make sure the loan is not "front loaded.
" A front loaded loan has all the interest in the first several payments of the loan, so paying it off early is of no use.
So long as it's a "fixed rate" loan, you're fine.
Because now you can just make extra payments; you can 'double up' on your monthly payments and end up not much worse than if you got a low interest loan through your bank.
A word of caution here.
Don't fall victim to the following scam.
Most car dealers are honest, hard-working folks, but a few dealerships out there have given car dealers the reputation of, well, "car salesman.
" Here's how it works: Because they want to make the sale, they'll offer you a competitive interest rate.
After signing the papers, trading in your old car and driving home, you get a call from he dealership - a couple days or more later.
A clause in the contract you signed says the interest rate is based on "loan approval.
" So they inform you that the bank didn't approve your loan at the low interest rate.
But since you've gotten used to the car and it would be embarrassing to return it, you accept the higher payments.
If you are wondering why they would sell you the car at 5% APR if they knew you had bad credit, the simple reason is to sell the car.
Ideally, you could avoid any and all dealer car financing problems by getting your bank or other financial institution to approve a loan.
Even if you do have bad credit, go through your own bank first.
It's unlikely they will loan you money at any rate, but if they do, you're better off with a high interest rate loan from the bank than from the dealership.
For one thing, you'll be able to easily refinance this loan for a lower interest rate after a year.
But refinancing a bad credit car loan through the dealership could be asking for (more) trouble.
There is another 'scam' that corrupt dealerships have been known to pull on people who have bad credit.
And that is they will take a Factory-to-Consumer Rebate and apply it to the price of the car.
This makes them appear to you like they're doing you a favor by getting you a lower price on the car.
The reality is different, however: Because the Factory-to-Consumer Rebate is for YOU, so that you can apply it towards your down payment.
Don't let the dealer take this from you and use it as a negotiating tool on the car.
The Factory-to-Consumer Rebate is for you--to take as cash--or to apply it to your down payment.
And as always, remember that when you are negotiating with a car dealer - even the honest ones (which the large majority are) - remember to "haggle" (negotiate) the price of the car - NOT the monthly payments! Even if you are crawling to them for help because you have bad credit - such as a bankruptcy, don't let them get you to start talking monthly payments until you've already gotten the price of the car ironed out.
If you are asked how you will be paying for the car, answer, "I'm not sure yet.
" (You don't want them to know you will or will not be paying cash, financing it, or whatever until the price of the car has been negotiated.
)
SHARE
