The Simple Money Guide to Car Buying & Car Finance (The Simple Money Guides Book 5)

How to Finance an Auto Purchase

Contents:

  • Best Bad Credit Car Loans of 2018
  • Understanding How Your Bad Credit Affects Your Car Loan
  • What's next?
  • The Simple Dollar’s Picks for Best Bad Credit Auto Loans

    • Here are some things to keep in mind as you make your purchase:.

    Any little bit extra tacked on to what you were planning to pay could end up costing a lot in the end as it will grow exponentially along with those interest payments, especially with the higher rates of a bad credit car loan. You went through the work of making your budget.

    If the vehicle you need is out of your price range, do what you can to get it in your range. Remember that all car prices are negotiable, both new and used. Unless you are at a no-haggle lot, the price is always up for negotiation. Recognizing a salesperson would rather make something than nothing is your best friend when it comes to negotiating. When shopping for a car always search for comparables in different lots nearby or afar.

    Bringing your research to the dealership showing the same vehicle for a substantially lower price can force their hand to lower the price for you. Any little bit now can save you a lot in the long run. Most likely, these were not included in the price quoted. If you agree to any of them, the cost will be added onto the previously-agreed cost of the car, which means it raises the amount of your financing.

    And because of the higher interest rates associated with that bad-credit auto loan, those products or services could significantly increase the cost of your monthly payments.

    Best Bad Credit Car Loans of 2018

    Know the value of these services and whether they fit into your original budget before agreeing to any of them. You know your financial situation and your needs better than anyone. And at this point, you should have done your research.

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    If you are unsure of something or have any questions, ask. Once you sign the contract on the auto loan, you are legally obligated to it. Just as important as reading the auto loan contract before signing it is keeping a copy after. Make sure to get your copy, with all signatures and details filled in, before leaving the dealership. After you do obtain your copy, make sure to keep it in a safe place in the event that you need to refer to it in the future. Setting up automatic payments is the best way to ensure that you pay your auto loan on time, and paying more than the minimum payment will help to decrease your total interest in the long run.

    Contact your lender as soon as you think you might be late with a payment. And in some states, they can repossess without ever having to go to court.

    Understanding How Your Bad Credit Affects Your Car Loan

    Be sure to check out credit unions in particular. And if you have a long-standing relationship with your own bank, they may have a better idea of your ability to repay a loan than other lenders. If your credit is poor, you may not have the luxury of looking for one specific make of car. Some unscrupulous car dealers try to squeeze more money out of buyers they sense are uninformed, desperate, or both. The best guard against this is to educate yourself. There are dozens of car-buying scams out there, but here are a few of the most common you should watch out for when you have bad credit.

    You may think you have closed on a loan — until the dealer calls days or weeks later to tell you your financing fell through. Your first line of defense against yo-yo loans is getting pre-approved before you go to the dealer.

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    Refuse to take the car until you see proof that your financing has been approved. Your dealer may pressure you to get a co-signer, saying you can qualify for a much lower interest rate on your loan and improve your own credit score if your co-signer has a great credit history. Some dealers may take this high-pressure tactic and make it a scam by confusing you and your co-signer during loan paperwork. You buy the car and it breaks down almost immediately, or you later find out that it was wrecked or flooded when servicing it or running the report you should have seen before buying.

    In theory, this should smooth the car-buying process — you already have financing. Subprime auto loans are auto loans designed for borrowers with lower credit scores, lower incomes, or shorter credit histories. For the most part, subprime auto loans mirror prime auto loans. But subprime loans will often come with double-digit interest rates and higher origination fees. Subprime lenders may also charge high prepayment penalties — costing borrowers more to pay off their loan early. Subprime auto loans, like most auto loans, are secured loans. A secured car loan is backed using your vehicle as collateral.

    If you are unable to repay your loan, the lender can repossess your car. This does not mean your loan is settled. You may still have to pay the balance of the loan, even though your car has been repossessed. And subprime auto loans are a much better option than auto title loans. Interest rates and origination fees will vary by lender. Even though your credit score may be on the lower side, lenders will still compete for your business if you prove your ability to repay.

    What's next?

    Buying a used car will save you bundles of cash if done properly, follow these tips to beat the used car salesman at his Also see our MSE car finance guides. Our guide to buying a used car includes how to do an inspection, a test drive, and Follow our simple steps so you don't end up with a lemon. Red Book will guide you on the value of cars according to their year and model. buying and selling used cars, including how to make sure there's no money owing on the car.

    Pre-owned is usually best. Most importantly, never buy more car than you need regardless of its age or mileage. Pay more if and when you can.

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    You should at least be meeting your minimum payments. Repaying even a subprime auto loan can help rebuild your credit score, setting you up for a stronger financial future. Auto title loans also known as car title loans are small to large secured loans that borrow against the value of your vehicle. And they often come with APRs in the triple digits. But auto title loans are unique because they can only be secured by your vehicle.

    If you choose to refinance, try to do so with unsecured loans or monthly payments. Unsecured loans may be more difficult to come by with bad credit, but monthly payments may make financing easier. Also, lenders may be more willing to work with you if you approach them as soon as possible. Private party auto loans provide financing when you buy a car from a private seller. Purchasing a vehicle through a private party has some benefits, such as not having to worry about dealership fees.

    However, there are also some risks that come with private party car purchases. Private parties are not bound to the same laws as professional dealerships. Before you go to a lender, be sure to gather as much information about the car as you can. That includes mileage, accident history, age, and more.

    If possible, try to have an inspector take a look at the car before approaching a lender. If you have shaky credit and do get a subprime loan, look at it as an opportunity to improve your credit score by making consistent, on-time payments. The lenders I profiled above are worth checking out, but remember not to overlook your existing bank and local credit unions.

    We also have more help to offer consumers with bad credit. If you need a loan for reasons other than car-buying, check out our guide to the Best Bad Credit Loans. Finally, if your bad credit is symptomatic of deeper debt problems, you may also want to check out our series on debt management: Automobile Credit and Debt Loans. The information in our reviews could be different from what you find when visiting a financial institution, service provider or a specific product's website.

    All products are presented without warranty. Reasons to Sign up Reasons to Sign up. Great if you want to keep your options open. Everybody loves that new car smell. But before you sign on the dotted line, be sure you take these steps….

    The Simple Dollar’s Picks for Best Bad Credit Auto Loans

    There are really only two ways for you to buy a car: They do a great job parsing the new models every year when they come out. Figure out how big a loan you should get. Get the best of The Simple Dollar, right in your inbox. We adhere to strict standards of editorial integrity. Lenders charge a higher interest rate to those with lower credit scores to offset their high default rates. You know your personal transportation needs more than anyone else.

    You can go to your credit union, online bank or a traditional bank and prequalify for a car loan or apply online. The annual April auto issue from Consumer Reports has a list of recommended new car buys. Next, use the Internet to find out the dealer cost of the vehicle and the options you want. How to buy a used car in Websites such as CarsDirect. Costco has a car-buying program that moved , vehicles last year alone with pricing that has already been negotiated.

    Another relatively easy way to buy a car involves emailing the Internet department at a dealership and negotiating by email. Make sure you always ask for a quote that includes all the junk fees a dealer may have.