If you consider that the economy is still rather volatile and people can sometimes find themselves on the short end of the stick by falling behind on their credit card payments, is it still possible to buy a car on bad credit?
The short answer is “yes,” but this yes comes with a lot of conditions that will make purchasing a car a lot more work than if you had a good credit rating.
One thing to do before shopping for a car is to verify that your credit rating is correct. In some cases credit ratings can be inaccurate and show that your score is worse than it really is. If so, dispute your findings with the credit bureau; it is required by law that they investigate for any errors and correct them.
Get a Co-SignerIf your credit score is 620 or less it will be very difficult to get an auto dealer or bank to finance a car loan. But one way around this is to find someone to co-sign with you.
What this essentially is, is to have someone with a good credit rating, vouch for a person with bad credit and promise to pick up the payments in the event that they default on the loan. But virtually all finance experts say it is a very bad deal for anyone who co-signs.
First there are no benefits and only risk for the co-signer in the event the loan defaults. And if the co-signer is responsible for the balance, this may put an additional financial burden on them.
So if the only solution in buying a car is to get a close friend or relative to co-sign, keep in mind that this may jeopardize the relationship, and their credit rating if you can't keep up with the payments.
Watch Out For High InterestThe bad news about having a bad credit score is that in order to qualify for a loan, you’ll be getting monthly payment options that are way more expensive than people with good credit. This doesn’t seem fair but if you are aware of this, you may be able to avoid some problems.
Someone who has a good credit score can expect to pay about $488 a month over a 67-month schedule for a $29,000 car. That same car, sold to someone with bad credit, will increase to $650 a month over 67 months.
After everything is settled the good credit person will have paid about $32,000 including interest, while the bad credit score person pays an astonishing $43,000! In some situations, buying a car with bad credit is a very bad idea. In cases like this, public transportation may be a better solution, or renting a car for emergencies or occasional long distance traveling.
Don’t Get ScammedSometimes you’ll see dealer ads that promise to sell you a car even if you have bad credit. Be very careful about these car dealerships as they may scam you with a “yo-yo loan.”
Essentially, what this means is they’ll give you a good interest rate on the loan, only to call you back later and tell you that your loan has been sold to another financial institution, and you’ll need to pay a higher rate. If you refuse, you return the car but they’ll charge you a daily fee for the time the car was in your possession.
If this happens to you, call your local district attorney immediately and file a complaint.
The other scam is to offer you low monthly payments, but they hike up the interest on the loan or extend the time it takes to pay it off. In either case, this means more profits for the car dealership.
Basically, if your situation can possibly get by without having to buy a car with bad credit, try that option instead and try to improve your credit score over time.
Source:
U.S. News