You may have been late on a few bills, or life quite literally handed you lemons, and it all seems irrelevant now, until you go to purchase a new car. The only thing stopping you is a stellar credit history and the lack of funds. What’s a desperate person to do? While it may seem appealing to purchase a car from those on-the-corner-lots, the follow-up maintenance and repairs may be more expensive in the long run.
Is purchasing a new vehicle with bad credit feasibly possible? Yes, but only if you do your homework first. Of course, signing for a new car won’t immediately grant you top-notch credit status, but it will re-establish your credit over time if you’re diligent on your payments. So how do you go about the process? You need to apply for and take out a loan. While the ‘sketchy ’dealership on the corner may be one alternative, beware that not all dealerships will report to the credit bureaus (which is what you need to re-establish your credit). It’s possible to purchase a new car with poor credit, but you have to know how to prepare and what to look for.
A lender may decide to finance a new car for a number of reasons. The lender understands the new car has more value and can use this as a collateral if the buyer fails to keep up on their payments. The lender also has an almost-guarantee the buyer will keep up on the payments. The lack of extensive repairs and maintenance can’t be used as an excuse not to make payments on time. The dealership wins because they’re forging a potential relationship for the future. A sale on a new car won’t yield much profit for the dealership, but several referrals to family and friends will. The sales-to-profit ratios also come when customers come in to have their cars inspected and serviced for routine maintenance. Even further down the line, those customers may reappear when they’re ready to trade their car in for a newer car. The dealership sells the old cars as a used car, and if the vehicles were well maintained and taken care of, they can make a small profit.
If you have poor credit but want to purchase a new vehicle, you need begin preparing well in advance. To begin, you need to obtain a copy of your credit report to get an idea of what the lender will see. Obtain your credit report three months before you plan to make a purchase, so you can check for and eliminate any outstanding or false items. You can obtain a copy of your credit report from several online sources, often free of charge. The report will collect the data from Experian, Equifax, and TransUnion. Note: You can only obtain one free copy each year. Obtaining your actual credit score can be costly, but the report will give you a basic idea of where you may fall on the credit score spectrum. Experian measures subprime credit as 619 and below on their own scales. After you’ve obtained your free credit report, examine the section where it reports negative items. These negative items are usually items from collection or fines that you may have paid in a court case. Instead of looking at them in a negative manner, use them to determine areas you can improve on.
FIND A LENDER AND DEALERSHIP
Unfortunately, due to your poor credit, you’ll be paying a high interest rate. Ideally, you’ll get approval from multiple lenders so you can choose the best interest rate possible. Next, find a dealership who will work with you. Hint: Pay attention to the radio for any dealerships that will finance people with poor credit. Avoid the corner dealerships, which usually deal only in used cars. Some dealerships have websites where you can view inventory and fill out a credit application. Try checking the site for your dealership of choice. Don’t forget to check your bank or credit union. They may be willing to finance you since you have already established a financial relationship with them. They may also offer lower rates on your loan.
BRING PROOF YOU’RE A GOOD FINANCIAL RISK
When you’re ready to go into the dealership, bring proof that you’re a good financial risk. You’ll need to bring a few pieces of paperwork with you. They are:
- Your most recent pay stub within a 30-day limit.
- A utility bill (proves where you live).
- Your driver’s license
- Three references who would put in a good word for you.
- These documents will enable a dealership to determine your trustworthiness as an applicant.
STAY ON BUDGET
Even if you’ve been granted the ability to purchase a family SUV for $22,000, it doesn’t mean you should use the full amount of the approved loan. Think about your basic needs rather than your would-like-to-haves. Providing you’ve done your homework well, you’ve not only walked away with a new car; but you’ve taken steps to repair your credit through an achievable means!