There Are a Bunch of Things You Shouldn't Do if You Are Buying a Car With Bad Credit

people with bad credit can mean extra dollar signs for unscrupulous car dealer staff

There Are a Bunch of Things You Shouldn't Do if You Are Buying a Car With Bad Credit
Image: NCCC
September 26, 2018

We know that not everyone has great credit. Some of us even have really bad credit. If you are one of the unlucky people with bad credit and you're looking for a car, there are some things you should never do.

Verbal Promises are a dime a dozen and disappear in a flash

Never under any circumstances rely on verbal promises as part of the deal. Verbal agreements and handshakes may have worked in the 1950s, but they don't fly today. Not all sales staff are honest. Some will lie to you about anything in order to get you to sign the deal, whether it be about a particular vehicle option or the sales terms on the car. If you have bad credit and the sales staff knows it, they may be tempted to fib about financing terms to get you to accept terms that are better for them and worse for you.

Don't drive away in your new car with financing up in the air

Dealers will often allow you to leave with a car knowing that the contract isn't final, often telling you that you are signing a contract that is subject to approval rather than a binding agreement. This is done to get you to fall in love with your new car before you get the phone call a day, week or month later telling you that your financing wasn't approved. You can then get suckered into accepting higher and less favorable financing terms in order to make more money for the dealer.

Don't fall for yo-yo auto scams

Obviously, dealerships are not in the business of lending money and they will tell you that your financing fell through and that you must return the car. If a dealership ever calls you back and says that you must return a car and you have a signed legally binding contract, stop right there! That's a yo-yo auto scam. Consult an attorney and the North Carolina Attorney General's Office for legal device. In almost all cases, the dealerships must own up and fork over large sums of money for the violations of the contract. A dealership can have you bring a car back if your contract clearly states that your financing is not finalized and that the contract depends upon the ability of the dealer to secure financing for you.

Don't walk into the dealership blind

Don't walk into the dealership blind. If you walk into a dealership without knowing the roundabout rate for your type of credit, you can be taken for a lot of money. If the average rate for your type of credit is 10% and you don't know it, the dealership personnel will hone in on you like a pack of dogs. They will manage to convince you that you must accept an interest rate much higher than what you are truly entitled. It is often best to go into these negotiations with a blank loan check in-hand or with preapprovals where the financing terms are known to you.

Avoid Precalculated Interest Charges

Avoid any type of loan in which the interest is precalculated. Unfortunately, those of us with bad credit usually get a loan with precalculated interest. In these types of loans, payments go solely for interest for as much as half or even the entire life of the loan. If you try to pay off the loan or refinance, you might be shocked to see that the loan balance has not gone down any or has even increased.

Decline loans with prepayment penalties

If your credit is really bad and you need to accept a loan that includes prepayment penalties, be prepared. If you pay off the loan early or refinance you might face an additional charge. Know ahead of time what these charges are so that you don't have any surprises when you pay off the loan. The charges might be small or they might be quite large.

don't get a line of people who will cosign your loan

Dealer staff will hustle and bustle to get you approved if you have the worst possible credit. If dealer staff are pressuring you to start naming anyone from your parent or spouse to distant relatives as cosigners, walk away. If you truly need cosigners, your credit situation might be much worse than you think.

the tricks of the sale: how to buy a new car without getting taken

We have a separate article about buying cars that you might find interesting. Check it out if you're in the market for a new car, whether or not you have bad credit. It tells all about some of the common tricks used by car dealers to make you spend more money.

check out your credit unions for great financing

In any case, we recommend that all consumers obtain their financing through credit unions. All NCCC members are eligible to join several credit unions in North Carolina and some of them have their own car buying services. These car buying services are usually free and can take the stress out of buying a car. The credit union will find the car you want, negotiate the price for you and help you secure financing. It really could be a lifesaver, especially if you think you might fall for some of the gimmicks.