It's that time of year again! The year-end car sales are ramping up and the new models are rolling in!
Let's face it. Not everyone has great credit. Some of us even have bad credit. But there are a few things you absolutely should not do if you're buying a car with bad credit.
Always remember that you should never under any circumstances rely on verbal promises. Everyone is hustled by dealer finance managers who are able to make even the nastiest parts of the finest contract seem great. Finance managers can even convince you to start naming distant relatives as cosigners, talk you into useless add-ons and even magically make those promised rebates and down payments disappear in front of your eyes! Let's face it. It doesn't take a magic wand, only a smooth talk, a quick eraser and your desperation for approval.
Also in line with finances, don't ever leave the dealership until the financing terms are rock solid. If you have to, call for a ride. Don't ever leave the lot with the car if the financing is up in the air. Some dealers allow you to leave with a car knowing that the contract is not final. Often you are signing a contract that is subject to approval rather than a binding agreement. You then take the car home and you feel great about it until you get a phone call a day or two later saying that the financing was not approved. You then get suckered into coming back to the dealership in order to sign for a much higher interest rate than you originally expected. In some cases, dealerships assume a loan for you with the intention of selling it to another loan company. Often, another loan company will refuse to buy the loan for the terms you agreed to, forcing the dealership to be your lender. 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. This is called the yo-yo auto sale and it is illegal. 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! Consult an attorney 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.
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 where the financing terms are known to you.
Don't fall for the smooth talking salesman pressuring you for extended warranties, GAP insurance, life insurance policies, and the like. They are almost never worth what you pay and nearly all the money is profit. You are never legally required to purchase them in any circumstance despite what you might be told.
Never fall for smooth talking gimmicks where the finance manager tells you it will only cost an extra so many dollars per month and that you'll never notice it. Those small costs add up quickly over the life of the loan, and even more so once you factor in interest paid.
Avoid any type of loan in which the interest is pre-calculated. 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.
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. We understand if your credit situation requires that you accept these terms and we don't judge! We only want you to be ready.
We have a separate article on our website about buying cars that you might find interesting. Please 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.
In any case, NCCC recommends 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.