Bad Credit Car Loans : Are You In Need of One or Are You Just Padding the Dealers Pockets?
Financing is one thing, but financing for bad credit car loans is a different beast all together. Ever since credit was invented there has been poor credit. On the barter system even before the introduction of currency people have had issues with not being able to meet certain requirements.
So don't worry, you're not alone. What I am going to try and achieve with this section is to help get you out of the shadows of embarassment, because that is where the dishonest sub-prime lenders tend to lurk.
Everyone Gets Financed
You see the ads in the automotive section of your local newspaper, huge roadside signs at the dealerships and of course on the internet. There are big bucks in getting you approved, at the higher interest rates. Have you ever wondered about your credit worthiness? You did have that credit card back in college that got a little out of hand. You may not be one of these people, but the "Credit Doctors" prey on insecurities.
"No credit, Bad credit, Divorced? No problem". All dealerships have a bad credit car loan adviser. Many retailers and e-loan specialists act as if they are part of a public service, assisting the individuals who have had credit problems in the past. Here to help the everyday consumer, and of course making a great deal of profit off of them too.
Websites and dealerships have learned that most consumers who are even just concerned about their credit and may be fine for regular financing, tend not to argue about the vehicles price or the interest rate (APR) they're being charged. They're just happy to get financing.
Unfortunately, bad credit car loans commonly increase the total cost of ownership by many thousands of dollars, making it more difficult on those who may need help. Their debt load becomes to high to support other loans and trading the vehicle in before the loan is paid off becomes a very distant dream.
Just because a consumer has had some late payments, even missed some payments all together or have a lower household income does not automatically put them in the "bad credit car loan" category.
A Honda Civic with a sticker price of $10 000.00 can have a payment of $230.00 per month or less over 60 months including taxes and interest. That same Honda Civic for a sub prime borrower could have a payment as high as $345.00 which means an additional cost of $6900.00.
Would you gladly hand over more then six thousand dollars to someone for nothing in return. Of course not, but everyday hundreds of people do, most times without even knowing they did.
The more you worry about your credit the less you fight to save the money you are being asked to spend. In reality it should be the polar opposite. If you truly do have poor credit and need a bad credit car loan to buy the car you need,
fighting to save
every penny on the price tag and every percentage point of interest is exponentially needed.
Use true credit counsellors, not the dealership "credit doctors". Check your credit score with eqifax, experian or transunion or you can get your free annual report at www.annualcreditreport.com. That is the only free reporting system worth anything, in my opinion. Go to your local credit union your bank or a legitimate website and discuss your options.
Two different online credit unions are
www.cucentral.ca for Canada
www.dcu.org/index.html for the United States
Dealers for Bad Credit Car Loans Only
What could be worse then a credit specialist taking advantage of a concerned or lower income consumer. How about a whole dealership taking advantage of those individuals. You bet there are the "helpful" retailers that get you into a car even though you are having credit troubles.
For many years and in many towns and cities across North America there have been those places that hung out a shingle stating "buy here, pay here, everyone is approved.
Most of the original retailers that applied this type of financing to their lots were the stereotypical sleazy run down used car lots. No self respecting person would buy a car there, but desperate times call for desperate measures.
That is of course until the late 1980's and early 1990's when the big manufacturer chains and major lending institutions relized the profit potential in bad credit car loans.
The way in which most introduced themselves into this category within the automotive field was the creation of big clean stores with professional and "accommodating" websites which put you in contact with well dressed "helpful" credit counsellors who could "assist" those with "poor credit". Notice all of the quotation marks? They indicate a probable false term.
The websites are designed to push you towards the dealership which offers you tons of profit generating assistance, most of which sounds like jibberish. The well dressed staff are commonly just aggressive sales people with a calm smile who politely hammer away at the unsuspecting consumers, who may or may not even need a bad credit car loan. From the outside they were designed to look as if you had finally found an honest and reputable place to do business.
Looks can be deceiving. Although there are many institutions within the sub-prime market who do actually want to assist those in need of credit aid, most are only there for the sustantial profits. Most of the well-scrubbed crooks use these stores as a place to send their less desireable automobiles which have come in on trade.
A bad credit car loan dealerships whether large or small are commonly tied to a new car dealership. The relationship for transactions commonly follow this common path.
At the new car dealership a person brings in their 1999 Toyota Corolla and trades it in on a brand new Honda Accord. The dealership pays these people $1200.00 for it. The new car dealer sends the car over to "CleanCars4U" their bad credit car loan arm.
CleanCars puts a set of newer used tires on it to pass a safety, cost $110.00. They have the body shop fix the crack in the bumper for $180.00 and has the detailers clean it up to look "respectable" for $35.00.
Total cost to the dealership $1525.00 for the old Corolla, which then has a sticker put in its front window for $4500.00 or $2975.00 in profit on the car. The dealer then finances the Corolla for 24 months at $270.00 per month.
If the person financing pays that payment for the full 24 payments the dealer could make an additional $1499.00. Total profit gained over 24 months on a $1525 investment, $4474.00.
The mark up in most used cars is never more then 50%, however in bad credit car loans land it could quickly reach as high as 250%.
Dealers may quote risk factors such as non-payment for their reasoning to have such astounding mark-ups and interest rates. The truth is most subprime borrowers hold less risk (12% default). The dealers/lending institution only hold a small percentage of the true value of the loan amount which many times they require as a downpyment.
"$4500.00 plus taxes is the selling price sir and you can finance over 24 months if you put $1500.00 down no matter what your credit score." Where is the risk again? They only paid $1525.00 total and $25.00 doesn't seem like much of a risk to me.
On the other side of the coin the dealers also many times prefer people to make a few payments then default. Why? Reposession and lawsuits. Many unfortunate consumers who get taken by the worst of the worst have the car reposessed after only a few months, for a late payment, but are then sued for the full amount of the vehicle, $4500.00 plus taxes as per our example.
The reposessed vehicle then goes back to the dealership and gets cleaned up and put back on the lot, to be sold again for the same price. I heard of one unbelievable example where a $500.00 car was reposessed and sold for $7000.00 four times in twelve months. That means $28000.00 on a $500.00 investment in one year. Not bad. That was all thanks to bad credit car loans.
Where To Find Help
You may just be concerned with your credit score, you may have no credit or you could have a history of bad transactions. Any reason does not automatically put you in the "you don't deserve help and should be punished with exorbenant interest rates category".
Visit www.eqifax.com /.ca or www.experian.com to get your credit score. This is the first step to not being taken advantage of. Check your history, look for mistakes and if you have any have them corrected.
After you have dealt with your credit report go to a local non-profit credit counsellor, a credit union or your bank. Find out what interest rate you should be able to get with your credit score. If you like the rate apply for the loan, to be certain it can be put into effect.
If you are deciding a used car is the way you want to go, be sure to use www.carproof.com in Canada or www.carfax.com for the United States to be sure of any accidents or damage and any liens on the vehicle. These two services will cost about $30.00 but are well worth it.
Do all of these things before you even
pick the car
you want to pursue a purchase of. Do not go to the "Credit Doctors"
for their bad credit car loans (calculator link opens new window)
or even the car lots that specialize in them. That is the firt step in being taken for more money then you should be paying. Be proactive, do some research on your credit score and what interest rate you may qualify for before heading out to find the car you want to buy.
Use the calculator we have supplied to work various payments at home. In the end the bit of time and money it will cost you will most likely save you thousands of dollars and possibly add a couple of years to your life that could have been taken by the stress of blindly accepting the first bad credit car loan presented to you.