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It may seem impossible to finance a vehicle when you have bad credit, but there are a few options available to you.
The average cost of vehicles has steadily been on the rise for the past two years. Kelly Blue Book estimated the price of vehicles increased 1.1 percent from 2012 to 2013, and expects a similar increase as the year progresses. People are also driving their vehicles for an average of 11.4 years, according to automotive information firm, R.L Polk & Co.
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If you are in the market for a car, there are two major issues you must address, the first is finding a lender that will allow you to finance a vehicle, the second is to ensure the car is in good condition and will provide reliable transportation for many years. Before you start browsing online or at a dealership, be sure you have enough money saved for a decent down payment. Saving for a large down payment is always your best shot at making an attempt to buy a car with bad credit.
After you have saved enough, follow these tips to ensure you make a wise investment.
Look for repossessed vehicles
Lenders such as credit unions lose money when they repossess a vehicle but do not finance it back to anyone. This is due to the fact that the more time they wait to sell or finance repossessed vehicles in their inventory, the more money they lose in the long run. Vehicles steadily lose value each passing month, which gives anyone with a repossessed vehicle great incentive to finance it to any willing borrower as soon as possible.
Lenders are more lenient when selling a repossessed vehicle, which could work to your advantage. Look around at local credit unions or with other vehicle lenders in your area to see if they offer repossessed vehicles for sale. Chances are they will allow you to finance a vehicle as long as you have steady income and can make the monthly payments.
Lenient car dealerships
Ever see the ads from private car dealerships that read “We Finance Anyone,” as you drive down the street? You may be skeptical to finance a vehicle at one of these locations, but they may be one of your only options. These places usually specialize in repossessed vehicles as well, and have
a broad inventory of vehicles for sale.
The catch is that you should expect a high interest rate on any vehicle you finance through a lenient dealership. The lower your credit, the higher interest rate you can expect. Interest rates can be as high as 20 percent for people with bad credit, and sometimes even higher depending on a buyer’s credit score.
High interest rate serves as protection to the lender in the event you default on the car loan. Other forms of protection are put into place for insurance purposes from the dealer, with some going as far as placing a satellite device on your vehicle to track you down and repossess the vehicle if you are late with payments or miss them all together.
The main issue surrounding these types of dealerships is it is difficult to determine if they are reliable. Check the web to find out more about a car dealership’s reputation and reliability. Also, gauge how well they treat you as a potential customer when you call or pay a visit to their lot in person. You may also consider warranty coverage options — it can give you piece of mind as you drive off the lot.
Large down payment is the best route
If you are serious about financing a vehicle, make a commitment to budget your money properly. Put aside at least a couple hundred dollars a month towards buying a vehicle. The higher the down payment you place on a vehicle, the more likely you can receive financing options. You could significantly lower your monthly payment amount and your APR by placing a high down payment. Remember, you are also going to pay for tax, title, and fee upon the initial purchase of your vehicle. Save enough money to cover these costs along with having a reasonable down payment to get the best financing options available.
Begin your search online to find dealers. Websites such as DriveTime or Autotrader can help connect you to lenders who specialize in bad credit. A search online via search engine should also provide you with local dealers that specialize in financing options for people with bad credit. Look around your local area to find places where you can begin your search to buy a car with bad credit.
Keep in mind, with most sites you find online, you are asked to call a phone number in order to find out more about financing with them.