Do yourself a favor and save a ton of money by purchasing a slightly used car!
Buying new is just a mindless mistake. Your vehicle will lose up to 20% of its value as soon as you take it home from the dealership. This is followed by up to five years of 10% to 15% depreciation.
If you go for a certified pre-owned vehicle which is less than five years old, you will not have to pay full retail price. This means the initial depreciation does not affect you so much. You will be able to get a bigger percentage of your initial investment back if you sell the car in five years.
Buying a used car with a bad credit can be a sensible investment.
Yet, there are many things to consider both when getting a bad credit auto loan and when choosing the right vehicle for you.
Check out our 12 expert tips that will direct you to the best financed car purchase you can make!
1) Set a Budget
You should be figuring out how much you want to pay in total for the vehicle — and how much you can afford for monthly payments. Keep in mind your vehicle costs could increase if any maintenance or repair work comes up. It is always best to budget conservatively.
Do not forget to factor the cost of gas and insurance.
You should try to pay off the loan as fast as you can … so make sure any financing you get involved in does not have any fees for paying it off early.
2) Choose Your Car
Now you need to figure out which car you want to buy, or at least a short list of options to consider. Chances are you will be going for more economical vehicles. But if you do choose something more lavish, try to make sure you can pay off the vehicle early to avoid all the extra interest premiums.
After all, a bad credit loan can make for high interest payments — but the amount you dish out comes down to what you spend on the vehicle itself. With bad credit auto financing, you can really save a lot by cutting the purchase price by a few thousand.
So take the time to shop around …
- Check online classifieds,
- Check the Auto Trader website,
- Check on FaceBook sales groups, and,
- Check local dealerships for certified pre-owned vehicles.
If you cannot find what you want, do not be scared to shop out of state. While the cost of importing might be a drag, it could open the door to many opportunities. You might not even have to shop out of state; if you have not yet, look for good deals in nearby cities as well.
3) Determine the Vehicles’ Value
There will be a general price range on the used market for each vehicle by year and model. You can search around all the used listings to get an idea on what the market is like for the vehicles you want. You can also check the Kelly Blue Book for value estimates by vehicle make and model.
Figure out roughly what the vehicle you want is going for on the used and dealer markets. Heck, you can even check ‘Sold’ listings when searching on eBay to see what people previously paid there. By checking all the difference sources for pricing information, you will know the rough range and the bare minimum for each particular vehicle.
Your goal is to get a top-quality model of the car you want at the bottom-end of its pricing range. That way, any repair issue that comes up will not suddenly make your purchase into a huge mistake. You might even get out ahead in a few years if you sell off the vehicle and turn towards better financing options on something newer.
4) Finalize Your Financing
It is always good to know your financing is ready to go; bad credit loans are almost always pre-approved, but getting them actually approved is a different story. So once you know which lender you want to deal with, get in contact with them to figure out exactly what you can borrow.
At this time, make sure all the specifics of the contract are hammered out. You do not want to get screwed over by hidden fees.
Warning: Shadow leasing is NOT the same as buying a vehicle with a bad credit loan, and many of these vehicles are in sub-par condition. Under no circumstances should this be seen as a viable alternative; with a bad credit auto loan, at least you can pay it off without paying twice or three times the vehicles’ worth!
5) Contact the Seller
Once you have a short list of vehicles to consider and you know what you can borrow, its now time to reach out and see which vehicle you actually want.
Begin the initial conversation with the salesman or private seller and get any major questions out of the way immediately. Then, if everything checks out and you are still interested, ask to view the vehicle in person.
During this interaction, your goal is to personally inspect, test drive and hopefully mechanically inspect the vehicle. If it passes all three of those tests, and the pricing works, you might have found your mate!
6) Do a Personal Inspection
Once you arrive to check out the vehicle for sale, there are numerous things you will want to observe even if you are not an experienced mechanic. Consumer Reports does a good job at explaining the personal inspection process.
If you have any uncertainties, make sure to voice them to find out more.
The person selling the vehicle will likely have a bit of intimate experience with it. Private sellers are a given, since they often drove the car before, but even many dealerships put a fair bit of money into fixing up their used vehicles.
If something is really bugging you, but you think its still a good deal, get a professional inspection done to clear all your concerns.
Supposing the inspection goes well, you will want to take the vehicle for a test drive.
7) Test Drive the Vehicle
You can use the test drive to figure out whether you really like the type of vehicle you are planning to buy. However, the test drive is not supposed to be a “fun” experience but rather an educational one.
When test driving a used vehicle, you will want to watch out for various indicators that could signify more serious problems with the vehicle.
What to watch out for when doing a test drive includes:
- How smooth and well the brakes work,
- How comfortably the vehicle rides,
- How ergonomically-friendly the cockpit is,
- How functional the dashboard display seems to be,
- Whether there is any noise coming from the engine, and,
- Whether there is any misalignment or vibrating when steering.
8) Get a Professional Inspection
Now comes time to figure out whether the vehicle you want is completely worth the purchase price.
A professional inspection could run anywhere from $50 to $200. It will tell you the exact condition of the vehicle and whether anything under the bonnet might let go in the near future. Stuff like head gaskets about to blow and oil leaking throughout the engine might not get noticed in a general inspection.
This extra step could save you from repair quotes in the thousands — so don’t skip out on the professional inspection if you aren’t mechanically inclined.
On the flip side, you can generally trust a dealer (and their warranty) when buying a used vehicle under the ‘Certified Pre-Owned’ vehicle program.
9) Try to Negotiate
Most private sellers are flexible, but a used car dealer will always have the upper hand.
If there is room for negotiation, asking is the only way you will know.
Used vehicle negotiation experiences vary dramatically. The vehicle you are buying could have been a trade-in that was previously financed out. Meanwhile, it could also be a vehicle that got bought at auction after going into a mechanics lien and needing more repair work done to make it capable of being sold.
Since there are so many dynamics that come into play, it really is important to chase the vehicle you want at the bottom end of its’ value price range. At the same time, you can look for all the indicators of a good vehicle — no warning signs during the test drive, proper maintenance, low mileage, single owner, and etc.
You can take all the comparable deals from within 100 miles and show them to a potential seller. This is a way of showing what your other options are, which can justify offering a lower price on their vehicle. Doing this with a dealer is not as easy, but if there are cheaper comparable vehicles from other dealers make sure to specify that.
10) Request a Vehicle History Report
Before moving forward with your purchase, it is important to check the complete history of the vehicle.
You can request a vehicle history report by using the Vehicle Identification Number (VIN) to look-up information on that vehicle. This will include details on any of the past owners, accidents involving the vehicle, and an exact description of the vehicle.
Please keep in mind — seeing a previous auto accident should not scare you away, as something as simple as a fender bender could get reported. Always read into the details and use some common sense to understand the actual implications behind anything on the vehicle history report.
11) Vehicle Safety Inspection Precautions
The used vehicle market is comprised of people looking for vehicles to drive legally. This means cars, trucks, vans, etc., that are able to pass vehicle inspection laws. As passing inspection is essential to make a vehicle street legal, you do not want to face many challenges to make it happen.
Further, you will want to watch out when buying a cool car to play around with as there could be illegal parts installed. Many states do not allow various aftermarket parts, such as a lift-kit on your truck, HID headlamps on your sports car, or window tinting on your daily driver. So take the time to make sure the vehicle you are buying isn’t going to get you pulled over.
You can check your state’s vehicle & traffic laws and look for the section covering motor vehicle equipment. It will explicitly detail what’s allowed and not allowed when it comes to aftermarket modifications. If you are still uncertain, contact your state’s District of Motor Vehicles and explain what you want to know to be sure.
12) Refinance Your Bad Credit Auto Loan
When buying a vehicle with a bad credit auto loan, quite often you will find you shell out a lot to interest in each of your payments. Those that get stuck with a poor bad credit financing contract might still be able to opt out later. If this is the case for you, consider the benefits of refinancing your bad credit auto loan — especially once your credit and/or income increases dramatically, as the impact will not go unnoticed.
Further, if you find a co-signer at a later date you can refinance with them increasing your lending strength. This could save you thousands in interest payments over the remainder of the loan. However, you must read the requirements carefully to make sure you can close the old loan without paying any major fees.
Get a Car Now — With a Bad Credit Loan?
Some might be thinking, “…really, a bad credit loan to buy a vehicle?”
Any other day, we would not recommend a bad credit loan because we understand just how expensive they can be when all the little details are added together. BUT we understand how important it is to have any time of transportation — some of us simply cannot live (and keep our jobs) without it.
If you really need a vehicle, paying a little extra for financing a reliable car is by far better than buying a new beater every winter!