Many times we are asked about buying a car with bad credit. Usually, it’s from our clients that are currently in chapter 13 bankruptcy. Many times, it can be former clients who filed bankruptcy a while back, or even new, potential clients of ours that need a car but have bad credit.
Is buying a car with bad credit easy? No, but it is not impossible either. In our experience, you increase your chances that someone will finance you if you have a good paying job and/or job stability. But you have to be willing to trade off the type of car you get in exchange for getting the loan.
What do we mean by that? We mean don’t go crazy and buy a $30,000 vehicle. This is not the time to buy the car of your dreams. If your credit sucks, you will be penalized with a much higher interest rate than the average car buyer. When you are buying a car with bad credit, the total cost of your loan (that purchase price plus interest) can sometimes be 50% more than that of the average car buyer.
To put that in perspective, a person with good credit can finance a $30,000 vehicle at 2%. The total cost of that loan is $31,549.97 with $1549.97 representing the interest paid in the loan. The expected monthly payment would be $525.83 a month.
Someone with bad credit may be offered an 18% loan. That same $30,000 vehicle at 18% brings a total cost of $45,708.17. That is a whopping $15,708.17 in interest! That’s 50% of the cost of the vehicle. So in effect, you are paying for one and half vehicles. That’s not good. And the expected monthly payment would be $761.80, which is almost $240 more a month.
So be careful when choosing the type of car. When buying a car with bad credit, we normally recommend a gently used car under $15,000 with a loan that is under $300.00 a month. Ultimately, you need to make sure you can afford it in your budget. We know you NEED a car, but you have to remember that the car payment MUST be affordable.
Surprisingly, in our experience, we have found that buying a car with bad credit is easier when you go to a major dealership and look at the older new car inventory. If you HAVE to get a new car, go down on the options and add-ons and try and get one for under $20,000. There are plenty of good cars at that price.
Sure. Sometimes it’s easier to finance a NEW car versus a USED car. There are many reasons for this because the dealer and the car manufacturer have much more incentive to move a new car in inventory than a used one. The manufacturer only makes money when new cars are sold. The high margins on a used car are long gone. If the dealer has a lot of “old” new cars on the lot, then it cannot get more from the manufacturer. This is why you will see ads with great deals stipulating that you buy the oldest car in inventory. Some new cars can sit for a year on the car lot. That is lost money for the dealer and manufacturer.
So the car manufacturer and dealer will frequently offer really good deals to move that old inventory. If you are shopping for a new car deal and don’t mind that the car lacks things you want, focus on the “oldest” new cars on the lot. Dealers have many, many ways to keep their margins up (through costly add-ons, etc) and they can even manipulate those numbers by offering you more for your trade in than your old car is actually worth. This is why it’s important on focusing on the type of car. It may be an ugly green color or it may have a base radio or an underpowered four cylinder engine. But the old, ugly ones sitting on the new car lot offer the best bargains.
So the manufacturer’s financing division may be more willing to finance you if you take one of the older inventory cars off their hands. Also, the finance company is more willing to finance a new car, with a five year warranty than a used one lacking a warranty. Newer cars are more expensive to fix, they are also much less likely to have problems for the first five years.
Buying a car with bad credit is not impossible. You CAN get financing as long as your expectations are reasonable about what you can really afford. Make sure you shop on price and interest rates. Forget about all the options or horsepower and look to major car dealers for deals on older inventory cars.
You might not get the best deal, but we don’t mean to imply that you take a bad deal. Do expect a trade off with your bad credit. You will have to pay a higher interest rate and will have to pay more of a down payment than someone with good credit.
Busby and Associates cannot recommend any particular dealership. We do recommend that you be smart about your purchase, shop around and compare prices and interest rates before you sign the contract.
This is a list of dealerships below is provided only for convenience and information. These dealers have been known to finance vehicle purchases for people with credit issues or in an active Chapter 13 Bankruptcy. These dealerships have access to subprime financing, better known as Second Chance Financing.
Auto Expo Houston
9820 Bissonnet Street
Houston, Texas 77036
Contact Ray at 713.771.0244
Drive With Pride, Inc
9731 Southwest Freeway
Houston, Texas 77074
Premier Auto Sales
6261 S Texas 6
Houston, Texas 77083
Contact Victor at 281.948.5909
The law firm of Busby & Associates goes extra lengths to try and help our clients and our potential clients. This is why we offer information about Buying a car with Bad credit. We are trying to help people. How many law firms can say that? If you have debt and need help; we are here for you.