This article is the second in the series Buying a Car With Bad Credit, discussing how to avoid losing money on your auto purchase at the dealership. If you do not yet have an auto loan and would like to know how to secure one at a reasonable interest rate, read the first article in the series— Securing an Auto Loan.
Consumers buying on low credit, also known as subprime buyers, are a vulnerable group and salespeople know it.
A low credit score often indicates not only a troubled financial history, but also a lack of knowledge about credit in general, or at the very least, a lack of experience with it. As such, shady lenders and dealerships specializing in subprime customers abound. They depend on their customer base’s lack of knowledge to sell them overpriced products at ridiculously high interest rates. The best way to avoid becoming victim to a bad deal is to arm yourself with knowledge, and this is especially true when shopping for a car. Read on for our tips on how to spot bad auto deals and save money.
1. Do your research before you go to the dealership
The best way to avoid getting swindled over car prices is to know how much a car actually costs. If you already have a make or model in mind, you can check out sites like Kelly Blue Book or Autotrader for price comparisons, and don’t be afraid to negotiate with the dealer! If you think they’re overcharging you, let them know. If they refuse to compromise, you can always check out another dealership; in fact, tell them that! Dealers are less likely to refuse negotiation if you threaten to take your business away entirely. If the deal being offered seems extremely sketchy, however, it’s probably best to move onto another dealership. Companies like TrueCar can help you find trusted dealers in your area, or you can ask your friends and family for recommendations.
2. Be wary of the “buy here pay here” sign
You’ll get your car more quickly, but you might not see any benefits to your credit down the line. Though insurance can be a pain financially, if you make your payments on time it will build up your credit score. “Buy here pay here” lots, however, aren’t required to report to the credit bureaus when you make your insurance payments, so your credit won’t see any improvement even if you make all your payments on time. Additionally, lots specializing in subprime buyers often make money by overcharging on cars, crafting contracts with unnecessary add-ons, and selling loans with high interest rates—cars are expensive enough on their own, don’t lose more money to exploitative sales tactics like these.
3. Read the contract thoroughly before signing
DO NOT sign any contract without reading and understanding it thoroughly. If you don’t understand a term, look it up. Watch out for any add-ons like GAP insurance, credit warranties, or free oil changes for life. These “deals” are not meant to save you money, they’re meant to pad the salesperson’s pockets.
4. Secure your own auto loan beforehand
Dealerships are more likely than other lenders to charge rates of 17% or more, which can add up to thousands of dollars you can’t afford. Think about it—a car itself is expensive, not to mention the gas payments, maintenance, and the occasional parking fee which comes along with it. Add expensive insurance onto this—expensive insurance which has the potential to wreck your credit score if you’re not careful—and buying a car might seem like more of a hassle than its worth.
One way to reduce these expenses is to secure a reasonable auto loan before buying the car. That way, you won’t find your loan application denied after you’ve already bought the car (which will get you a higher finance rate), AND you’ll most likely have a decent and STABLE interest rate, which will make paying off your car much easier. Basically, if you put in the work before going to the dealership, you’re guaranteed to spend less money when you actually get there.
5. Stay Informed
The most important thing to remember out of all of this, however, is that education is key. Informed buyers are much less likely to lose money on bad deals, and if you’re a subprime buyer you should be prepared to come across some pretty bad deals. Your options for loans and dealers will be less savory and more limited, but that doesn’t mean you should just take the first offer that comes along. Do your homework, stay informed, and always be on the lookout for swindlers!
If you’re looking for a trustworthy recommendation from us, we’ve sent many happy customers to Chicago Cars US in Summit, Illinois! Also, if you already have an auto-loan, but you’re worried that it was a bad deal, read our next post in the series: Saving on High Interest Auto Loans.