Before you decide to visit a “buy here, pay here” used car dealership, it’s important to take time to do a little research.
If you aren’t familiar with the process that surrounds no credit or bad credit auto loans, you may end up with an auto loan that doesn’t work well for your financial situation. Getting an auto loan isn’t always a breeze, but conducting some research beforehand will make your vehicle buying experience a lot more pleasurable!
1. What’s The State Of Your Credit?
If you know what your credit rating is, you’ll have a better idea of what to expect when you go in. Even better, taking the time to review your credit rating will give you a chance to ensure that no mistakes have been made in any of the reports.
2. The “Yo-Yo” Trap
Dealers often play this trick in order to tempt buyers into taking a car home immediately without actually squaring away the financial situation. Once you’ve driven the car for a few days or weeks, the dealer will inform you that there has been a problem with your application or loan and you’ll have to pay a higher interest rate, they’ll demand more money down or even request that you return the vehicle. Although this is a rare occurrence, it’s important to make sure that everything is final before you drive off the dealership’s lot.
3. You Can’t Hide Everything
Don’t believe the illusion that you can hide past credit problems. As soon as you sit down to discuss a loan, the “buy here, pay here” dealer is going to find out everything they need to know about your financial past to ensure your can afford the payments on the car you want to buy.
Take the time to prepare yourself to talk about any issues that might arise including recently missed payments, past repossessions or bankruptcies.
4. How Much Car Can You Afford?
Carefully consider how much you actually want to spend on a car, even if you are able to get a sizable loan.
It’s important to think about the upfront price as well as the maintenance, insurance, and fuel costs that you’ll pay for years to come. Luckily, some “buy here, pay here” dealerships offer warranties or vehicle protection plans which can aid in reducing any out of pocket expenses for repairs with a simple and inexpensive deductible.
5. How Long Will It Take To Pay Off The Loan?
You don’t want to be paying off the car long after the warranty has expired, so most experts recommend carrying a car loan for a maximum of 4 or 5 years. You can often extend the term to 6 years if you really want a low monthly payment, although over time you will be paying more in interest.
6. Prepare For A Down Payment
Even if you are discussing a plan with a “buy here, pay here” dealership, it’s important to save enough money to make a significant down payment on your car.
Ideally, you should start out with a 20% down payment in order to greatly reduce the size of your loan. Although 20% is not set in stone at all dealerships, depending on your loan approval and vehicle you are wanting to purchase, a down payment of some amount is usually required.
7. No-Haggle Dealers = No Hidden Costs
At many auto dealerships, the prices listed don’t actually reflect the final price that you’ll have to pay. If you choose to work with a no-haggle dealer, you won’t have to worry about hidden costs that will inflate the price of your loan and monthly payment.
8. Know The Difference Between A “Warranty” & A “Vehicle Service Contract”
Often, the terms “warranty” and “vehicle service contract” (or agreement) are used interchangeably, but there are some major differences between them.
Warranties are only offered directly from the vehicle’s manufacturer and typically include bumper to bumper coverage of varying degrees, mileage and years. A standard manufacturer warranty covers the vehicle from defects within a defined period, sometimes up to 10 years or 100,000 miles. Warranties are always included in the price of the vehicle. If purchasing a new vehicle, the dealer might offer you an extended warranty at an additional cost.
While shopping at a used car dealer, you might hear the term “warranty,” but in reality what they are referring to is a vehicle service contract. A vehicle service contract is similar to a warranty in many ways, but the major difference being that they are available at an additional cost. Vehicle service contracts can cover many of the same components as a warranty and on occasion, offer additional coverage.
Before you visit a used car dealership, be sure to determine whether or not a warranty or vehicle service contract is worth it for your situation. Many used car buyers find significant value in a protection plan, especially ones that cover the main components of the powertrain and drivetrain so you can rest assured that the critical components of your vehicle are covered and you can live virtually worry-free for the term of your agreement, which can go up to 5 years or 50,000 miles.
With these 8 tips in mind, you’re ready to go car shopping! Need to know something else? Ask away in the questions below.
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