Consumer Car Buying Advice Blog

Although 60 percent of used car shoppers in a recent survey indicated they would buy a certified pre owned vehicle for their next purchase does this kind of car make sense for bad credit car loan shoppers?

Market trends

For nearly 20 years Auto Credit Express has been helping consumers with bad credit buy a car while reestablishing their auto credit and improving their FICO scores with a bad credit auto loan. During that time, we have seen the bad credit market shift from local lenders and small “buy here pay here” dealers to regional and national lenders who primarily loan through large new car franchises.

During that time, we have also seen a shift in the types of vehicles these lenders will finance. While earlier “tote the note” dealers usually had lots full of older, high-mileage vehicles that were barely above “beater” status, most special finance lenders usually require either new or newer, low-mileage used cars that modern new-car dealers are happy to sell.

The reason for this is quite simple: if a customer, even a bad credit customer, is driving a newer and more reliable vehicle, they are more likely to make their payments on time.

During the time bad credit lenders began changing the rules, the car manufacturers were also making huge strides in vehicle quality and reliability. And when you combine this with the fact that the average new car loses between 15% and 30% of its value as soon as you drive it off the lot, we can see why so many bad credit car loan shoppers decide that it is more cost effective to go with a 2 or 3 year old pre-owned car rather than a new one. Now these same consumers are faced with another decision: should they buy a regular used car or a certified pre-owned car?

Earlier this week, J.D. Power and Associates, a well-known and well-respected marketing research company released a report on used-vehicle buyers. One of the findings of the report was that a majority of used-vehicle buyers (more than 60 percent) begin the shopping process intending to buy certified pre-owned vehicles.

Certified pre owned

CPO programs began with the luxury brands back in the early 1990’s as the manufacturers sought to boost the residual values of their models by keeping their lease turn-ins away from the auto auctions where they were being sold, because of the sheer volume, at below-market values. Dealers were enticed to keep these off-lease vehicles for resale when the manufacturers came up with a solution: If the vehicles met certain age, mileage and inspection requirements, the dealers could purchase the cars back and sell them with a service contract that was very similar to the warranties found on new vehicles - except that the number of miles and years was extended to cover up to 3 additional years and a total of 100,000 miles.

Because of this built-in warranty coverage and other perks (such as roadside assistance), the dealer could sell these CPO vehicles at a premium over non-certified used cars. As a result, the manufacturers got their higher residual values and CPO customers were happier with their cars and with the dealers. It was a win-win for everyone.

Noting the success of the luxury brands, everyone else, including the domestic brands, jumped on the CPO bandwagon, which means today, buyers of used cars in all price ranges now have a choice

What does CPO really mean?

In terms of Certified Pre-Owned, the word “certified” is extremely vague. Although it was the manufacturers, themselves, who originally came up with the term “certified”, this doesn’t prevent dealers or anyone else, for that matter, from marketing their own “certified” used car program. For bad credit car loan shoppers out there, this means you should pay attention when you’re shopping for a used car. Just because a dealer advertises a car as certified does not mean that it’s certified by the manufacturer.

If it is the manufacturer’s program that you’re interested in, be sure that the “certified” car you are considering is certified by the manufacturer. If not, you could be setting yourself up for any number of unpleasant surprises once you’ve signed on the dotted line, including upfront payments for any repairs with a reimbursement coming later or the need to bring your car back to the selling dealer for repairs covered under the service contract.

It’s the price

Certified pre-owned vehicles are also more expensive than their non-certified counterparts. The costs of an inspection, the required replacement of warn and defective parts as well as a fairly pricey service contract all add to the price of a CPO vehicle. Before buying one, bad credit car loan shoppers would do well to do some research and compare the prices of both CPO and non-CPO vehicles.

On that note, checking with a source such as Consumer Reports to find out about the repair histories of different models is a good place to start. If the repair history of a model is spotty, consider either a certified vehicle or one with a service contract – and compare the differences in price and coverage  between the two. If the repair history is stellar, have an ANSI Certified Master Mechanic do a thorough inspection of the non-certified car (a worthwhile expense). If the mechanic’s report is clean, you might not be able to justify the difference in price of a certified car.

The Bottom Line

As you can see, there are a lot of choices out there if you’re a bad credit car loan shopper looking at a pre-owned car. Ultimately, you will have to decide for yourself if a CPO car is worth the difference in price.

For more information on bad credit car loans and the bad credit auto loan buying process, visit our web site at www.autocreditexpress.com.

Tags: Auto Loans, bad credit, bad credit auto loans, bad credit car loans, buy here pay here, car loans, certified pre owned, consumer reports, cpo, fico, Fico Score, jd power, jd power and associates, tote the note

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