So what’s the moral of the story? It’s simple. You can save a lot more money by simply choosing the right car than by working a great deal on the wrong car. This is doubly true if you have bad credit and you’re working with a tight budget.
Consumers with bad credit should note that even the lowest car insurance premium increase of 6 percent in the insuranceQuotes.com study is significant, while an increase of 100 to 200 percent could easily break many budgets. This, in turn, could have the effect of running those borrowers off the road to better credit.
Consumers, especially those with tarnished credit, should avoid used cars with poor reliability as the odds of paying for costly repairs on top of a monthly car payment increase for these vehicles.
The latest analysis from Equifax shows that credit scores do improve after credit-challenged borrowers take out an auto loan
It’s absolutely critical that borrowers, especially those with tarnished credit, understand the information contained in their credit reports and know at least one of their credit scores. So, while one credit report from each CRA per year is free, it’s also reassuring to know that lenders such as Hyundai Motor Finance and Kia Motors Finance are beginning to furnish the all-important FICO score to their customers at no charge.
Credit-challenged borrowers who choose one of these affordable cars and pick the shortest loan term possible will find that, once they’ve reestablished their credit, they’ll be in a much better position for their next loan.
Since subprime lenders typically only do business indirectly through their dealership partners, applicants with less than perfect credit won’t know if they’re approved until after they’ve visited the dealership, been interviewed by the finance manager, turned over the required documentation and had their credit application submitted to a lender.