Problem credit car buyers sometimes assume that a high risk car loan can only finance a used car but in fact with a large down payment sometimes a new car is also a possibility
What we know
Here at Auto Credit Express our job is to help car shoppers with questionable credit find those new car dealers that can offer them the best opportunities for auto loan approvals – something we’ve been doing for more than two decades.
When they ask us “can I buy a car with bad credit and a large down payment?” we sometimes have to remind ourselves that, for these consumers, financing a dependable vehicle used to be much more of a problem.
Car loans with poor credit
For many customers with credit issues, the only choice over two decades ago was a “tote the note” or BHPH (buy here pay here) car dealer. Then, in the mid-1990’s, a number of private, regional and national banks began to loan indirectly through new car dealer to customers with FICO scores below 640.
Although these lenders have large collection departments, unlike typical “buy here pay here” dealers they were much more interested in their loans being paid in full, rather than in repossessing vehicles after just a few payments. Since these banks want their customers to keep making loan payments, older, high-mileage cars that have a good chance of breaking down are not the ideal vehicles for their customers. Instead, they require either a lower mileage used car or, in many cases, a new vehicle. Their reasoning is that the newer the car, the more motivation a customer will have to make payments on time.
Besides having that “new car” smell, these vehicles come with a number of built-in advantages:
• A full warranty – Most new cars come with at least a 36 month 36,000 mile “bumper to bumper” warranty. This means that all systems on the vehicle are covered – engine, drive train and electrical/electronics. Warranty repairs lower your cost of ownership, since they require no out of pocket expenditures.
• Manufacturer backed extended warranties (really service contracts) are available to cover the balance of the loan contract at a much lower price than a comparable used car service contract. Many of these warranties also include additional perks such as roadside assistance for flat tires and gas as well as mechanical repairs.
• In addition to warranties, most states have new car lemon laws that cover defects that the dealer cannot fix. These laws don’t cover used cars.
• Most of these higher-risk lenders offer lower interest rates and longer terms for new cars.
Even though car shoppers may be able to finance a new car with one of these loans (with some requiring a large down payment to keep the monthly payment reasonable), the same rules that apply to picking out used cars also apply to new cars:
• The objective of a bad credit auto loan is to reestablish credit, not to finance your dream car.
• Do some research by checking out automotive web sites such as consumerreports.org for quality and reliability data.
• As part of your research, pay close attention to fuel economy and insurance rates to keep the total cost of ownership as low as possible. If two cars are similar in size, price and reliability, choose the one with the lower insurance rates.
• Check for rebates and dealer cash back. Many new cars come with customer rebates that are published and can be viewed on different web sites.
Cars that are reliable, but won’t break the bank
Kia Rio – The recently redesigned Rio has a 5 year/60,000 mile basic warranty that includes roadside assistance as well as a 10 year/100,000 mile basic powertrain warranty. Prices on the Rio start at $14,515. The Rio was recently ranked the 10th most affordable car to own by bankrate.com.
Ford Fiesta S – The Fiesta has a 3 year/36,000 mile basic warranty that includes roadside assistance as well as a 5 year/60,000 mile basic powertrain warranty. Prices on the Aveo start at $13,745. The Fiesta was recently ranked the 6th most affordable car to own by bankrate.com.
Honda Fit – The Fit, a Consumer Reports recommended vehicle and a Car and Driver “10 Best” seven times has a 3 year/36,000 mile basic warranty as well as a 5 year/60,000 mile basic powertrain warranty. Prices start at $16,215. Consumer Reports has ranked the Honda Fit as the second best value in the U.S. – based on performance, utility and reliability for the money.
The Bottom Line
A new car can be a good choice for consumers with bruised credit, while keeping the monthly payment within budget and knowing the total cost of ownership is important when choosing one.
Something else that’s important to know: at Auto Credit Express we specialize in helping applicants with problem credit find those dealers that can give them their best chances for approved auto loans.
So if you’re ready to reestablish your car credit, you can begin now by filling out our online auto loans application.