Car buyers with less than perfect credit need to be especially careful when purchasing a used car
How we know
A study conducted last year by Experian Automotive makes it clear that consumers who finance used cars with bad credit car loans are more susceptible to used car fraud than the average buyer.
Here at Auto Credit Express, where we've been helping auto loan applicants with low credit scores find dealers for their best opportunity at approved car loans for over two decades, we are well aware of the fact that buyers should know the exact condition of any used car they're considering. That being said, we felt that credit-challenged buyers should be aware of how just how important it is to know the exact condition of any used car they are thinking of buying.
So why is this so important?
For most car buyers with poor credit, a used car is typically the best choice. That's because, according to Consumer Reports, the average new car can lose up to 47 percent of its retail value over the course of just the first three years of ownership.
But buying a used vehicle also comes with the risk that its condition isn't necessarily what the seller would like you to believe. This problem is compounded by the fact that, just like buying a new car, there is no cooling off period once you've signed the loan documents. Additionally, unlike new cars, used cars are generally sold "as is" and are not covered by state lemon laws.
As if this isn't bad enough, in some cases the title that the seller shows you is only "clean" because the vehicle's previous actual "branded" title was changed by re-titling it in another state in a scheme known as "title washing." In other instances, used car buyers have unknowingly signed branded titles without realizing it.
So what does this mean for buyers with credit issues?
If you have poor credit, this means you might be buying a vehicle with hidden damage without realizing it – a move that could jeopardize your efforts at credit repair. It's also something that, according to Experian Automotive, happens more often to buyers with poor FICO scores.
Back in 2011, an Experian Automotive credit trends study compared a vehicle's history to loan performance. Here is what it found:
"…vehicle history can have a major impact on loan performance. The study found that more than 2 percent of the late-model used vehicles (model year 2005 and newer) had a negative vehicle history event (frame damage, salvage, odometer rollback, etc.), which can significantly impact the vehicle's value."
The study also found that "while these instances occur across all credit segments, more than 3 percent of financing outside of prime had negative vehicle history." At the same time it also noted that "Vehicles with a negative history event also referred to as ‘brand', also have a higher percentage of charge-offs for lending institutions."
What you can do
As a buyer, there are at least three things that you, yourself, can do to avoid purchasing a used car with a negative vehicle history.
1. Go to www.nicb.org and check the vehicle's history using VINCheck (be sure to copy the VIN number from the vehicle's VIN plate)
2. Order a vehicle history report from either Carfax or AutoCheck.
3. If the vehicle passes the history report test which shows that it's clean, have it inspected by an ASE Certified Master Mechanic as well as a body and frame expert before making a buying decision.
As we see it
The first step to successfully reestablishing your auto credit is making sure the vehicle you plan on financing won't end up cost you hundreds or even thousands of dollars in maintenance costs due to a previous event.
It's also important to realize that even if a branded car turns out to be reliable, a vehicle whose title has been washed due to previous damage will be worth much less at trade in time when there's an excellent chance that that damage will be uncovered. At the same time, this could also reduce your ability to trade it in sooner, since you could be in a negative equity situation for most of the loan term.
One more thing to remember: Auto Credit Express specializes in helping applicants with credit issues find dealers for their best chances at auto loan approvals.
So if you're ready to reestablish your car credit, you can begin now by filling out our online car loans application.