Even if you have to finance your next vehicle with a bad credit car loan a new car could be in your future.
At Auto Credit Express, for nearly 20 years we’ve been helping customers with bad credit buy a car and raise their credit scores by matching up our applicants with car dealers that specialize in subprime auto finance. When we first started out in the business, the very idea of financing a new car with this type of loan seemed farfetched, at best. But as more and more national lenders entered the subprime finance arena, the idea of financing a new car with a bad credit auto loan began to take hold.
Today, we find that many customers with bad credit assume that bad credit auto loans can only be used to finance an older, high mileage used car. In fact, nearly the opposite is true.
Dangling the carrot in front of the customer
Although this may be stating the obvious, the interest that you pay on your car loan is how the bank makes money. This means that the bank has a vested interest in you keeping up on your loan payments. With that in mind, lenders realize that an old, high-mileage car that has a good chance of breaking down is not the ideal vehicle for their customers to buy. After all, who wants to make payments on a car that can’t be driven due to a mechanical failure? With new or newer vehicles, there is less of a chance of major, expensive, repairs and, with most new cars; the cost of a major repair would be covered by the manufacturer’s new car warranty. By including new cars in a bad credit car loan portfolio, this removes the “unable to drive” scenario from the repayment equation.
New car advantages
Besides smelling good, new cars come with a number of built-in advantages:
• A full warranty – Most new cars come with a minimum 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 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 extended service contracts 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 repair. This enables customers to return a grossly defective vehicle and purchase another one without suffering any monetary damages.
• Most subprime lenders tend to offer lower interest rates and the availability of longer contract terms for new cars.
Follow the rules
Even though you may be able to buy a new car with a bad credit loan, the same rules apply to new cars that apply to used cars:
• The objective of a bad credit car loan is to reestablish your credit, not to buy that “dream car” you’ve always wanted.
• Do your research. If you are interested in a compact sedan, take advantage of automotive web sites such as consumerreports.org and Edmunds.com that list quality and reliability data for many new and used vehicles.
• While doing your research, pay close attention to fuel economy and insurance rates in order 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. Many new cars come with advertised customer rebates while many web sites also list the unadvertised dealer cash available for each model.
New cars to consider
Kia Rio – The Rio, rated the highest-ranked subcompact car in initial quality by J.D. Power in 2008, 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 $12,190.
Chevrolet Malibu – The Malibu has a 3 year/36,000 mile basic warranty that includes roadside assistance as well as a 5 year/100,000 mile basic powertrain warranty. Prices on the Malibu start at $22,545.
Honda Fit – The Fit, a Consumer Reports recommended vehicle and a Car and Driver “10 Best” three years in a row, is longer and wider in 2009 due to a complete redesign. It has a 3 year/36,000 mile basic warranty as well as a 5 year/60,000 mile basic powertrain warranty. Prices start at $15,460.
The Bottom Line
A new car can be a great choice for a bad credit car loan. Keeping the monthly payment within your budget and knowing the total cost of ownership is also important. Web sites such as www.autocreditexpress.com can help you set a budget as well as estimate your payments for a bad credit car loan.
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