According to an article in consumers affairs;
In general, it is better to go with a bank or an auto financing lender rather than the car dealership down the street that is offering a “buy here, pay here” deal. If you do wind up with a high interest rate on your car, work on rebuilding your credit score so that you can eventually refinance.
If you suddenly find yourself without a car you might be asking, “How can I buy a car with bad credit?”, well, You DON’T! I know not having a ride can be a problem, like how do you get to work, or what if you want to go out? Well as far as getting to work goes, see if a work colleague lives near you and chip in on some gas for a ride. As far as getting out from time to time, there’s always Uber.
You want to give yourself a few months to save up some money and pay cash for a vehicle until you can get your credit to a point where you can get a 6% or less interest rate. Your choice of vehicle will be better and the total cost for the vehicle will be a lot less.
Another problem with buying a car with bad credit that most people forget is car insurance. Your insurance premiums unfortunately are also based on your credit score. The combined monthly cost of your car and insurance could be challenging. Again, waiting until you have a good credit score will save you on insurance as well.
Here is an example based on $35,000.00 vehicle purchase at 20% versus 6% on a 5-year loan.
$35,000.00 at 20% interest you will pay over $15,000.00 in interest at 6% you will pay approximately $5,000.00 in interest. Quite a difference.
Your total cost for the vehicle is about $15,000.00 less in interest at 6%, and your monthly payment is approximately $250.00 less per month!
OK let’s play a little game, what if you took that $250.00 per month that you’re NOT paying in interest and invested it each month over the same 5-year time period with a 6% return?
Well you end up EARNING $3000.00 instead of PAYING $15000.00. I’d say that’s a pretty good argument for doing everything you can to avoid a high interest car loan.
Instead, put ALL your resources into getting your credit fixed. This will put you in to position to buy at a good interest rate with minimum money down. This will save you a ton of money and you won’t regret it!
Buy a new car or even a used car is never a good investment, but one you can’t avoid. Buy a car with bad credit, as you can see, is yet a worse scenario. Make sure you do whatever it takes to avoid this costly mistake.
If you considering purchasing a car in the near future and have some credit challenges be sure to check with one of our Credit Experts to see how you can improve your credit for the best interest rates and no money down options.