Is It Possible to Buy a Car with Bad or ‘Inexperienced’ Credit?

on Oct 11 in Credit tagged bad credit, first-time buyer, inexperienced credit by Mark

Q. Is it still possible to be able to buy a car even with bad or ‘inexperienced’ credit?

The simple answer is yes. There are many lenders who specialize in lending to people with poor or bad credit scores. There are even banks that will finance a new or used car for you before an open bankruptcy has been discharged (as crazy as that sounds).

However, all of these lenders will charge you a premium. The fact of the matter is, these lenders know that you have limited choices when you buy a vehicle, and they also know that your previous decision making has not been the wisest. Therefore, these lenders feel pretty confident that you’ll pay them top dollar to get a car loan.

Most of these lenders will charge 21% interest or the highest amount allowed in your state. While this is not a great way to go – 21% interest is outrageous – it may be your only choices if you have to finance a vehicle.

If you find yourself in this boat, consider this alternative: Read More

Ask AAA: First-time Car Buyer With Great Credit Score But No History

on Oct 06 in Financing tagged Financing, first-time buyer by jasonl

Here’s a question we received recently:

I am looking to buy a new car and am a little scared about financing. I was turned down by Bank of America because they don’t accept anyone for financing with less than three years of credit. I am 26, my credit score is 745, and I have 5 credit cards (all without balances). I want to get financing, but do not want to do any guess work. Can you tell me who might consider financing me for a car?

Answer:

I wouldn’t put too much stock in the opinion of any one bank. In my experience, there are really two kinds of lenders – banks that want to be in the business of auto loans and banks that don’t.

Most banks don’t want to be in the business of lending money on cars. It’s a difficult business for a bank to be in without a large dedicated auto lending staff. I’ve been amazed multiple times by the vast difference in lending between banks.

Take your situation. You have a 745 credit score, and assuming you’ve had the same job and residence for at least six months, you should have no trouble getting a loan — even being a first time buyer. In fact, you should even be able to get a decent interest rate. Yet Bank of America turns you down. ANY ONE of the captive auto lenders (GMAC, Ford Motor Credit, Toyota Motor Credit, etc.) would love to have your business. The same goes for the larger national auto lenders like Chase and Wells Fargo.

My advice would be to contact your local credit union. They will probably offer you the best finance terms of any lender. However, I would also suggest you keep an open mind towards dealer-provided financing. You definitely fall into the “A” credit category, and auto dealers (with their huge lending portfolios) can often beat the best deal you can find on the street. If you get pre-approved at a local credit union or two, you’ll have a good estimate of what you can expect in terms of interest rate.

My recommendation: You should apply to a local credit union and ignore the fact that Bank of America “doesn’t look at people with less than three years.” You have an excellent credit score, and assuming you’ve got good job and residence stability, you should have no trouble getting financing.

I’m About To Graduate College – Can I Get A Loan?

on May 06 in Financing tagged Financing, first-time buyer by jasonl

Here’s a good question from a young college student:

I am graduating college soon and I would like to lease or purchase a new car. I have a credit score of about 640 and a cosigner who’s credit score is 730. I don’t have a job yet, but I have enough money saved to cover my car payments for about 8-10 months, and I should have a job soon after graduation. Will I have any problems getting approved for a new car because I don’t have a job?

You shouldn’t have any problem getting approved. You’ve got cash, you’ve got a strong co-signer, and you’ve got a brand new college degree. While it’s true you don’t have a job yet, it’s not going to keep you from getting a new car.

Most car manufacturers offer “first-time buyer” programs tailor-made for people like yourself. Usually, these programs require you to put 10% of the car’s price down and provide a copy of your diploma to qualify. These programs also require that you have a checking account, and that you don’t have any negative credit (like late payments, delinquent student loans, etc.).

You should also consider leasing a new car instead of buying one. First of all, you’re probably at a point in your life where your needs can change dramatically in the next two or three years. Today, you might want a nice little sports coupe. In two years you might need to trade that coupe in for a sedan (to support a new family). The point is that you never know how your life is going to change – the only certainty is that, when you’re young, it WILL change. So, instead of locking yourself into a new car loan for the next 5 or 6 years, consider a short term lease (24 or 36 months) and fairly inexpensive payment ($350 a month or less). That gets you into a reliable new car using a first time buyer program, and gives you the flexibility to switch it up later without too much trouble.

Make sure to read our questions you should ask yourself before leasing a new car, and do lots of new car research before you buy. Congratulations on your graduation!