Most people end up needing a loan to buy a car at some point in their lives, and as with all things that are based on credit the terms of the loan are dependent on your credit. Unfortunately the car business has a bad reputation for a reason and there’s often more going on behind the financing scenes that customers are aware of that can cost them hundreds or even thousands of dollars over the course of a loan.
As we’ve written about here before, the “Buy Here, Pay Here” types of car dealers usually serve those with poor credit. At these dealerships they “are the bank,” which allows them give loans to those with low credit scores (300-550). But because they are the bank, even if someone pays back their entire loan on time, it is not reported to the credit bureaus so the individuals’ credit score remains low.
But even loans on used vehicles from franchise dealers (Toyota, Honda, Ford, etc) can come with some huge hidden costs. Many large dealers have in-house banks that sometimes report to credit agencies, and sometimes don’t. It’s also in their best interest to charge the highest possible interest rate, even if that person would be eligible for a much better loan at a regular bank or credit union.
Here’s a good example on a $6000 car loan:
30 month term with a 30% interest rate=$286 monthly payment, and $2598 in interest paid over the life of the loan.
With an 8% interest rate=$221 monthly payment, and $639 in interest paid over the life of the loan.
Here at American Pride we are not the bank, so we look for the best possible option for each customer. For a few, we have no option other than BHPH (we have a BHPH partner for these cases), but we are frequently able to finance people with fairly low credit through the credit unions we have relationships with. We have been able to get people loans in the 8-10% range who were told elsewhere that their credit was so bad they could only get a loan at 25% interest!
When car shopping here’s what you need to know:
Your financial position-what’s your credit score, monthly income, how much can you put down?
Where the dealers’ interest lies based on your financial position-are you a highly desirable customer, or are you someone they see as a potential windfall?
Go to your bank or credit union first, and find out how much they’ll pre-approve you for, this gives you a great basis for comparing loans that dealers offer you. And if you have questions feel free to call Gerald or Josh, they know the business inside and out and are happy to talk about their experiences!