BUYING A CAR

part II

     Buying a car is one of the most DREADED experiences.  It ranks right up there with going to the dentist.  In the past, it was a reputation that used car dealers brought on themselves. They used many questionable business practices as well as outright deceit to sell their products,  I have heard many horror stories from car dealers abusing their clients.  So beware even today there are bad dealers as well as good ones.

     One of my personal experiences involved a young man that came in to the lot to buy a Toyota Camry.  He was a "first time buyer".  This young man drove up in a newer Camry and went straight to a similar Camry we had for sale on the lot.  We test drove the car and he L O V E D it.  We sat down and did all the paperwork and found that he was a near perfect fit for a "first time buyer" program from one of our lenders.  He would not need a co signer, just a reasonable down payment.  This young man was very very happy and thanked me over and over.  He drove off in the Camry.  Another happy client right????  If that was the end of the story it would be great......there was more.  A few days after the sale, He came back to the dealership very upset and asked if we would take the car back per our policy.  In asking him if there was a problem with the car, we uncovered the REAL reason.  A week before he came to us, he had gone to a local Toyota dealer and TRIED to purchase a Camry.  This dealer had asked him for quite a bit more money down and had his mom co sign for him.  They had "spot delivered" the car to him and the called him back in several times to sign NEW paperwork at higher and higher interest rates and to put more cash down.  After the third or fourth time he had enough and came to us.  When the other dealer found out about that they threatened to put HIM in jail for not signing the latest offer.  We told him that if he really wanted to return the car we would take it back, but it sounded to us like the dealer was bluffing and he should be very sure he wanted that car before signing any other paperwork with that dealer.  As it turned out, he kept the Camry we sold him and challenged the other dealer to put him in jail.  Of course it was just a bluff and our young buyer really got a good deal and was very happy with us.  

     As a footnote to this story, this young man sent several customers to me,  He eventually came to work at the dealership in sales and did very well for himself,

BUYING A CAR

     Buying a car is the SECOND largest purchase you will make.  Usually the only larger purchase you will make is for a home.  If it has been a while since you have bought a car you may be surprised by some of the changes.  

Lots of Changes

     The used car market has seen some drastic changes in recent years.  Most of the changes have been brought on by an educated consumer demanding an end to the ways of the past.  Other changes have been brought about by government regulation.  Still more change has been brought in by the dealers themselves looking to increase the long term revenues from their lots.

We are not going to TAKE it

     Consumers today have learned not to be fooled by the tricks of the OLD style used car dealers.  The internet allows a consumer to research makes, models, and prices of vehicles.  In my time on the sales floor I saw many customers with various "apps" on their phones and others brought tablets or laptops to the dealership so that they could verify all aspects of the deal.  The most popular app was Kelly Blue Book.  I even had it on my phone to help me answer questions for my clients. I came to realize very early in my time selling that most of my clients knew  much more about the cars than I did, and why not, they had to know ONE car and I had to know something about ALL cars.  

More in part II

BUYING A CAR WITH "BAD" CREDIT

     Car dealers and the banks that will lend to "credit challenged' people will want to see a number of things that may not be required of someone with "good" credit.  

     The main reason for them wanting copies of these things is to "get to know you better".  Banks are probably not going to lend you thousands of dollars for a car if you are not stable in your job or home.

Proof of Income

     One of the things you will probably need to bring with you are your most recent pay check stubs.  I have seen the lenders want to see anywhere from the 2 most recent to several months worth.  The lenders can't afford to guess how much you make or just take your word for it.  They base their decision on whether or not to lend you money in part on what you can afford to borrow and pay back.  I would recommend you bring several pay stubs with you to the dealership to avoid having to make more trips to get you loan finalized.  You sales person should be able to make copies for you at the dealership so that these copies can be sent to the lender in your loan package.  

Proof of Residence

     Another thing you will need to bring is proof of where you live.  Most of the lenders I have worked with will only accept a utility bill that comes to Your residence in Your name.  Again they may want more than one so I would bring the most current utility bills as well as bill going back a couple of months.  I also found that if you bring in bills with "Past Due" amounts  at best the lender won't allow it and at worst they will deny the loan because they think you will not pay

SECURING CREDIT

Part II

     In my last post we began talking about Secured Credit cards.  I am sure there are still a lot of questions about them.  

     Where can I get one?

     If you are a member of a credit union, ask them first.  At least half of the credit unions offer secured cards for their members and don't charge as much for them.  There are other options for getting secured credit cards.  The website BankRate.com has a list of secured credit card issuers ,  Not all banks offer secured cards.

What will it COST?

     You will need to put $300 to $500 as a security and then there will be fees as well.  Look for a card that does not require an application fee.  Most will require an annual fee. you will want to look for the lowest one.  look closely at the fine print, you don't want to be surprised by hidden fees down the road.  A good company will treat you like a REAL customer not like a bum.  They will not smother you with fees or require an "insurance policy".  They will also make it possible for you to graduate to an unsecured card after making on time payments over a period of time.

How long will it take to improve my credit?

     If you use this line of credit wisely your score will get a little better each time you make an on time payment.  If you make smaller purchases and pay off the balance each month it will be best for your wallet. if you can't pay the entire amount be sure to keep your balance LOW.  Your credit score reflects how much OPEN credit you have.  If your limit is $300 and your balance is $298 it will show that you have only $2 AVAILABLE credit.  After you make on time payments the bank will graduate you to an unsecured line of credit.  They may do this by increasing your limit in small amounts to see how well you handle this or they may go straight to an unsecured card.  This process should take no more than a year.  

Summary

     A secured card will show that you are rebuilding your credit if you use it wisely.  Once you have had one for a few months a lender can see how well you are doing and it may make a big difference in the type of car loan you will get.

SECURING CREDIT

     The secret to getting reliable transportation is having a good foundation to base your credit on.  Many of us have poor or bad credit and others have no credit at all.  The operative word in building credit is BUILDING.  

Lay your foundation

     As I stated earlier, the first step is to clean up any errors on your report and pay or make payment arrangements for any judgement  on your report.  

     The next step is to show some good payment history on active lines of credit.  "I can't get credit" you say?  There may be a way .  

Secured Credit Cards

     Lenders that lend to "BAD" creditors look for things such as an open checking account in good standing, stability in your job and residence and other open well managed lines of credit.  If your credit score will not allow you to get a traditional credit card, a secured card may be an option.

What is a SECURED credit card?

     A secured credit card is a credit card that you SECURE with an amount of money deposited into a savings type account with the lender.  The lender will then grant you a balance based on the amount you deposit.  The lender is assured that you can not default on the credit because they have your security on deposit, and you get an open line of credit to use wisely to help build your credit score.

More about this in part two

BUY HERE PAY HERE

part III

     I don't want to dwell on this, but your credit score can impact your life in many ways. It determines the rates you pay for insurance, it can keep you from getting a house or apartment, and it can keep you from getting a better job.

     One of the best ways to improve your credit score is by financing a car and paying for it in a timely manner.  If you are going to finance a car, you should use that to rebuild your credit and open all the doors that go with that.

How do I do THAT?

     Very simple, you ASK.  Ask if the dealer reports to the credit agencies and which ones. A rule of thumb is that if they do not check your credit they will not report to the credit agencies UNLESS you default and your car is repossessed.  I would advise you that rebuilding your credit is as important as getting transportation.  You may have to "settle" for a car that is less than your dream to use as a "stepping stone" towards rebuilding . You can get to that dream car with some patience and hard work.  If you HAVE to get a car RIGHT NOW and can not get a loan in more traditional ways THEN this may be a way to go.

BUY HERE PAY HERE EXPLAINED

part II on buy here pay here

     Last time we were asking if you should go to a buy here pay here if you have bad credit.  The Buy Here industry would have you believe that the answer is YES.  In some cases that may be true, but not in as many cases as you might think.

     It is easy to understand the appeal of a Buy Here lot.  They promise "Everybody Rides" and "your job is your credit".  Generally speaking. they have flashy cars and advertise the payment instead of the actual cost of the car. While the cars may look good they often have very high miles and may also have mechanical problems.  A luxury car is no luxury if it is in the shop all the time or the repairs cost more than you can afford.

     So is there a time that Buy Here makes sense?

     It MAY make sense IF you need a car RIGHT NOW.  Remember if you can provide a good down payment you may be able to get a traditional car loan, but if you have a LOW down payment or are in the process of bankruptcy it might be OK for you to go to a Buy Here lot.  

You should also consider if the Buy Here lot can help you improve your credit standing. We will look at that in part III 

THE TRUTH OF "BUY HERE, PAY HERE"

     I know many of you are thinking,  should I go to the local "Buy Here, Pay Here" lot?  There is no easy answer to that.

     "Buy Here, Pay Here" lots have been around a long time.  Like any other part of the automotive sales industry,  they can represent the best and worst aspects of the industry.  

What is a Buy Here Pay Here Lot?

     A "Buy Here..." lot is any car sales lot that offers "in house" financing.  In other words, the dealer is also the "bank" that finances the loan for your car.  They come in every size from large and well known to small here today and gone tomorrow lots.  Most states require "Dealers" to be licensed to sell cars in that state.  States also usually require "Lenders" to be licensed, but many states have no regulation requiring car dealers to be registered as "lenders" leaving the door open for some questionable practices.  

So Should I Stay Away From Them?

     Again, there isn't an easy answer to that.  These dealers can be helpful depending on your needs at the time.  

     More in part II of this article.

WHERE CAN I GET A CAR LOAN?

     Believe it or not, there are many lenders for folks with less than perfect credit..  One of the most common misconceptions is that no one lends money to sub prime customers.  In truth, there are a wide variety of options out there.  

     Credit Unions are increasingly the choice for sub prime credit loans.  If you are already a member of a credit union, meet with them and see if they can work with you.  Even if  you are not, a credit union may be the lender that gets your loan as many dealerships work with credit unions for sub prime buyers. 

     Many banks specialize in sub prime loans.  Even  banks you might not think of as a possibility have sub prime divisions.  These lenders will work with a variety of credit scores.  

     The other option is a dealership.  There are a number of dealerships that will work with sub prime credit.  these dealerships often have specific lenders they use and offer a comfortable atmosphere for the credit challenged customer.  These dealers are not to be confused with the "Buy Here, Pay Here" dealers.  We will cover them in a later post. 

       

CASH IS KING

     If you are trying to finance a car with bad credit, you will need to bring a down payment.  As a car salesman I wish I had a dollar for every time I heard "Cash Is King" or "More Reasons to say Yes"

     Dealerships devote many hours of training to getting as much of a down payment as possible. Why you may ask?  Is it because they are greedy? Not really.  The majority of dealers realize that it is in their best interest to keep cars sold and not bring them back.  So they push to get the most money down to get the best deal possible.  Lenders are more likely to approve a deal if the buyer has some equity in the deal.  

     So then the question becomes "how much is a good down payment"?  Much of that depends on your credit.  Acceptable down payments usually fall in the 10 to 30 percent range.  A larger down payment can often save you points on your interest rate or may get your loan bought by a better lender.  

GREAT EXPECTATIONS

     When I was selling cars, one of the constants was that credit challenged buyers were unprepared for the realities of the costs involved in buying cars.  They often wanted a much more expensive or luxurious car than they could reasonably afford.  I was the salesman for a young woman who had 4 repossessions in the same year and she could not understand that the lenders were not going to finance expensive luxury cars for her.  After over 2 years of working with her, we were able to get her financed on a Honda CRV.

     Take a good look at your monthly budget.  If you do not have one, now would be a Great time to start one.  You need to find out how much money you can afford to pay every month for your car.  Remember you will also need to budget for insurance, tags and repairs as well.  I can tell you there is nothing worse than paying for a car that doesn't run.

     Once you have your monthly budget set,  then you want to start looking for a car that will fit within that budget.  There all sorts of payment calculators online that will allow you to figure out how much car you can afford.  Just remember that if you have some issues with your credit to figure on a high interest rate.  It is better to figure that your interest will be  high and have it come down than low and have it go  high and be more than you can afford.

MAKE THE MOST OF WHAT YOU HAVE

     OK so you have had some credit problems in the past and feel you CANNOT purchase another car.  THAT may not be true.

     After the credit crisis, lenders are aware that many folks took a beating on their credit score. They are looking more at what IS on the report as well as the numerical representation.  

Make You Credit Shine

  If possible six months before you try to buy a car get your credit score.  You can request your credit report from the three credit reporting agencies, Experian, Transunion, and Equifax.  Get your report from all three as dealers and lenders often look at more than one report to get your loan approved.  

     Unfortunately, you may have ERRORS on your report. Look over your report carefully and file a dispute with any items that have been improperly reported.  Look also for for any judgments or past due balances you can pay off.  Even small negative items can make your score go down.  

HOW TO BUY A CAR WITHOUT PERFECT CREDIT

     After the downturn in the economy, many good people found themselves  with "bad" credit.  Many others have made mistakes along the way. and now find themselves with less than perfect credit. They now feel embarrassed about the state of their credit report.  They often are worried that they cannot purchase a new or used car.

I HAVE GREAT NEWS

     It MAY  be possible for you to get a reasonable car loan with less than perfect credit.  In this blog I will outline the things that lenders will need from you in order for you to get the best rate for a car loan.  

     I was at one time a used car salesman at a lot that did numerous "credit challenged" car loans and I will help you prepare to get back On the Road.