Auto Loans for Bad Credit

Falling for scams

Unfortunately, there are a lot of car-buying scams out there. One of the easiest ways to avoid them is to purchase directly from a reputable dealer. Private sellers may take your deposit and run. One common tactic is to ask a buyer to put money in an “escrow account”. Another scam involves something called VIN cloning, which results in “ownership” of a stolen vehicle.

You should still be on the alert for these scams, but there are some shenanigans you should look out for at a dealership as a car buyer with bad credit.

Falling for the bait and switch

If you find a car online at a great price, be sure you’re getting the same offer at the dealership. Sometimes you’ll get a salesperson that promises you a price that’s literally too good to be true.

What if he or she can’t get it approved by management, though? That salesperson is hoping you’re emotionally invested enough that you’ll purchase the car anyway — even if it’s outside what you can realistically afford.

You may also show up to the dealership to find out that the vehicle has “already sold.” You had your heart set on purchasing your vehicle that day, though, so the salesperson is hoping you’ll be willing to take a look at more expensive options.

Not understanding your warranty

Sometimes a used vehicle will still have an active manufacturer warranty. If it does, the dealership will let you know about it. Before you take it at its word, make sure the vehicle hasn’t been through anything that would void that warranty. Typically this includes things like accidents, modifications or use as a business vehicle.

Your dealership may also try to sell you an extended warranty. These aren’t necessarily scams, but make sure you know what will be covered, for how long, and how much the warranty will cost. That last bit is extremely important, as any additional costs are likely to be rolled into your financing, resulting in a higher monthly payment and more interest paid over the life of your loan.

Not getting appraisal quotes for your trade-in

Salespeople will often be interested in how much you want for your trade-in. When they heroically come back with the number you had been hoping for, it’s easy to miss the fact that while they’ve met your request, they’ve also raised the price of the vehicle you’ll be purchasing to make up the difference.

To avoid this, it’s a good idea to get quotes for your trade-in from many dealerships, and to not discuss the exchange for your trade-in until you have a solid price on the new or new-to-you vehicle and are ready to seal the deal.

Falling for the yo-yo financing trap

Imagine you purchase a vehicle with financing at 17.62%. You’re pretty happy with that, as you know it could be worse with your credit score.

A couple of days later, the used car dealer calls up to let you know the financing fell through. They say they’ve already sold your trade-in, so you’re going to have to finance with another lender. Luckily, they’ve got you covered. There’s just one catch: The new lender will only finance you at 22.75%.

This is called yo-yo financing, and you can avoid it by bringing your own quote to the dealership. That way, even if the dealership does find you a better deal, you’re not stuck paying above-market rates out of panic if the dealership’s financing does indeed fall through.

Focusing on monthly payments

If a salesperson asks you how much you’d like to pay monthly, stop! Discuss only the overall price until you’ve finalized negotiations.

Dealerships can often meet your desired monthly payment by extending the term of your loan. That means you will be paying high interest rates (thanks to bad credit) over a longer period of time.

You might be saving more monthly, or be able to “afford” a vehicle that you thought was out of reach, but in all reality, you’re paying more over the long haul by taking a longer loan.