Used Car Finance

Overcoming Bad Credit

For many used car motorists, bad credit prevents them from purchasing a new car.  In fact, they are going to be lucky to drive away in anything but a clunker, unless they have been saving to pay cash. However there are a few options that can help insure they have safe and dependable transportation.

1.     High Risk Loans

After a bankruptcy, a string of bad luck, or unwise financial decisions, it can take up to seven years to clear up a bad credit score.  But, for the individual that needs a car to get to work, take kids to school, or simply to go to the grocery store, waiting for years to purchase a car is simply not possible.

However, there are companies that specialize in high risk loans.  To make sure they don’t suffer a loss, if the borrower defaults, a higher than normal interest rate applies.  In addition, the down payment required may be higher. In the event the vehicle is repossessed, the company wants to increase their chances to recover the monies for the loan.

Naturally, if the borrower has any opportunity to pay extra on the principle, he/she should try and get the loan paid off as soon as possible.

2.     A Guarantor

It’s important to avoid obtaining an expensive high risk loan.  For some borrowers, a guarantor is a financial life saver.  In short, all monies for the down payment are still paid by the borrower.  The only difference is the signatures on the loan contract.

A good friend or family member, with good credit, may co-sign for the loan. Although it will be the responsibility of the borrower to make all of the car payments, the bank will contact the guarantor, if a payment is late.

Hopefully, the guarantor can then remind the car owner that he/she is getting behind in payments, and the problem will be taken care of right away.  However, if that friend or family member defaults on the loan, the bank or finance company has the legal right to demand payment from the guarantor.

3.     Collateral

It might be possible for a bank to okay a high risk loan, in order to obtain used car financing, if the borrower has enough collateral.  In other words, he/she has something that is more valuable than the amount of the loan.  The option is extremely risky.  If something happens that causes the borrower to default on the loan, whatever was put up for collateral now belongs to the bank. The property is theirs to sell, in order to recoup the loss on the loan.

4.     Nothing Special

For many, used car financing is not difficult, if they have enough of a down payment. The financing begins one of two ways.  The buyer has the necessary amount of cash on hand; or, he/she has an older used vehicle to trade-in on a relatively new vehicle.

Older trade-ins are common, especially if the newer vehicle is only a year or two old, in good condition, and with relatively low mileage.  The older trade-in may not be worth very much, but in order to move surplus vehicles off the lot, a dealership will basically agree to profit a little less, in order to make the sale.  Then, the on-site mechanics will do what they can to fix the older car up or strip it for parts, which can be sold to companies that deal in out-of-date parts for older cars.

5.    Cash for Clunkers

Many dealers will periodically offer cash for clunkers, in order to move both new and used cars off their lots.  According to the promotional, they don’t care if the old vehicle has to be pushed or pulled into the lot.  A minimum and maximum amount will be available to use on the purchase of another automobile.

In truth, the clunker may be worth absolutely nothing, as far as trade-in value.  But, the mark up on automobiles is sufficient to enable dealers to occasionally offer great deals, just so they have room for the newest models that will be coming out shortly.

For motorists, used car finance options make it possible for borrowers to acquire safe and dependable transportation, even if they have less than desirable credit.  For others, obtaining a used car loan works much the same as for the individuals that can afford a brand new vehicle.  No one should ever have to drive a car that is no longer safe on the road.