Trading Car With Bad Credit – Explained

Can I trade my car if I have bad credit?

trade car bad creditIt’s like the answer to a lot of other questions, it depends.

It depends on how bad your credit is, what dealer you want to use, where you’ll look for financing, and the status of the existing loan on your trade vehicle.

Let’s take a look at how it might work.

Scenario

I need a new car,  and have a car to trade, but my credit is not good. How does it work?

In this case, it’s good that you have a  vehicle to trade because it can be used as a down payment on a new vehicle loan — assuming you are not “upside down” and have some equity to use as trade credit.

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Can I trade my car for a cheaper car?

Can I lower my car payments by trading for a less expensive car — trade down?

trade for cheapere carYes — maybe.

But whether it’s a good thing to do will depend on your particular circumstances. Let’s take a look.

If you want to trade your car for a cheaper car, it probably means you are finding it difficult to afford payments on the car you now have. Or you simply want to trade down to have a little extra money each month by lowering your payments.

Let’s look at the two different possible situations, one of which will probably match your own situation.

Situation #1

You are “upside down” on your current loan. That is, you currently owe more on your loan than your car is worth as a trade-in vehicle. You can determine how upside down you are by first asking your bank or loan company to give you your loan payoff balance. Then compare that amount to the actual trade-in value of your car (see www.kbb.com and www.nadaguides.com). The difference in the two amounts will tell you how much you are behind in your loan (“negative equity”).

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How Does Car Financing Work?

Car Financing Explained

car financing explainedIf you can’t pay cash when you buy your new or used car, you will need a loan, commonly known as “financing.”

Auto financing can come from a number of sources — banks, credit unions, online loan companies, finance companies associated with car manufacturers, or even from certain types of used-car dealers.

f you are buying a brand new car from a new-car dealer, he arranges your loan for you (if you haven’t already arranged one for yourself) with his “captive” finance company. A “captive” finance company is one that is owned by a car manufacturer and used by dealers who sell that manufacturer’s vehicles. Examples would be Ford Credit, Honda Financial Services, and Porsche Financial Services.

If you car buying a used car from a dealer, he may have a number of finance sources that he works with to arrange customer car loans. These may include local banks, large national banks, or national finance companies.

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Buying Used Car from an Individual – Explained

How to buy a car from a private party, not from a dealer

How to buy car from private partyWhen you buy a used from a private party individual instead of a dealer, things are a little different in the buying process. It’s a good idea to take extra caution especially with regards to exchanging money and title.

Since an individual seller can’t arrange financing for you if you need a loan, as a dealer can, you’ll be responsible for getting your own financing at a bank or credit union, or at an online finance source.

What’s different when you buy a car from an individual?

Advantages of private car purchase from an individual

• Possibly better purchase price than dealer retail price

• Individual sellers tend to be more flexible on price and negotiating

• Individual sellers tend to be more agreeable to buyer inspections and test drives

• No sales tax (in some states) on private car sales

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How to Buy Car With No Down Payment

 How to Buy a Car With Zero Money Down

zero down car loanWe often hear the questions, “How can I buy a car with zero down payment?”, ” Is it possible to get a car with no money down?”, or “How much down payment will I have to make for this car?”

There are a number of ways to acquire a new or used car without making a down payment, or making a minimal down payment. Let’s take a look.

New car without down payment

Most new-car purchases require a down payment but here are four cases where it is possible to escape that requirement:

1. You get a highly discounted purchase price such that the loan-to-value (LTV) ratio is 100% or less — that is, the loan you need is equal to, or less than, the value of the vehicle. Most loan companies set a new car’s value at sticker price. So, when you negotiate a lower price, you reduce the requirement for a down payment — assuming your credit score, income, and income-to-debt ratio are acceptable.

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Car Loans and Financing Explained

How and where to get a used-car loan

how to get car financing and loansThere are a number of options available to used-car buyers in need of financing:

Dealer Loan – If you buy your car from a dealer, he will arrange your financing with a bank or loan company that he works with. Dealers don’t provide loans and financing themselves, it’s always done through a bank or finance company — except for “buy-here-pay-here” dealers that we’ll discuss below. See our article, How Does Car Financing Work.

Bank or Credit Union Loan – You can arrange your own auto financing with your own bank, credit union, or an online loan company. If you are buying your car from an individual (“private-party”), this is the way you will get a loan. It’s best to make application to your financing source before you buy so that you’ll know exactly how much money you are able to borrow.

Online Auto Loan – You can also finance your car purchase – from dealer or individual – with a loan from an online auto loan company such as Auto Credit Express.

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Dealer Wants Car Back – Legal or Not?

Can a Dealer Take Back a Car After Papers Are Signed? Is it Legal?

dealer wants car backThe short answer to the above questions are Yes and Yes.

It’s a fairly common situation.

You buy a car from a dealer who arranges a loan, you sign the papers, possibly make a down payment and/or trade an old vehicle, and you drive away — thinking the deal is done.

Not quite.

You may have received the impression from the dealer that your loan was approved, which is presumably why you were allowed to drive away in your new car.

However, most dealers don’t provide or approve loans (except for buy-here-pay-here used car dealers). They use outside banks or finance companies. One of the papers you signed was a loan application, not a loan approval or grant.

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Bad Credit Car Loan – Options

Buying a car with bad creditHaving bad credit can cause difficulties when buying a new or used car if you need a loan.

However, most people with a low credit score have options that will allow them to get the car they want.

About your credit history and why it is important

Just to be clear, anyone who has ever had a loan, mortgage, or credit card has a credit history file. That file is a detailed report of every loan or account a person has had. It shows account details, credit amount, current status and balance, and payment history. If there have been late payments, missed payments, repossessions, bankruptcies, or foreclosures, those are also in the file. Negative information in the file can remain there for up to 10 years.

When you apply for an auto loan, the lender (dealer, finance company, bank, or credit union) will check your credit history to determine your credit worthiness — which is a measure of how likely, or unlikely, you are to keep your promise to repay your loan — based on your past performance.

However, car dealers and finance institutions don’t take the trouble to read your detailed credit report. Instead, they look at your credit score, which is a numerical rating that summarizes your entire credit history.

Continue reading Bad Credit Car Loan – Options

Used Cars Not to Buy

buy used carAll used cars are not the same, even those of the same year, make, model, and mileage. However, certain models have proven over time to be much less reliable than other similar models.

Consumer Reports magazine publishes its Annual Auto Issue each year in April. In it, they reveal the results of a survey of thousands of car owners who have provided detailed responses to questions about the reliability of their vehicles.

From that data, the magazine’s staff compiles reliability ratings and rankings for nearly every make/model used vehicle for the last 10 years.

The ratings are based on responses to specific questions about problems with the engine, cooling system, transmission, drive system, fuel system, electrical, climate control, suspension, brakes, exhaust, paint/trim, body hardware, power equipment, and electronics.

They not only publish a list of the best used cars, but also a list of those vehicles that represent the worst used cars — the ones that should be avoided.

This year there are 108 vehicles on Consumer Reports‘ Worst Used Car list.  Here are samples from that list:

  • Acura TLX ’15-16 (model years 2015 and 2016)
  • Audi A3 ’16
  • Audi A4 ’09-10
  • Audi Q7 ’15
  • BMW 1 Series ’11
  • BMW 3 Series ’08-11
  • BMW 4 Series ’14
  • BMW 5 Series ’08, ’12
  • BMW X3 ’07-08, ’11
  • BMW X5 ’11-12
  • Buick Enclave ’08-11
  • Buick LaCrosse ’07
  • Buick Lucerne ’08

Chevrolet has the most models on the list — 15. Ford, GMC, and Volkswagen also have a significant number on the list — 9, 7, and 9 respectively.

Conversely, popular brands such as Toyota, Honda, Kia, Hyundai, and Mazda have very few — 2 models or less — on the list. Lexus has none.

It’s significant to note those vehicles on the list that have a string of multiple years of unreliability. The Ford Focus is an example with the years 2012 through 2016 listed as not recommended — 5 straight years of unreliability. The Dodge Grand Caravan also has 5 years noted, as does the Chrysler Town & Country.

The Mini Cooper has 7 model years listed, and the GMC Acadia has 8 models, the most of any make/model.

Several have 4 model years on the unreliability list:

  • BMW 3 Series
  • Chevrolet Silverado 2500HD
  • Chevrolet Suburban
  • Chevrolet Traverse
  • Jeep Grand Cherokee
  • Volkswagen Jetta

In summary, not all used cars are the same. Some are great choices based on actual owner surveys, and some are not. Making the right choice when you buy can save you money and problems in the future.

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Is Leasing a Car a Bad Idea?

Does leasing a car make sense?

used car or lease new carMaybe.

If you compare monthly payments for leasing versus borrowing for a brand new car, you’ll find that lease payments are about half those of a loan for a term of 3 years.

But what if you are considering a used car, not a brand new one?

First, only brand new cars are leased, not used. However, if payments are only half that for a brand new car loan, it means that you could lease a brand new car for about the same payments as for a loan on a used car that costs half as much as brand new.

Stated another way, since an average car loses half its value in 3 years, you could lease a brand new car for about the same payments as for a loan on a 3 year old used car.

Therefore, if you are thinking of buying a relatively new used car, leasing could provide you a way to drive a much newer car for the same money.

Of course, if your budget doesn’t allow a relatively new car, then leasing may not be the answer for you.

Are there other things to consider if I choose to lease?

Yes.

First, leasing is not a way to own a car, even after the lease has been completed. However, most leases offer a purchase option at lease-end that allows you to buy the car for the part of the original value that you haven’t already paid during the lease.

Furthermore, leasing requires that you only drive a “normal” number of miles — about 10,000 miles a year — and that you keep the car in good condition. Any unusual wear or damage must be repaired prior to returning the vehicle at the end of the lease.

You also don’t have the same level of flexibility with a lease. Although ending a lease early is possible, it can be very expensive. Leasing is best for people with a stable lifestyle and who will not want out of their lease before its normal end.

If you want to learn more about leasing, go to LeaseGuide.com.

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Used Car Guide – Expert Tips and Advice for Smart Buyers