Car loan for someone with bad credit?

[disneysteve]

A friend's car just died and isn't worth repairing. She still owes about 2K on that loan and now needs to buy another car. Problem is her ex wrecked her credit (which happened since buying the current car) so she can't get traditional financing with a decent rate. Plus she needs to roll in the 2K she still owes on this car into the new loan.

Any advice on how she can get the best used car financing in that situation?

[MarianneJ]

Re: Car loan for someone with bad credit?

I always recommend joining a credit union. In general they are more flexible and take an interest in your "personal story". Unlike a bank which is usually a huge corporate entity, a credit union usually has a small hometown feel to it. There is a better possibility of building a relationship with the employees (loan dept) and explaining what happened, and them taking that into serious consideration.

I guess all of that to say that you are more likely to be viewed as more than just your credit score.

[poundwise]

Re: Car loan for someone with bad credit?


I would seriously re-examine the 'isn't worth repairing' angle.

All things considered, it may very well be.

[disneysteve]

Re: Car loan for someone with bad credit?

I would seriously re-examine the 'isn't worth repairing' angle.

All things considered, it may very well be.

From what she's said, the car would need the engine replaced as well as some other repairs. It was actually the mechanic who advised her against doing the work. The car is almost 8 years old with almost 100K miles. I don't know that I'd want to put much money into a car like that. You could spend a couple thousand to repair it now and have something else break next week.

Plus, I don't think she's got the cash to make the needed repairs, so that would mean running up credit card debt. I think getting a newer car in better shape is a more financially sound decision in the long run.

[autoxer]

Re: Car loan for someone with bad credit?

I think getting a newer car in better shape is a more financially sound decision in the long run.

Are you taking into account the sub-prime interest rate and increased depreciation rate?

If she has bad credit, then they may give her a 20% interest rate. Paying 20% on a 10,000 loan for three years will cost $370/month and the interest will total $3,320. If she chooses a longer term to get the payments lower, then she will end up owing more than it is worth when the newer car dies. If she does pay it in three years, then she will have paid $13,320 and end up with a car that is worth ~$5,000 (depreciated from $8,000). So that route costs $13,320 - $5,000 = $8,320.

Now if the maintenance to keep it running for three years exceeds $8,320 - whatever it costs to pay off the current car ($2,000 + interest), then the new car would make more sense financially.

But I think financing the car repair with a credit card is a terrible idea. And if needs a new engine @ 100k miles, then I would wonder how well she takes care of her car.

[disneysteve]

Re: Car loan for someone with bad credit?

Are you taking into account the sub-prime interest rate and increased depreciation rate?

Now if the maintenance to keep it running for three years exceeds $8,320 - whatever it costs to pay off the current car ($2,000 + interest), then the new car would make more sense financially.

There's the problem. There is no way to know what future costs there will be on an aging car. Replace the engine this week and next month the transmission goes, or some other costly repair. It's kind of a crapshoot. Plus I'd rather see her pay 20% interest on a new car loan than that much or more on a credit card to make the repairs. At least she'll have a newer car in the former case.

And if needs a new engine @ 100k miles, then I would wonder how well she takes care of her car.

My thoughts exactly.

[autoxer]

Re: Car loan for someone with bad credit?

What kind of car is it? I could probably replace the engine in my nissan for less than $500, but replacing one in my subaru would cost $4000.

[Roupey03]

Re: Car loan for someone with bad credit?

I am curious as to what she does with her cars as to what kind of car it is 100K miles is not a lot for a car. I have had friends that have had cars that they have put 250K plus on.

[Elgin526]

Re: Car loan for someone with bad credit?

If she has a good mechanic, she should look for a cheap "beater" that runs well and pay cash for it (she can take it to him before she buys it and make sure it's in good shape). She'll have no loan and can save up money and fix her credit for the next few years. Not all used cars are lemons, she just really needs to look around, there are deals out there!

A friend of mine had an uncle that was great with cars and helped her find an awsome deal for $1000 on a car that looked okay and runs great! In fact she still has it 2 years later.

[greedy4chips]

Re: Car loan for someone with bad credit?

It may have been previous owners who dumped a car after they were irresponsible car owners.

I agree about finding a good runner in the 1k range and finance it at 20% if need be to cover the extra $2k.

She could try selling the car to a person who rebuilds accident type vehicles, since they may have access to used parts and know-how to fix it up. She may get $500 but a junk yard might give her only $100.

The $500 or whatever she gets can be for down payment or to cover the first couple months payments.

I suggest she gets her next loan at the same bank, being sure to sit down with them and explain her situation. The $2000 she owes them now is worth basically 0 in collateral so they may as well over-finance the next vehicle too. Financed for 1 yr max!

When fully paid for she can move on and find a better vehicle if need be. Remember this vehicle is only needed to get thru the next 12 months!

[Hypersion]

Re: Car loan for someone with bad credit?

Is the car not running at all with the engine "dead" or does it just not run as tight as a newer car's engine?

[disneysteve]

Re: Car loan for someone with bad credit?

Is the car not running at all with the engine "dead" or does it just not run as tight as a newer car's engine?

I'm not positive, but I think it isn't running at all. She said the mechanic told her that a spark plug tip blew off into the engine while she was driving. She was on the road, heard a noise and then the car stalled and she couldn't restart it.

[poundwise]

Re: Car loan for someone with bad credit?


If she repairs it, then she incurs an expense. That expense may, in fact, have to be borrowed. However, if she rolls the balance due into a new car loan then she will (a) have a long-term debt, (b) have an upside-down loan for much if not all of the length of the term.

I'd rather invest $1K or more in getting the current car running again. Try to borrow the money from a fixed term source such as a credit union. Borrow $2K so as to make this repair now and have $1K in an 'emergency auto fund' for peace of mind. If she is also worried about the car breaking down again and leaving her stranded or something, then she could join something like AAA or the GMAC Auto Club so that towing and ride are covered.

The alternative that has been presented is also good. Sell the car as-is for some cash, even as scrap if need-be, borrow $2K, then buy a $2500 beater until she saves up some more money.

I like the first scenario better because at least with your own crappy car you know what to expect.

Above all, I hate the idea of rolling the $2K into a new loan. Especially if what she is considering is to do so for a new vehicle or otherwise a vehicle that will have a term of 48-72 months. The main reason for this is that even though the emotions are saying that she needs a better vehicle, logic and common sense says that she currently doesn't have enough money (or money skills), and this has led to the current situation of not having money for repairs or replacement. Rolling into a new loan with a no doubt greater payment, longer term, and a vehicle which will have greater insurance costs, will only make that worse.

[disneysteve]

Re: Car loan for someone with bad credit?

Well, the situation has been resolved. Keep in mind that I don't know all of the details of this person's finances or the exact dollar amounts involved (or interest rates).

She went out last nite to look for a car. I expected her to pick a newer used car so I was surprised when today she had a 2006 Nissan Sentra. She said she got a "great deal" and "all kinds of rebates." They gave her $2,200 for her car without even seeing it (as it is still at the repair shop and isn't driveable). It is a leftover so I guess they are doing some special clearance pricing. And she said the interest rate on the loan wasn't as high as she was afraid of.

She took a 60-month loan and said the payments are $70/month more than she was paying on her existing car and that was still well within her budget.

Somehow, I suspect the deal wasn't quite as good as she may think, but she's thrilled and hasn't overextended herself... and has a brand new car. By the way, the old car was a Ford Escort, I think. She doesn't drive many miles so I'm sure she'll get many happy years out of the new Sentra.

[Elgin526]

Re: Car loan for someone with bad credit?

I had a 60 month car loan, and it wasn' too bad. The last year was the longest of my life, though. I was SO tired of writing out a check every month ($248.37, I'll NEVER forget that number!).

As long as she keeps that car for the full 5 years and doesn't get "tired" of it and try and trade it in early (and most likely be upside down on it) she should be okay.