Who’s Going To Pay For My Car?
I remember when I bought my first car. I was so excited! I had the money for a good down payment in my bank account. I took my checkbook, and I drove to the car dealership to pick out my independence on wheels. Within minutes, I found the perfect car. It was affordable, used but not old, it didn’t have a lot of miles on it, and it was beautiful. So, I told the salesman I wanted the car, and we went inside to start the paperwork. Done, right? Wrong. I had no idea that I would have to take out a loan from someone else, a bank, and they would pay for the car, and I would have to pay the bank back. I just thought I would give the dealership my money, they would send me a bill every month and that would be that. I knew I had to have credit, but I thought that determined how long I had to pay for the car, or my term. I also knew that the longer I had to pay for the car, the lower my monthly payments would be. I was definitely in for a surprise that day.
I learned that credit not only affects how much time you are given to pay back an auto loan, but other factors as well, such as interest rates, or the percentage of the loan you will pay back in addition to the amount you borrowed. For instance, my new car cost $12,000. If I had an interest rate of 10% and made all my payments on time, I would have to pay the bank a total of $13,200. I would have to have good credit to get an interest rate of 10%. The biggest lesson I learned that day was that credit determines who will lend you the money to buy a car, or in other words finance your car. Every bank has its own set of rules it uses to decide whether or not they will finance your car. Some banks are willing to take more of a chance, and therefore will still finance you with not-so-good credit. Others will not. In my case, I had neither bad nor good credit, but not enough credit. I was a college student with no real bills. Who knew that was a bad thing? In the end, my father had to co-sign, or agree to be equally responsible, for my loan. I walked away with my new car, but I promised myself to be prepared the next time I bought a car.
That day eventually came, but by then I had done my research. I learned that banks are not the only ones that will loan you money for a car. There are companies that are designed specifically to finance auto loans. In this new age of technology, there are also online finance companies. Each individual lender has its own set of requirements, rules, interest rates, fees, terms, and other factors that are important to consider when choosing whose services to use. Better credit means more possibilities. Also, many of these lenders will give you a loan to purchase a car directly from a seller, not just a dealership.
What I didn’t learn until much later was that just because you may have bad credit and no available co-signer, does not mean that you have to get a lifetime bus pass. There is a type of loan referred to as a “buy-here-pay-here” loan. This type of loan functions much like the way I originally thought the car buying process was when I went to buy my first car. Unlike traditional car loans, a buy-here-pay-here loan has weekly payments instead of monthly payments. Since bad credit suggests higher risk, the interest rate on the loans tends to be much higher, and the penalties are very strict. In fact, there is virtually no leeway for making a payment late. If you are as little as one day late, you risk having the car repossessed, or taken back from you. These may seem like extreme rules however, if you are dealing with very bad credit, you may have no other choice.
Buying a car is a bit of frustration. Unless you are extremely rich and can afford to pay for the entire car in cash, it is one that requires a loan of some sort. It is important to do your research and be aware of all of your options before signing on the dotted line.
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