It may seem like a double whammy to get hit with high interest rates because of your bad credit. It’s hard to get back on your feet when it seems like everything is stacked against you. But, if you’re savvy, you’ll take the steps needed to limit the amount of extra money you’ll pay just because of a low credit rating.
How Much Extra Are You Paying?
If you’re buying a $15,000 used car and spreading the payments over five years, here’s what a person with excellent, average, below average, and bad credit would pay. These figures are used as examples only.
Excellent: At 3.2% interest, monthly payments would be $270. The total amount for the car would be $16,216 with $1,216 total paid in interest.
Average: At 4.5% interest, monthly payments would be $280. The total amount for the car would be $16,779 with $1,779 total paid in interest.
Below Average: At 6.5% interest, monthly payments would be $293 The total amount for the car would be $17,610 with $2,610 total paid in interest.
Bad: At 12.9% interest, monthly payments would be $341. The total amount for the car would be $20,432 with $5,432 total paid in interest. A whopping $4,216 more than someone with excellent credit!
Now, you can see how differences in credit can mean a lot over the course of five years of car payments. Those little changes in interest rates can have a big effect on your monthly budget and the overall price you end up paying for a car.
Avoid Predatory Lenders
Predatory lenders will take advantage of your situation and offer you unreasonable terms and conditions with your auto loan. They feed on the desperation you feel when searching for a car to get to work, and they dangle the promise of a new set of wheels to those that have been trying to get approved with no luck. Avoid them at all costs! They will only drain your bank account with excessively high rates on your auto loan.
Give Yourself Time
The longer you give yourself to improve your credit rating, the better. You’ll not only save in interest payments, but you’ll also have more options available to you. While it may seem like you need a car immediately, see if there’s a creative solution that will allow you to save up, make on-time monthly payments, and resolve any financial problems from your past.
Fully Understand the Contract
Don’t rush through signing the contract. You’ll want to know exactly what it entails, including how much interest you’ll pay. If the rate seems high based on your credit, don’t be afraid to walk away from the deal. You’re never obligated to sign the agreement just because you’ve spent several hours working with the dealer.
Know what your monthly payment will be, how many payments you’ll make, and the total amount you’ll pay for the car. These numbers can be sobering, and they should startle you out of getting caught up in the moment.
Save Up and Pay Down
The more you can save up before buying your car, the less you’ll have to finance at higher interest rates. Also, just because the car payment is set at a specific amount doesn’t mean you can’t pay it off quickly. The faster you pay your car off, the less you’ll have to pay in increased interest.
Downsize Your Car
It may be best to take a step back from the kind of car you want. Maybe now is not the best time to get the car of your dreams. This doesn’t mean you have to drive the car of your nightmares either. You should choose a car that will give you reliable transportation and good gas mileage, without breaking the bank or costing you too much in interest.
Work with the Best Dealership
Choose a dealer that is used to working with people who have bad credit and don’t take advantage of them. At Ride Time, we pride ourselves on helping you drive the best car that makes the most sense for you. We aim to get you approved, when others can’t, at the best interest rates we can find. Stop in today to see what we have to offer. You might be surprised!