Buying a new or used car can be a trying experience under the best of conditions. High-pressure sales tactics and confusing pricing are par for the course. But for consumers with bad credit, car buying can become an exercise in frustration. The great deals touted in TV commercials like 0 percent APR, large cash back bonuses or free payments for one, two or three months are not available for so-called subprime car buyers.
On the other hand, car loans are for relatively small amounts of money and are secured by the cars themselves. As a result, even consumers with very poor credit are able to find financing for cars, often for much better terms than they expected. The key is to maintain a wary eye for scams while shopping around to obtain the best deal possible from among legitimate financing options. The three lenders below – each with an A+ rating from the Better Business Bureau – represent some of the best alternatives available for car buyers with less than perfect credit.
Clearlane by Ally
Clearlane provides financing for new and used cars as well as car loan refinancing for borrowers with a broad range of FICO scores. Working with a network of credit unions and national lenders, Clearlane operates as an intermediary to obtain the best possible lending terms for borrowers. Customers are initially matched online and guided through the lending process by staff members online and by phone.
Innovative Funding Services
Innovative Funding Services earns its name, working to obtain auto loans and financing for customers with FICO scores ranging from 550 to 800+. Along with financing for purchasing or leasing new and used cars, Innovative Funding Services provides loans for auto loan refinancing and lease purchase financing. After completing a five-minute online application, customers are directed to national call center finance advisors to complete the financing process.
For active duty military personnel, veterans and their families, USAA represents one of the best options for auto loan financing – either for purchasing vehicles or refinancing the set of wheels already in their clients’ garages. A pioneer of direct marketing, USAA has more than 10 million members. USAA conducts the bulk of its auto loan business by phone or over the Internet, with transactions conducted by USAA employees.
Avoiding Scams and Getting the Best Deals
It’s true that car buyers with less than perfect credit should be prepared to pay higher interest rates and expect to receive few or no perks extended to purchasers with 800+ FICO scores. But that doesn’t mean subprime car buyers must settle for being gouged or getting stuck with lemons. It certainly doesn’t mean being taken in by a scam.
Yo-yo loans are among the most common car buying scams. With yo-yo loans, desperate buyers with poor credit are thrilled by being allowed to take possession of cars, even though financing is not yet final. After several days or weeks, the dealer calls to inform the buyer that financing has fallen through and that buyers must accept much less favorable financing terms to avoid having their cars repossessed. The key to avoiding this scam is to obtain financing before going to the dealer. Barring that, car buyers should never take possession of a car without having signed paperwork in hand.
Subprime car buyers are frequently drawn into so-called “Buy Here, Pay Here lots (BHPH financing). Such dealerships are often filled with overpriced castoffs with interest rates exceeding 20 percent and should be avoided. Before purchasing any car sold “as is,” purchasers should obtain a car history from CARFAX or a similar provider.
Subprime car buyers should also be wary of expensive add-ons such as extended warranties – they aren’t necessary and can jack up the cost of cars considerably. Finally, car buyers should run – not walk – in the opposite direction away from any dealer that refuses to accept pre-approved financing.