CarFinance.com just released the first in a series of guides for auto financing which are specifically designed to help empower car buyers with less-than-prime credit. Because this consumer, representing over a third of all car buyers, has essentially been shut out of the market since 2008 – and is now coming back in – the company focuses its first advice on helping to pre-empt auto financing mistakes.
The experts at CarFinance.com, whose mission is to empower the growing ranks of less-than-prime credit new and used car shoppers, have decades of experience helping credit-challenged car buyers. They understand the confusion and insecurities that plague today’s non-prime customers – many of whom have had their credit negatively impacted by job loss, divorce or other circumstances of the economic downturn. The online resource’s first round of advice is on the top five mistakes less-than-prime credit car shoppers/financers should avoid making.
1. Thinking You Can’t Get Financed
The fact is that while non-prime auto credit was under a stranglehold during the worst of the recession, lending opened up considerably in the past year. Approval rates dropped to only 5-9% across 2009-2010, from pre-recession approval rates of 60%, but many more lenders are now back in the market, and more loans are being approved (up 22% in 2011 over 2010). In Q4 2011, the average credit score for new vehicle loans was 761, down from 767 a year earlier and 763 in Q3. Even a few points make a difference; so don’t automatically count yourself out of the market. Of course, it is still important to work on improving and maintaining your credit score (by paying bills on time, avoiding bankruptcy, foreclosure and repossession, etc.), and having a steady paycheck; but if you have done all these things, you should be in great shape to get approved.
Because, car buying and financing negotiation is a very personal, and often intense, game, being confident is critical. If you have done your homework, you should walk into that dealership with your head held high and knowing what your benchmarks are: what you aim to pay for the car you want, and what finance rate you can expect - and if those numbers don’t hit that window, you will have the confidence to say no and walk away.
2. Not Doing Your Online Homework
This is a critical step, and integral to avoiding the next two mistakes. DO NOT WALK INTO THE DEALERSHIP WITHOUT DOING YOUR HOMEWORK ONLINE. You should comparison-shop available finance rates, so you don’t have to rely solely on the dealer’s interest rate (which could end up meaning you lose any ‘great’ deal you have negotiated on the car’s price). You need to consult multiple resources to find out what the real price of your target vehicle should be – both the manufacturer's suggested retail price (MSRP) and invoice, as well as all incentives on that vehicle. Edmunds.com and KBB.com are both great websites with lots of information on pricing for new and used vehicles - as well as the prices of options and accessories. Use online calculators to figure out what you can actually afford each month, what the monthly payment would be on a range of loan amounts with varying interest rates. Approach it like a research project, and it will pay off. Online research isn’t just the best psychological weapon, it’s also the best way to ensure that you will make the right vehicle and lender decision and get a good deal.
3. Waiting Until You Get to the Dealership to Get Financed
While many dealers have financing options for less-than-prime consumers, not all of them are prepared to serve this customer segment. It may be better to avoid uncomfortable minutes or hours of going over your personal financial details face-to-face with someone you don’t know. The good news: there are now options that enable less-than-prime credit customers to get directly financed online – and quickly – from the privacy of home. Caution: many of the online lending sites masquerade as lenders, when they are really selling your financing form information back to dealers as a lead. That means you still have to go to the finance office and go through the exposing, one-on-one review of your credit again. But in today’s market, there are new companies, like CarFinance.com, that actually are direct online lenders, so that less-than-prime credit consumers can complete the entire process online. You get to know in minutes if you qualify (interest rate, loan amount and monthly payment). The whole loan can then be processed online, so you are shopping as a “cash buyer” at the dealership. And when you are shopping with cash, not a question mark - you know exactly what you can afford, so you can focus on the vehicle, rather than haggling over payment terms.
4. Not Keeping the Car Purchase and Financing Process Separate
It’s crucial to know exactly how much loan you can afford, and know the type of vehicle that best suits your needs. If you have done your homework and already have your financing in pocket, you will be able to pick your vehicle from the many available on the lot within your budget, rather than being relegated to select inventory. Firmly understand what the overall, benchmark price/cost of the vehicle is and negotiate the car price separately, and first, before any financing negotiations. Everything needs to be understood and negotiated in isolation: 1) the length of the loan (how much more are you paying OVERALL by getting into one of these super-long 7+ year loans), 2) the value of your trade-in, and 3) the true cost of any add-ons.
And, when negotiating with the dealership, don’t make the mistake of starting with MSRP. Having $500 or $1,000 cut off MSRP can look like a deal. But the fact is that most – but not all – of the time, the MSRP is inflated. Know the market price for the vehicle you are considering. Check your online resources, some high-demand vehicles actually can sell above MSRP, but low demand vehicles and vehicles purchased at the end of the model year, (before a new model appears) can be exceptional deals, not just below MSRP, but even below invoice. Check in with websites that provide detailed vehicle pricing, which reflects what is actually happening in the market, not just invoice/MSRP.
5. Not Having Good Records
To become approval-worthy, you must be able to show proof of income/employment (recent pay stubs, W2s or tax returns), as well as Proof of Insurance and Proof of Identity (a valid driver’s license, passport, etc.). Before you even start the financing process, check which exact documents you will need, and have them at your fingertips, whether financing online or at the dealership. Having this information in order also signals to the lender or dealer that you are ready to purchase, and you mean business, and that you are not letting your less-than-prime credit stop you from getting back into that market.
About CarFinance.com
CarFinance.com's (www.carfinance.com) management has helped hundreds of thousands of consumers with less-than-perfect credit purchase a quality, late-model vehicle. Its mission is to empower the growing ranks of less-than-prime new and used car shoppers by providing an anonymous time- and money-saving way to get their car loan pre-approved before they hit the dealership. Through CarFinance.com car shoppers can apply for a new or used car loan, or lower their existing car loan payments through refinancing, from the comfort of home - and because the entire process is completed online, personal information is kept private, safe and secure. CarFinance.com enables car shoppers to walk into the dealership with cash in pocket and their heads held high, and secure a better deal by confidently negotiating price as "cash buyers." The site also provides consumers with easy-to-use finance empowerment tools and content, such as calculators, articles, tips and advice.
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