2 nd luck:
The solution for people who have had significant delays in the past or even went bankrupt but who have been released. Also called “subprime” credit. Here, we are talking about rates ranging from about 8% to 28% (at the time of writing this article) depending on the credit rating and the vehicle being financed. Most of the time the financing is offered by our Auto Finance and Scotia Dealer Advantage. The majority of people who have had problems with their credit will fall into this category.
3 rd luck:
This solution includes all special or exceptional situations that do not qualify for the 2nd chance. It is also known as “alternative credit”. For example, customers who are currently experiencing an undischarged bankruptcy, who have experienced a financial recovery on an old car or who simply can not demonstrate their income. There are many private companies that will “finance” automobiles by renting them to the customer, allowing them more control over the property. Be careful: here, you will have to pay large amounts of cash to reduce the risk. In addition, interest rates are generally close to 30%.
What impact will your credit rating have on your finances? Ask for funding here!
The impact of the interest rate
The worse your credit is, the more you will pay! Below, payments for a $ 10,000 vehicle with different 5-year interest rates (including taxes, fees and other products in addition to the excluded vehicle):
- 0%: $ 191.63
- 5%: $ 216.97
- 10%: $ 244.29
- 20%: $ 304.61
- 30%: $ 371.98
A difference! And, the higher the amount financed, the bigger the difference.
The impact on insurance
Of course, when you finance a car, you will need to provide the bank or the finance company with proof that you are well insured for that vehicle. You will have the obligation to inform your insurance company of the name of the bank or finance company with which you buy or rent your car. Of course, if you are a “high risk” client in terms of creditworthiness, expect to pay a lot, much more than if you are a “regular” customer. So very general and approximate , 2 nd luck your insurance premiums will double and 3 rd luck will be the triple . Also consider when making your budget before buying.
Now that we have clarified the options available, let’s talk about the process
The process for a customer who knows his credit score is low is upside down. First, find a trusted dealer and start with a bank pre-approval. The financial advisor will then tell you what rate you qualify for and what is the maximum amount for which you are approved. You can then use this information with your representative to find the right vehicle for you. Keep in mind that the more precarious your situation is, the more limited your choices will be. It would be financially irresponsible to purchase an almost new vehicle of $ 30,000.00 if you pre-approved with a rate of 20%. Over 6 years, you will pay about $ 25,000.00 in interest. You read that right, $ 25,000.00.
The secret to saving money
Very few consumers know this and unfortunately not enough dealers are following up. Some institutions of 2 nd and 3 rd opportunity will offer you the option to change your car after a year if you made all your payments on time and you qualify with almost prime. This assumes that your financial situation (credit) has not deteriorated further. So what is the magic formula? You need a car right away, but your credit is “scrap”. Read and review the following:
You can not afford the luxury of having the vehicle of your dreams.
What is important NOW is to restore your financial situation and find a vehicle that will get you from point A to point B. Too many times I have seen people in precarious situations rush to a higher vehicle that they could barely afford just because they “credited” for that vehicle. It is said that good things come to those who wait. Better to buy a basic vehicle at $ 10,000 or less if you are going to have a rate of more than 15% and make all your payments on time. In a year, you’ll be spoiled for choice as your rate could be as low as 7% to 10% and, with smaller payments, you’ll have raised a nice amount for a down payment or, who knows, a trip in the south?
Let me demonstrate it with an example. If you want to buy a car but you have bad credit. You are pre-approved for a maximum of $ 30,000 all inclusive and a 6 year term with a rate of 18%. You dream of having a Mazda CX-5.
There is one very beautiful in the yard of the dealer, it is a 2015 and in addition it is red! After a lot of bargaining, you get away with a total of $ 25,000 taxes, fees and other products included, plus you get the winter tires. WOW! Let’s see at the finance level …
- Payment: $ 570 per month or $ 263 every two weeks, no worse!
- Interest: $ 16,054 over 6 years, whew!
In all, the vehicle costs you $ 41,054, ouch!
Well, that’s not what you’re dreaming about, but there’s a 2011 Kia Rondo that you manage to negotiate at $ 7,500 taxes included with a one-year mechanical warranty. It’s an SUV too and it makes you from point A to point B. Being a very responsible person, you only pay installments over 3 years. You know that after one year, you will be able to change and have a lower rate.
- Payment: $ 271 per month or $ 125 every two weeks, hello the paid trip!
- Interest: $ 2261 over 3 years, including $ 1185 over the first year.
In all, you pay $ 3,252 for the first year.
After one year, you return to the dealership to change vehicles. There will be a net difference of about $ 2,000 between what the dealer offers you and what you have to pay. Normal, you had a rate of 18%! We will add this $ 2,000 (also called “balloune”) on the total of your new loan.