Is Financing A New Or Used Car Better If I Have Bad Credit?
“If I have bad credit should I try to get a new or a used car?” This is a commonly asked question. Mostly because people like new cars. Who doesn’t like that new car smell, after all?
5 or 6 years ago I would have said that financing a used car was the best route if you have bad credit. But times have changed and a new car might just be a wiser choice.
Car manufacturers try to sell a certain number of new cars every year. This keeps the economy rolling with new car manufacturing and provides a lot of jobs here in America. To keep those new cars rolling off the lots the manufacturers have had to resort to a lot (and I mean A LOT) of very high rebates. So suddenly that Silverado that costs $30,000 is rebated down to $24,000. That’s incredibly affordable.
To make up the loss (because it IS a loss) they will try to add a couple percentage points to your financing. And someone with bad credit is just ripe for the plucking here! That’s why pre-approval before car shopping is so very important.
How does the dealership make money off financing? Here’s a simple explanation:
Let’s say that “Joe” wants a new truck and the price is $24,000 after rebates. The dealership runs his credit and the bank approves Joe at 9.95%. The sales manager writes down that you are approved for 12.95% and runs payments based on this. If you bite he just made a profit off you because he gets to split that extra 3% with the bank. So if the payments were $100 higher the dealership gets $50 each payment x 60 payments, that’s an extra $3,000 for them and $3,000 for the bank.
Bottom line: A new car purchase might just be affordable to you with the great rebates many manufacturers are offering, but you’ll lose any benefit of those rebates if you don’t walk in pre-approved.