When Credit Cards Are Not Enough to Buy a Car

Written by: David Wilkening

The first thing you should know about buying a new car with bad credit is that while buyers still have a chance at getting a loan for a new auto, the odds are not good. Their best bet is a used model.

So buyers say OK. They will settle for a used car.

But what if they have no money, as in nil, and bad credit or even no credit? That raises the issue of how to pay for even a used car?

The most likely source here: used car dealers who do their own financing. They might figure out how buyers can pay monthly or weekly payments. Warning: it will not be cheap.

Of course, would-be buyers may figure that even if they have only one credit card, they can charge the car or part of it. But what if even that is out of the question?

No credit cards. No several thousand dollars in a bank savings account.

No car, no way?

Yes, way.

There are alternatives.

Some of them:

—Even if a loan has been ruled out, reconsider. Car dealerships often offer low interest loans to groups of people such as students. No credit is better here than poor credit. A car dealership may have offers that allow for low interest financing. It’s worth checking.

—Save the money, say, over a period of time such as a year or two. This requires patience, of course. But some patient would-be buyers have taken a second job just to pay for a car. Not a bad idea at times.

—Another patient remedy is that credit card scores are ever-changing. Scores can be improved in just a couple of years by getting a reputation for paying bills on time and not overextending living expenses (or cutting back significantly on those costs). Even if a loan is possible, the interest rate will be high but rising credit scores allow buyers to get money at lower rates.

—A loan from family or friends. Best suggestion: sign a simple note with terms to pay them back over time.

—For those who are still young enough to have living parents, gifts can be tax-free under certain conditions. Check the IRS.

—Perhaps unlikely for younger buyers, but is there any equity in a home? Really? A second mortgage? For a car? It might be worth it if a vehicle is necessary to commute to a paying job. Not always a good idea but it depends on desperation.

— Other collateral for a loan apart from a house. Another auto might do it. Stocks also or other property of one kind or another.

—Life insurance? It usually caries a cash value. There are tax implications, however.

None of these alternatives are particularly attractive. But they will look better depending on just how much an individual wants  –  and more importantly, needs  –  to have an automobile to keep up a reasonably high quality of life. ###


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When Credit Cards Are Not Enough to Buy a Car

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