A new or used car might be one of the biggest purchases you make during your lifetime. Predictably, this transaction has led to a number of financial nightmares for individuals. While dealerships admittedly try to capitalize on ignorant, inexperienced customers, these monetary issues can usually be attributed to boneheaded mistakes by the buyer.
Opting for a deal that contains ludicrously high-interest rates is an obvious mistake, but we’ve explored some specific indiscretions below. That way, when you or a loved one is seeking bad credit car loans, you’ll know the predicaments you should be avoiding…
This first example from Reddit user u/PsychoticMormon explains why it’s essential to understand every financial aspect that goes into owning a car…
- “Oh man, I had a loan nightmare. At 18 years old bought myself a used Subaru Impreza. 10,000 miles, no down payment, income of about 45k a year. half salary half commission. Interest rate was 5% Payment was about $360 a month. That’s about a 1/3 of my take home every month, and I should only be making more in the future, right, since I was only 18! I was so dumb. Insurance was another 350 a month on top of that. Don’t give me that look. I legitimately shopped around. I jumped insurance providers every time I was quoted $30 or less a month. I paid $700 a month towards that car for 4 long years until I lowered the insurance to $120 a month, then $500 a month until it was finally paid off. I was married to the car. at 21 I wanted to go to school full time. Moved back in with my parents to do so.Car payment and insurance forced me to find a full-time job fast at $10 an hour. The city I moved to, any job or school requires a car. No public transport to speak of. Selling it wouldn’t have netted me enough cash to buy a new cheaper car without a car payment. Eventually and paid it off. Lived without a car payment for about 2 years then traded it in for what I have now. I paid this car off in 2 years, and as of last month, I am car payment free. That car made my life very hard”
This emphasizes how important it is to determine your financial situation before you head to a dealership. There are a number of costs the accompany a vehicle, and if you don’t have a whole lot of experience on the road, you’ll surely find it difficult to acquire a beneficial insurance deal. Furthermore, we’d even say that the Reddit user was a bit shortsighted in regards to mechanical work. Sure, you can assume that a new vehicle shouldn’t require monthly trips to the mechanic, especially right off the bat. However, you’ll also have to account for any repairs and maintenance as you’re determining your budget. In other words, just because the literal vehicle fits your budget, it doesn’t necessarily mean you can afford it.
This next example from Reddit user u/advisequestion confirms why you should never be signing for a vehicle that isn’t yours…
- “Several months ago my girlfriend had a car she hated. She absolutely had to buy another vehicle but she still owed a lot on her current vehicle. Enough that she had to sell privately to not be upside down on the loan. She decided that she was going to buy a new vehicle before selling her old one because the thought of not having a vehicle for days/weeks was nerve-racking. the new car was 11K after all taxes and fees for ~$1k down that I helped her with, and she has mostly paid me back the $1k with the money she sold her old car for. Here is where I come in: We were at the dealership and she did not get approved for any loans. She did not have perfect credit and there was already a vehicle on her credit report. I was asked to co-sign. Because I had good credit (780). I was technically the signer and she was the co-signer. Car payments are just over $200 a month and I have been paying them and having her pay me back (never had a late payment on my credit and I don’t plan on it) We are going through a breakup and I don’t know what to do. I don’t know if she will be able to refinance. I don’t want this car to hurt my credit though. The car is worth way less than what is owed. What can I do?”
We’re going to ignore the personal ramifications of this individual predicament, and we’ll instead look at the situation in a bubble. Unless you’re helping a family member (and even then, it should only be a trustworthy, immediate member of your family), it’s never a good idea to co-sign on a vehicle. It’s never a good idea to commit to a financial obligation if it’s going to revolve around you accepting payments from another individual, and it should be relatively obvious that being the main signer is accompanied by too many risks. Unless you’re literally married to the person in need, we’d air on the side of caution.
Finally, our final example from Reddit user u/Magicide basically emphasizes what happens when you’re ignorant about finances…
- “Last year he decided his beater of a car was hurting his chances at dating and that a new car would help out. So he goes to the used dealership to see what they can do. They saw a sucker coming from a mile away and managed to get him into a 2012 Chevy Malibu for $17,000. The price is slightly higher than the market price but they also sold it to him at a 20% interest rate! He has a poor understanding of finances so he took it on a 6-year term to keep his payments low. When all is said and done he’s going to be paying over a 50% markup in interest payments. To make matters worse, they are now calling him regularly asking if he wants to trade in the car for a newer model and he’s tempted despite having hardly touched the principle on the original loan and the car has depreciated considerably. I’m certain he’s going to end up upside down on a new loan and probably be in a vicious cycle of the same for years to come. I told him he HAD to get that refinanced at a more reasonable rate but he says that between his bad credit history and his low income he can’t get a line of credit or a bank loan. Crazy as it sounds but he would actually save money by using his 18% credit card to pay the loan off and then pay off the credit card. I even suggested he might want to sell the car, pay down as much of the loan as possible and even consider a new car at 0% interest rates if he qualifies as it would actually save him money over his current situation. Astoundingly bad choices on his part for someone making so little…”
This story confirms why it’s absolutely essential to do your research before committing to a particular deal. Had this individual known the market price of the vehicle (and had he had some understanding of financing in general), he wouldn’t have found himself in this situation.
What can you do instead? What a set car value in mind, including both the monthly payments and the entire cost of the vehicle. While this might slightly limit your options, it at least assures that you’ll have no issues completing the payments in a timely manner.
