Step 5: Pick the Right Car
When it comes to deciding the car you're going to buy, it helps to understand that lenders do not view all cars with the same selling price the same way. Imagine two $12,000 vehicles: The first is a 3-year-old economy car with 36,000 miles. The other is a 10-year-old sports car with 120,000 miles. Although both cars have the same selling price, a lender may approve a loan on one vehicle and not the other. A subprime lender is more likely to approve the newer car with fewer miles.
Lenders use a complicated formula when deciding which cars to finance, and the criteria can vary among banks. The vehicle's age, mileage, history and the buyer's credit history all play a role in what will be approved. So if you're approved for financing, you may have to pick a car that gets a lender's OK, and it might not be the one you had your eye on. Prepare to be flexible. Also, that high interest rate you're going to pay may sting, but remember that for many buyers who are rebuilding credit, it's temporary.
"Generally, if somebody has made good payments for 18 months, assuming the customer hasn't created new credit problems, then there may be an opportunity to get a lower interest rate," says Less of Nationwide Acceptance.
Your options could be trading in the car after you've established a good payment history and buying a different car with a lower interest rate. Or once your credit is on better footing, you could refinance the loan at a lower rate with a different lender.