IRVINE, Calif. — For dealers who are trying to bring in
subprime buyers who are better prepared to make a purchase, CarFinance.com released
its 2013 Top Tips for Buying a Car with Less-than-Prime Credit.

For buyers with less-than-prime credit, site officials
acknowledged the prospect of purchasing a vehicle can fill them with
trepidation.

"While over 40 percent of all car buyers have below-prime
credit, few tools – and little advice – exist in the market specifically targeted
to this growing population," said CarFinance president and chief executive
officer Jim Landy.

"Our mission is to help these consumers through the vehicle
purchasing process. So, our experts put together a list of insider tips to put
consumers with less-than-perfect credit on the road to a quality vehicle that
is affordable, with financing that is sustainable, and that should help them
build strong credit," Landy continued.

Here are CarFinance.com's six Top Tips for Buying a Car with
Less-than-Prime Credit:

1. Be Realistic about What Is Affordable — Start with Actual
Cost of Ownership

Many consumers begin and end with the purchase price of a
vehicle when budgeting what they can afford. This is a common and dangerous
error, because budgeting for just that monthly payment is only one part of the
actual cost of owning a vehicle — all related vehicle expenses, including gas,
insurance, annual registration, routine maintenance and more — should be
included in the overall budget. 

This element is especially critical for below-prime vehicle
buyers whose credit profiles are particularly vulnerable. Understanding the
true monthly cost of vehicle ownership allows consumers to focus their search
on vehicles they can afford prior to entering a dealership.

2. Assess Current Credit Situation — and Improve It

Given what a large part of the actual cost of vehicle
ownership financing is, it's important that consumers know — and understand —
their credit scores.  

A consumer's credit score not only impacts whether or not
he/she is going to be approved, but also the amount financed and, importantly,
what the interest rate will be. Understanding credit scores can be complex as
they can be influenced by multiple, and sometimes contradictory, factors,
including:

—The number of credit accounts and any delinquencies on
those accounts
—The number of credit accounts applied for
—Number of open loan payments
—Total credit limit
—Total balance owed across accounts
—Bankruptcies
—Not having any credit accounts since closing a credit card with a long history
can have a negative impact.

Consumers can find out their credit score for free at
various online sources and should remember that different lenders have
different score criteria.

3. Get Financed Online — and Early  

Consumers should know how much they can be financed for,
what the interest rate is, and how it impacts the overall cost of ownership,
before walking into a dealership.

One of the most efficient ways of doing that is by applying
for a loan online from a direct lender. 
While many buyers may be hesitant to seek an auto loan prior to
obtaining their vehicle, entering a dealership with approved financing in place
will simplify the sales process for buyers, especially for those with
less-than-perfect credit.

4. Understand
Trade-In Value

Most consumers have an existing vehicle to trade in, which
will impact how much financing they need for their next vehicle. Understanding
the market value of the trade-in and what the existing loan balance is, if any,
is critical. 

If the consumer doesn't have a loan on the existing vehicle,
then the market value provides a good idea of how much is available for a down
payment from the trade-in. However, if
the consumer is still making payments, then he/she will need to contact the
finance company to find out the payoff amount on the existing loan. The
difference between the vehicle's market value and the payoff is referred to as
'equity', and the equity can contribute to the down payment. Sometimes, the equity can be negative,
meaning that the loan payoff is greater than the market value of the
vehicle. 

It is important to note that a vehicle can still be
purchased even with negative equity in the trade-in, but the buyer will need to
work closely with the lender to factor the negative equity into the next loan.

5. Be the Vehicle's Encyclopedia

Below-prime vehicle buyers should go online and research
everything there is to know about the model they are interested in – from
invoice pricing, rebates, cost of ownership, maintenance, specifications and
more. They can also check to see which vehicles other below-prime car buyers
are purchasing as a possible starting point.

Expert reviews are great resources to better understand the
vehicle's characteristics, such as handling, power, and cargo space.  But consumer reviews are also invaluable and
are readily available on the Internet. And using social media to solicit advice
can also be helpful, i.e. asking friends on Facebook. 

Shoppers should see what other owners are saying about
reliability and cost of parts and maintenance.

Researching a late-model version of the chosen vehicle can
also make sense. Since a vehicle loses 11 percent of its value when it is
driven off the lot, a late model version with relatively low mileage, good
reliability history, modern design and safety features can provide excellent
value at a substantially lower price point.

6.  Ignore the Myths,
Listen to the Reality

Although the overall vehicle buying/loan environment has
changed significantly over the last several years — with lower interest rates
and consumers holding onto their vehicles for much longer — fallacies about the
below prime auto loan process persist, such as the myth that consumers always
need a large down payment, or that longer loan terms are always bad or that
being in the same jobs for years is essential to qualify for a loan.

Continue the conversation with SubPrime Auto Finance News on LinkedIn and Twitter.


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