Updated: Sep 5
Updated post: 4/26/23 - Original post: 9/17/22
Buy Here Pay Here dealerships sell and finance cars on their lot. Interest rates extended at these dealerships are traditionally much higher than at traditional dealerships. At traditional dealerships where loans are extended, they are done so through a traditional auto lender.
Buy Here Pay Here dealerships frequently extend deep subprime auto loans to folks with poor or no credit. The interest rates on these loans are much higher than those with prime or super prime credit scores.
Listen to Experian's Senior Director of Public Education and Advocacy explain how you can manage your credit with your spouse on the Modern Husbands Podcast.
To put this in greater perspective, see for yourself how the interest rate would affect the cost of the average used car sold in 2021: $26,700. This assumes that there is not a down payment and the length of the loan is 60 months (5 years). From left to right, these images reflect the cost of borrowing based on a deep subprime credit score, non-prime credit score, and super prime credit score.
Using this calculator, you can calculate your circumstances by interest rate or credit scores. The loan cost is only one of many cost factors to consider. As we shared in a previous article, vehicles can depreciate faster than loan balances are paid, leaving the vehicle owner upside down on the auto loan. This means the borrower owes more for the vehicle than the vehicle can be sold for at that time. This is particularly common when folks take out high interest longer-term loans on used cars.
It is very expensive for someone with bad credit to borrow to buy a used car. If this is the case with your spouse, you should consider the alternatives first while on a Money Date with your spouse.
Discuss with your spouse alternatives to owning another car. Can you think outside the box and devise a plan that could include public transportation, carpooling, sharing one car, and the stray Uber ride?
You should each check your credit scores and discuss options if one of you has a much higher score than the other. It could make sense to finance the loan under only the borrower with the higher score.
Each of you should go to annualcreditreport.com and pull your free credit report. One in five people has errors on their credit reports, meaning there is something negative that should not be reported. If this is the case for you or your spouse, follow the process laid out by the Consumer Financial Protection Bureau to repair your credit report. This could improve your credit score, improving the interest rate of your auto loan.
Shop around for interest rates at banks, credit unions, and other lenders in advance of purchasing a vehicle. Interest rates can vary from lender to lender, just as the price of a vehicle can from dealer to dealer.
If you have time, improve your credit score by paying down debts. You can use a couple of primary strategies to do this quickly.
Wait until you have more money saved for a larger down payment, which will also reduce the cost of the loan. If you or your partner struggle to save, consider taking advantage of the free trial of our Money Marriage U Save online course.
One final consideration to make before borrowing to buy a used vehicle. The older the vehicle, the more costly the maintenance will be, so be sure to budget for these costs in advance.
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