Pandemics, Bad Credit, and Car Buying

Since the Covid-19 pandemic enveloped us, millions of Americans are either unemployed, furloughed, or working fewer hours for less pay. Banks and all lenders are raising their credit standards to buy vehicles. Lending institutions, themselves, are financially threatened by customers unable to make their car and home payments.

Almost counterintuitively, new and used car sales are surging back almost to pre-Covid times. Many car dealers have always taken advantage of buyers with bad credit. With millions more car buyers with bad credit, this danger to you is worse than ever before. People with bad credit can be desperate (and therefore careless) when buying a car. They’re more worried about having their financing approved than buying the right car at the best price. This allows car dealers to overcharge them for the car they want to sell. It also allows dealers to sell them the car that the dealer wants to sell, not the one the customer wants to buy.

Following are six rules to follow if you have low income, bad credit, or too little credit, and you need to buy a car:

• Never assume that you have bad credit; you should check your own credit score which you can do free. Even if your credit score isn’t good, you should always check with your credit union and/or bank before you opt for dealer financing.

• Choose the car that you want to buy and negotiate the best price before you let it be known that you have marginal credit. Almost every car dealer will try to get you to fill out a credit application before you even begin discussing the car you want to buy and the price. REFUSE to do this and tell the salesman that you have acceptable credit. By doing this you ensure that the dealer isn’t raising the price and steering you to the wrong car because you have bad credit. 

• Car salesmen and finance managers can falsify your credit application that is sent to the bank. NEVER sign a credit application until it is completely filled out, and you’ve verified its accuracy. Be sure that you have a copy of the credit application before you accept delivery of your car. Falsifying credit is a federal crime, not to mention the fact that you’re probably paying far more for the car than you can afford. 

• Choose the car that’s best for you, not the one the dealer “wants” to sell you. The dealer will choose a car that he “wants to get rid of”, one that he can’t sell to anybody else; and/or he’ll choose one with a higher loan value than the one you really want.

• Verify that the car described to the lender has the same options and accessories as the one you’re buying. Dealers will sometime falsify additional optional equipment on the car that they’re asking the lender to finance. Adding fictitious options like sunroofs, navigation, sound systems, etc. tricks the lender into advancing more money than they should. This allows the dealer to sell you a higher priced car, increasing his profit. 

Lenders that specialize in people with bad credit are called “subprime lenders”. Car dealers even have separate finance people that specialize in subprime buyers. They’re called the “special finance” department. Subprime lenders often charge a fee to the dealer which can be as much as $2,500. This fee is not supposed to be paid by the buyer, because it would effectively increase the interest rate, probably above the usury law limits. Unfortunately, it’s commonly added to the price of the car. This is illegal, but it’s almost impossible to prove. By negotiating the best price on the car you want to buy BEFORE the dealer find out you have credit problems, it becomes obvious if the price is increased.