Here’s the situation…my girlfriend needs reliable transportation for 2-3 years until she builds up her credit and salary. Up until about 6 months ago she had no credit and a few negative items, bringing her current score to 600. She has $10k cash and a pre-approval from capital-one for up to $35k at 12% APR (I know). Her salary is $42k year.
The way I look at it she has 3 options:
Pay $10k cash for a cheap used car
Put $10k down on a nicer $16k car and finance the rest
Somehow try to get an under $250 per month lease and use that $10k to pay the monthly on it
Thoughts? Just a heads up, I’ve been looking at $10k cars with her for a few days and man they are crappy…
Which make and models are you thinking? You think she will still qualify for an under 5% rate with her credit score and no history? If so, which manufacturers are typically the easiest to get approved with bad credit?
Yes we’ve done it many times before! One of my favorites was someone with a 530 credit score landing a Mercedes at 3% (CPO). Unemployed😂
They did have $10k though
Not saying any other brands are out the questions, those are just the ones I had in mind. If you had something you were looking at we can go over it together
First this is detailed in all the right ways to offer helpful response, so appreciate that.
Just because she can, doesn’t mean she should. A true 600 FICO is not qualifying for any subvented financing (and you’re getting bumped on rate, you just are). It’s not a good use of money IMO, it’s a flex.
2 cents of free advice from an Internet stranger:
Cash is king
Try to turn a negative to a positive. Use this as an opportunity to rebuild and not to stretch.
I would look at something CPO Japanese for 12k-15k (girl works: she doesn’t have to get a beater), put down 1/3 to 1/2 and finance the rest with credit union if the captive doesn’t have subvented cpo financing. Open a trade line and pay it in full in 1-2 years (hopefully with a trade) to boost her credit score (a cash pay won’t).
If she wants to lease, something like a 1-pay Bolt if possible but again I wouldn’t sink all my cash into a car right now, great job or not. The score is a stretch at Tier 3 for most companies: try FCA, Mitsubishi, Nissan, Toyota (you’ll pay), Honda (even worse).
There is little more to getting a bank to approve on a tier then just the score. The only people who do so is those who are weak in finance & don’t know how to get a bank to give them what they are looking for
Also there are some tricks to know like ford’s college tier 1 bump
Or Nissan being the same from tier 1-3
Wasn’t really saying she needed to use the $10k but you having the ability doesn’t put our back against the wall
Personally, and again, take this with a grain of salt since I’m an internet stranger as well, I would strongly lean towards option 1 - and go even lower than $10k if possible, considering she is on a $42K salary. I wouldn’t consider financing, and leasing is out of the equation right now with that credit score.
Also, does she need the car urgently? I’ve been helping a friend shop for used cars, and prices are pretty high compared to normal times. If she can wait, I would recommend that.
To improve her credit score, I think she should put $5k down and definitely finance the rest. If the rate is high, I would borrow short term and pay it off as quick as possible. If the rate is decent, I’d spend a little more and get a little nicer car up to $15k or so.
Buy a $16k used car and finance half of it. After three years the car is most likely still worth north of 10k and your girlfriend would’ve paid off part of the loan and will have some equity. You throw 10k on a $250/month lease, you are left with nothing after three years.
In my years I have driven quite a few sub 10k vehicles and after a couple of years I sold for 2-3k less than I originally paid. Focus on the reliable vehicles and yes, she may have one or two mechanical repairs to make that average $250 each. Still a far better option than paying excessive interest.
2004 Nissan Pathfinder LE Platinum - Paid $6,000 and sold 2.5 years later for $3900
2002 Toyota Tundra Limited - Paid $7500 and recently sold for $6000
Insurance is less as well. Giving her more money to focus on her credit. Also it’s my .02 from another internet stranger.
I would personally look for the cash option myself, or attempt to get a lower rate with a credit union or small bank that she can plead her case to Another great source is going to some dealers around you and be nice and say you are looking for a decent trade and if they ever get one, let you know. We always had a running list, run it through the shop, and make a quick nickel on it.
Some vehicles like the Chevy Cruze are subvented for special lease/financing from the captive finance company so are easier to get approvals. Try to do a short term 24 month lease/12K lease (they don’t give low mileage leases usually to low scores) and with a big down payment she should be able to get a lease. Short term lease so that way she can get a new car quickly with a better rate and car history.
Yeah I would do a cheaper lease from the more lenient lenders. I’m sure with some searching you can find certain cars or brands that are a bit easier for approval. Just try to avoid the dealers that prey on low credit customers. My first thought was leasing a Nissan maybe. I think the used car is a good suggestion normally but the prices are mostly outrageous right now. Can one of her parents or relatives co-sign if needed maybe?
In her mind it’s urgent as she’s tired of driving the rust bucket she’s currently in. I’ve told her to be patient as being in a rush to buy a car is not the best mindset to be in. Her job is 20 miles round trip daily, so not many miles. Yes used car prices are crazy right now as we’ve been seeing thus I’m thinking about new.
As some have said, reach out to a local credit union to see if she can get a decent interest rate (In the 5 - 6% range).
I would recommend buying a new Japanese car (Honda or Toyota) for less than $20k, if she can get a great deal. Or better yet, if she can get a 2 year old CPO Honda or Toyota for less than $15k, that might be ideal financially.
If she does not need a car right now, wait till 2021 models arrive on dealer lots or wait till December.
Does she have any outstanding credit card debts with high interest rates? More than $3k? If yes, then maybe she should try paying those off first.
She should only put $5k down on a car purchase, while keeping the other $5k for savings/emergency.
I would not recommend she look into leasing until she has a higher score (680 and above), less debts (if any) and some credit history.
At the end of the day, she has to run the numbers and see what she can afford on her salary. I am guessing that $42k is pre-tax. So post tax, that will be less.
