There are advantages and disadvantages of financing both new and used vehicles – especially if there’s bad credit involved.
Buying a New Vehicle
When a credit-challenged car buyer finances a vehicle, the lender will determine how much of a loan they can handle. A borrower can then choose a vehicle from dealer stock that fits into the designated payment range.
Any new cars borrowers qualify for are going to be inexpensive, base models, not the top-of-the-line vehicles. However, a new car has the advantage of its newness. Chances are it won’t need as much upkeep and comes with some of the more desirable technology and safety features.
On the downside, new cars can be more expensive to finance because they haven’t had a chance to depreciate. Most vehicles see their biggest drop in depreciation – around 20 percent – in the first year on the road. Buying a car with bad credit also means paying higher interest rates. This could mean a borrower ends up paying higher monthly payments for longer just to drive that brand new car.
Buying a Used Vehicle
Used car buying with bad credit usually offers borrowers more options, depending on the dealership. A lower acceptable payment range means there’s a broader selection of vehicles to choose from, including certified pre-owned (CPO) vehicles, in some cases.
A CPO vehicle is a used car that can offer more peace of mind than a standard used vehicle. They’re typically newer vehicles that meet automaker age and mileage requirements, and have undergone inspection and reconditioning by factory-trained mechanics before being re-sold. Another perk of CPOs is that they usually come with some form of manufacturer-backed warranty.
Non-CPO cars have typically already seen their biggest depreciation drop, too. This reduces the time a borrower spends with negative equity. The lower price attached to non-CPO cars could also improve the chances of finding an affordable used vehicle with more equipment.
Both Options Help Improve Credit
Both new and used vehicles have pluses and minuses. The initial price of a new car may be higher, and a bad credit borrower may not qualify for many vehicles, or may have to go for a vehicle with less equipment. However, the perks of a new car – less upkeep to better fuel economy to (possibly) lower interest rates that may help save the borrower money over time – can outweigh the drawbacks.
Used vehicles tend to have a lower starting price, so a borrower may be getting more car for their money. The cost of ownership, however, can be higher for a used car that may need more repairs and often has worse gas mileage than a new vehicle.
An auto loan is a great tool for improving credit, so either option a borrower chooses – new or used – should help build their credit rating as long as they’re making payments on time.
Whatever Route, Let Us Be Your Guide
Whether you opt for a new, used, or certified pre-owned vehicle, finding the right lender for your credit situation is important. If you don’t know where to begin looking for a dealer in your area, let CarsDirect help. We work with an extensive network of special finance dealers that have lending resources available to work with many difficult credit situations. Taking the first step is easy. Simply fill out our free, no-obligation online auto loan request form to get started right now!
