Updated 09/21/2012 05:00 AM
Money Matters: Bad credit leaves "zero-percent" chances for lowest car dealership financing offers
When it comes to buying a car, not everyone qualifies for the advertised zero-percent financing offer and sometimes buyers end up paying for their bad credit. YNN's Tara Lynn Wagner filed the following report.
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The giant zero-percent financing offer hanging in the dealer's window may be enticing, but it may not be for you.
"Some of the more aggressive the deals the factories are putting out today tend to only be available to about 20 percent of the public," says John Giamalvo, the director of dealer strategy of Edmunds.com.
Just like with a mortgage, the higher a buyer's credit score, the lower is the interest rate. But while someone cannot get a mortgage with bad credit, it's possible to still get a car.
"The bad news is you're going to end up having to pay dearly," says AnnaMaria Andriotis, a senior writer at SmartMoney.com who says those payments can run into the double digits.
"If you have a credit score that's somewhere between 600 and 620 at this point, on a car loan you'd be paying an interest rate on 10 percent on average," she says. "If you drop below 600 credit score, you're looking at 13 percent-plus interest rate."
Buyers with credit that is not that great can still find ways to bring the interest rate down.
For one thing, Giamalvo says a buyer can lower the amount needed to borrow by bulking up a down payment.
"The more you can do, the more apt you are to qualify for a better rate or a buy-down of that rate if you will, by putting up more money," says Giamalvo.
Time may also be on a buyer's side in the fall, when dealers are looking to move last year's inventory to make room for the new models.
"Just by waiting a few weeks you could save between 1 to 2 percentage points on the loan even if you don't have the best credit," says Andriotis.
Finally, shop around. Apply for an auto loan through a bank or credit union, which tend to offer better rates than the dealer, who in many cases is getting the loan from a bank anyway.
"What they do is they tack on additional interest on that loan, so that they can make more of a profit. So even if you can't get a great rate, if you get it from a bank or credit union, chances are you are going to be paying 1 or 2 percentage points less than if you go into the dealership," says Andriotis.
Buyers with perfect credit can qualify for the dealer's offer of zero-percent financing. It doesn't get any lower than that.