Poor, Car

Poor, Car

Purchasing a used car is like the Iliad of old. The young and inexperienced picking a fight with the strong and unyielding. You see, an average person will buy something like 20 cars (1.5 cars every 5 years from 20-75) in their lifetime. However, a car dealership will buy/sell something like 20+ cars a month. If you're feeling a little bit like an underdog, you're right.

So let's try and level the playing field and see if we can't keep your Achilles heel intact.

First, do not attempt to finance a car with bad credit. No credit history is better than bad. So if you have some dings to your credit, take the necessary time and drive "cash-only clunkers" until you get your credit score fixed (700 or higher).

Here is why this is so important:

I was talking to a sales rep at Ken Garff West Valley a while back. Ken Garff corp. is a great supporter of secondary education in Utah through their Keys to Success program. While speaking with the sales rep. he related a few stories from different customers who they were trying to help, despite their bad credit situations.

One type of situation sounded particularly desperate:

Customers come in looking for another car because their previous one has been repossessed (taken back by the bank/dealership because the owner wasn't making payments anymore). This is a major hit to your credit score; and typically, repossession is a symptom of other bad debt/bill payment issues. So, generally speaking, repossessions result in credit scores near the 300 minimum. In other words, you have a proven history of NOT PAYING FOR CARS.

As a result, the interest rate of your new auto loan will be around 24%. However, if you make on time payments for a year, then trade it in, you can finance into another car with a better credit score and a lower rate. This can be a great way to fix a bad credit situation. Except... you have a proven history of NOT PAYING FOR CARS! According to this sales rep., most people who have these low-score high interest rate loans don't make the on time payment consistently for one year in order to qualify for the better rate. Why? Because they haven't fixed their bad debt/bill payment habits and therefore couldn't get out of their bad situation.

There was one more, very telling, outcome of this situation. As we walked around the car lot looking at the inventory, one thing was very noticeable, the cars at this particular lot were dirty, and many had dents, scratches, and other blemishes. It was obvious that this location catered to a low income, low credit score, low financially educated population. Cars that looked like they had been repossessed and the dealer expected that they would be repossessed again from their next owner.

I can't think of a better metaphor when buying a used car. The car you buy will reflect the condition of your financial education/credit score...

If you have "dirty" credit with some "dents" "dings" and "scratches" your car will too!


  1. What is meant by the phrase "No credit history is better than bad."

  2. Search and report the Procedure of a Repossession (make sure your citing U.S. laws)

  3. Find a car for sale and calculate the monthly payment for that vehicle using a 24% interest rate for 3 years. What is the monthly payment (a) and what is the total amount of interest paid (b)? Then calculate the monthly payment (c) at 5% for 3 years and the total amount of interest paid (d).

a- (price X 1.24 / 36 = monthly payment)

b- (price X .24 = total amount of interest)

c- (price X 1.05 / 36 = monthly payment)

d- (price X .05 = total amount of interest)

What is the price of bad credit (total and per month)?


Lecture Guide

PowerPoint: Car Loan Experience

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