Post BK car purchase?
November 30, 2012 6:08 PM   Subscribe

I have poor credit and need to get a car. What is the best way to go about this?

My current car is starting to have a fair amount of issues and repairing it seems foolish. I've "lost faith" in the thing and would like a new, more reliable vehicle.

My particulars:

- I discharged Chapter 7 bankruptcy in July. Only debt I now have is $11,000 in student loans and $2300 on my current vehicle.
- I Make $52,000 a year and have been in the same job for 2 years, same field for 7. Job safety is high.
- I have low monthly fixed expenses. $600 rent, $290 car payment , $100 in student loans, $100 car insurance.
- I've had a perfect history of payments with my current vehicle for almost 6 years. I've only got $2300 left on the loan. Not discharged in BK.
- I can afford about $1500 down payment at the moment without too much stress.

Now, my questions:

1) I'd prefer to get a 2010/2011 certified pre-owned vehicle, but my understanding is that financing is very difficult to get on a used car with bad credit/BK.

2) I realize my interest rate is going to suck. What should I be aiming for? Anything to look out for they try to screw people with bad on?

3) Are there any good trade-in deals going on right now with Chevy dealers? Cash incentive-type programs? I have a 2005 Chevy Malibu.

4) I'm a Costco member, is it actually worth it to use their car buying program for somebody in my situation?

Other things:

-No, I don't want to buy a used car for $3,000. I spend very little on myself and the one thing I really enjoy is a reliable car with a warranty. Also, I have to travel for work a fair amount.

-Please don't moralize about my bankruptcy. It was a complicated situation that came about after a failed relationship and extended unemployment, not because of financial irresponsibility.

*I'm sorry for the bluntness of the above two points, but I've read enough AskMe to know how this can go.

If you have specific questions, please use
posted by anonymous to Work & Money (6 answers total) 1 user marked this as a favorite
If I were you I'd think about paying off the Malibu first and selling it privately on craigslist or in your local Auto Trader equivalent. Find out the blue book on it and try to get close to that for it and you'll have a much better down. I'm suggesting this because the trade-in value of the car is not going to be that high compared to the private sale, even with an incentive.

If your FICO is below 600 right now due to the bankruptcy you're going to get interest rates probably in the 15 to 20% and higher range. If you're by any chance with a credit union, or can join a credit union, you will likely get a better loan there than any dealership.
posted by last night a dj saved my life at 6:52 PM on November 30, 2012

No, I don't want to buy a used car for $3,000. I spend very little on myself and the one thing I really enjoy is a reliable car with a warranty.

I am a lawyer with a creditor's rights practice who represents banks and financial companies. Unfortunately, this is going to be a situation where what you want and what you can actually accomplish don't seem to be talking to each other right now. You have just emerged from a no-asset bankruptcy and your big priority is an extension of credit secured by a rapidly depreciating asset. I understand that your car has some "issues", but you should do a calculus to see how to cost of repairs would compare with principal and interest payments on a new car. I really recommend that you pay off your current car first, whether or not you decide to get the new car.

But, if you are determined to do so, don't look at a vehicle that costs much more than $10k - definitely under $15k. A lot of people won't talk to you at all, and those who will are going to want 20% or more interest, so don't think those rates are a scam. But, there is hope. If you make payments on the new loan as timely as you have on your current loan, you can refinance the loan. I recommend doing this after about a year of timely payment history. By then, your credit rating should have some improvement and you should be able to get a better interest rate.

My colleagues who represent debtors *really* recommend against a discharged debtor taking on a car loan. I know you said you didn't want to hear that advice, but they are uniform on that front.
posted by Tanizaki at 7:18 PM on November 30, 2012 [5 favorites]

The thing is that at the interest rates you will end up paying, the interest alone you will be paying on a 2011 car will be higher than the maintenance and repair costs of your Chevy Malibu. Given your income and financial situation, you really have to reconcile yourself to simply not being able to afford a nice car.

You're going to be digging yourself in an even deeper financial hole by going into 15,000-20,000 of additional debt. At best, a solution might be to pay off the Malibu and then sell it and assume (at most) a minimal amount of debt to purchase a car of about the same age that is more reliable.
posted by deanc at 7:22 PM on November 30, 2012

Expect to pay 15% interest but it's definitely doable and not that hard. Refinance as soon as you can. And try to buy the least expensive good car you can find.

I know a ton of people who've bought cars with bad credit. Yes, you're going to end up paying more than you ought to but them's the breaks when you have shit credit. Car dealers are used to it but it may be worth it to shop around some especially if you have a credit union or maybe try the lender on the current car loan since you have a good payment record.
posted by shoesietart at 8:01 PM on November 30, 2012

If you can hold out until next July or August and get some positive payment history between now and then you'll be in a much better position to take on a reasonable amount of debt at a reasonable interest rate. You probably won't be able to get the best rates, but you won't be getting the worst, either.
posted by wierdo at 8:03 PM on November 30, 2012

Not moralizing here, but from the numbers you give, you should have the ability to buy a brand new $20k car outright with cash in under a year.

So, assuming that as more-or-less true and that only getting a loan due to your credit rating presents a problem, I'd say wait as long as you possibly can before buying and see if you can build up enough savings to buy an almost-new car outright. "Wasting" $1500 on repairs in the short term may seem intolerable, but keep in mind that you'd effectively throw away far more than that through depreciation over the first year of owning a new car.

Also, have you considered a lease? You may have a gut reaction of "sucker's game", as I have for my entire life - Yet I currently have one, on a 2YO hybrid, for less than your current monthly car payment. I took it only to buy myself time when my last car unexpectedly died. Make no mistake, the dealer hasn't lost any money on me, but it served its purpose well and bought me time, both to figure out a car I really want, to save a bit for a down payment, and to let me time the buy as I want rather than in desperation to replace a dead car.
posted by pla at 8:24 PM on November 30, 2012 [2 favorites]

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