Auto loans for bad credit consumers are plentiful, believe it or not. If you have a job – even if you have a low FICO (credit) score, you can get a car loan. But, this should make you happy. As a matter of fact, it should make you very wary.

Auto Loans and Bad Credit: Why You Shouldn’t Even “Go There!”

1. Auto Loans and Bad Credit: The Low FICO Score. If you have bad credit, it most likely is that way for a reason – one that’s not due to life catastrophes like a grave illness where you incur medical bills.  It’s most likely because you never learned how to responsibly handle money.

Don’t worry, you’re not alone. America has one of the most debt-ridden societies; we don’t know how to save money. In fact, most of us have never been taught about money so we keep making the same mistakes over and over again.

If you haven’t fixed the root of the problem (eg, how to effectively handle money), you shouldn’t be going into debt – period.

Moral of this story: Auto loans and bad credit should never mix.

2. Auto Loans and Bad Credit: Paying Out the Wazoo! If you have bad credit and apply for an auto loan, you’ll pay more – much more – than someone with good credit.

Let’s do some simple calculations using an auto loan calculator from Bankrate.

Auto Loan: Bad Credit

Let’s say you have bad credit and you buy a $10,000 car. Your interest rate can approach 30% (this is not a joke). Proof? This answer was given by on Yahoo! Answers from someone who works at a car dealership, ie:

i work at a dealership and i’d say anything under 10% is pretty good. we do offer 0% to those who qualify with good credit. i know someone who has a 23% rate (emphasis added) with a poor credit score which is very bad!

For illustrative purposes, let’s say that your credit score is 550 and you get really lucky and get a 20% interest rate (and believe me, this is generous). And, since most car dealers give consuemrs with bad credit 3-4 years to pay off a car loan (not the 6 years those with good credit can get), let’s say you have 4 years (48 months) to pay it off.

Now, let’s answer the following questions:

 

 

If you use this auto loan calculator from Bankrate, and plug in the numbers, what you’ll find is that your monthly payment will be $304.30, and you will have paid $14,606.40.

Auto Loan: Good Credit

Now, let’s see what these figures would look like if you had good credit.

For illustrative purposes here, the credit score is 750 and the loan rate is 7%. Where did we get this rate? Bankrate.com used car interest rates (they track averages on a daily basis).

If you use this auto loan calculator from Bankrate, and plug in the numbers, what you’ll find is that your monthly payment will be $239.46, and you will have paid $11,494.08.

Monthly difference: $64.84 ($304.30 minus $239.46)

Total Payoff Difference: $3,112.32 ($14,606.40 minus $11,494.08)

And this is real folks!

Your Bad Credit Just Cost You Almost $23,000

If you’re thinking, well, that’s no so bad. Consider this: Take the difference you paid on the car ($3,112.32) and invest it for 25 years, averaging a return of just 8% (FYI, the stock market returns an average of 10-12 per year, so this is low). Guess how much that $3,000 would grow to be?

$22,989.70. What this means is, if you invest a measly $65 per month for 25 years, even at a low market return rate of 8%, you’ll have almost $23,000.

This is how the rich (or those with financial sense) get richer, and the poor stay poor.

3. Auto Loans and Bad Credit: Committing Financial Suicide. Auto loans for bad credit consumers is financial suicide. They keep you in a cycle of debt that’s hard to climb out of. Proof? Consider this:

According to an article in the 6/22/06 issue of the Ft. Lauderdale Sun Sentinel, a third of car loans in America are for a six-year term, with an average interest rate of 9.69%. The average price of the vehicle purchased was [in my mind a whopping] $26,000.

Over the course of the six-year loan period, the car buyer pays $33,000 [for a car whose sticker price was $26,000, remember?].

The average monthly payment is $475.

And, who much is the $26,000 car the consumer paid $33,000 for at the end of the six years? A whopping [or better yet, pithy] . . . $6,000.

Would you invest in stocks that gave you this kind of return?

Further proof that auto loans for bad credit consumers is financial suicide.

P.S.: Repair bad credit in 37 days — guaranteed!

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Copyright 2009: NoCarCredit.com. This content may not be reproduced or redistributed without the express written consent of the author. Violators will be prosecuted.

The best car loan is the one you never take out. Before you go out and blindly get a car loan, take the following into consideration. It can not only save you hundreds of dollars a month in car payments the short run, it can literally change your financial life in the long run.

Assess Wants vs. Needs: Why do you need a (another) car? Do you really need one, or is it a want. Can you invest $500 or $1,000 in your current vehicle and get another year out of it?

Most of us get it in our heads that we NEED another car, when it is really a want. Now, if you’re a salesman and drive 100 miles a day and your car has expensive mechanical problems, then yeah, you probably need another car.

But if you drive 10 miles round trip to work and the air in your car doesn’t work, which drives you crazy – and everything else is ok – then you don’t need another car. You want one.

Remember, a car is only to get you from point A to point B. It doesn’t have to be fancy. Most of us want a new car or a fancy car, when a used one will do the job just fine.

Make Long-term Decisions: When most of us go out to buy a car, we often have a type of vehicle in mind. And this is why most of us get a car loan without even thinking about it.

BUT, what if you adjusted what you wanted down. Instead of the two-year old, almost new car for %17,500, what about a 5 or 7 year old vehicle for $3,500 – that you save up for an pay cash.

Instead of being stuck with a $350/month car payment – plus full cover insurance – for the next four years, how does NO CAR PAYMENT sound? How about $75/month for basic car insurance, instead of $150 for full coverage?

Why Get a Car Loan When It’s One of the Worst Investments You Can Make

A car loses 20-30% of its value as soon as you drive it off the lot – even a new car. Would you invest in a mutual fund or stock if you knew that as soon as you bought it its value would decrease by 20-30%? And, would you keep plowing hundreds of dollars a month into this “investment”? Of course not.

BUT, this is exactly what you do when you get a car loan.

As we discuss in our About Page, you can invest what would be car loan payment money and retire a millionaire – even if you never make a lot of money.

Again, the best car loan is the one you never take out.

In another article in this section, we’ll discuss what to do if you must get a car loan.

P.S.: Buy Cars Cheap at Government Auctions.

Copyright 2009: NoCarCredit.com. This content may not be reproduced or redistributed without the express written consent of the author. Violators will be prosecuted.

No Car Credit Means No Car Payments – Ever! Imagine what this would be like for you.

Need a car? Pay for it in cash and never have to worry about monthly payments!

American consumers are drowning in debt. And, one of the biggest budget busters many hardworking citizens face is the monthly car payment. It’s usually the biggest bill after housing (mortgage/rent).

Did you know? The average American car payment is $400/month. And the average length car payment loan is for five years!–Source: National Automobile Dealers Association (NADA.com)

The average monthly car payment in America is $400. And if you have a car loan, by law, you must have full coverage. Full coverage for car insurance can add another $100-$200 per month to the average car owner’s monthly payment.

Turn $400 a Month into $2.2 Million

Now imagine not having a car payment and investing that money $400-$600 per month for 25, 30 or 40 years. You could be well on your way to being rich. How? Consider this: on average, the stock market has returned 10-12% for the last 50 years. Keeping this in mind, let’s crunch some numbers.

To keep things simple, let’s say you invested $400/month (the average American car payment). And, let’s say you earned 10% interest, compounded annually. If this was the only money you ever saved, your investment would grow to $497,264 in 25 years. In 30 years, your account would grow to $831,717. In 40 years, $2,237,843.

In 40 years, your actual deposits would only be $192,000. The rest is interest earned. This is the power of compounding interest; ie, saving nominal amounts of money and letting it grow.

No Car Payment Means You Can Retire EARLY and Be a Millionaire!

What does this mean? If you’re 20 years old and forever shunned getting strapped with a monthly car payment, you could retire at 60 (5-7 years before the standard retirement age) – AND be a millionaire a couple of times over – IF you invested what would have been car payment money.

Work Menial Jobs and Still Retire a Millionaire

Even if you work menial jobs and never make truckloads of money, if you avoid car payments (and other consumer debt) and invest that money, you will never have financial worries.

Social Security isn’t there when it’s time for you to retire? No problem. Employer doesn’t have a 401K plan? No problem, you’ve got it covered.

You’ve socked away over $2.2 million dollars to see you through.

And, because you will have been smart enough to avoid debt traps like car payments, you will probably make other wise money decisions as well, like:

i) buying an home and paying it off early (eg, 15 or 20 years instead of the standard 30);

ii) avoiding credit cards debt (did you know that average American family – with at least one credit card — carries $8,000 to $10,000 in credit-card debt. Source: CardWeb.com);

iii) paying off student loans as soon as possible after graduation and/or not getting them in the first place.

Consider this: In each year between 2000 – 01 and 2006 – 07, an estimated 60% of bachelor’s degree recipients borrowed to fund their education. Average debt per borrower rose 18%, from $19,300 to $22,700 in 2007 dollars over this time period. Average debt per bachelor’s degree recipient increased from $10,600 to $12,400. Source: AMSA.com (American Student Assistance)

While an Ivy League education is great, statistics show that over time, it’s the fact that you actually have a four-year degree and your experience that counts more than the “pedigree of your degree.” Local colleges and universities are cheaper and in many cases, just as good as Ivy League schools.

Invest Potential Auto Payment Money to Grow Wealth

Note: Rate of return depends on type/length of investment. From the beginning of 1970 to the end 2003, the average compounded rate of return for Standard & Poor’s (the S&P 500), including reinvestment of dividends, was roughly 11.7% per year. During same time frame, the highest 12-month rate of return was 64%; the lowest was -39%.

When you consider that most savings accounts pay anywhere from 1-3%, investing your money in the stock market (mutual funds and the like as opposed to single stocks) is one of the best ways to grow wealth.

Imagine Never Having to Worry About Bills – Living the Debt Free Life!

When you have no car credit (eg, no car payments) you’re literally investing in your future. Imagine never having to worry about money; never being saddled with debt; being able to choose work you love and retire in peace, comfort and wealth.

When you have no car credit, you’re doing more than saving money; you’re investing in your peace of mind. You’re investing in a stress-free life. You’re investing in long-term financial security.

At NoCarCredit.com, our mission is simply to keep you out of the trap of auto loan debt (and other consumer debt). We do this by constantly reminding you of what your life will be like if you choose to pay for your cars as you go.

When you forego auto payments, your money can be saved to make you rich, not someone else.

Remember this the next time you’re thinking of buying vs leasing and/or taking out a long-term car loan. No car credit is ideal. However, if you have to take out an auto loan, it should be paid back as quickly as you can (eg, within a year); even if this means sacrificing the type of car you want.

Copyright 2009: NoCarCredit.com. This content may not be reproduced or redistributed without the express written consent of the author. Violators will be prosecuted.