Negotiating auto financing can be a dreary and frustrating business. The customer with an excellent credit rating walks a grassy path on the way to a perfect auto loan. But, for the rest of us, the road may be considerably more rocky. The good news is that, despite bad credit or even no credit at all, it’s possible to get financing to purchase a car. Yes, our choices may be limited when it comes to sub-prime loans, but guaranteed auto loans do exist.
How Do Guaranteed Auto Loans Work?
The guaranteed auto loan is usually worked out between the car buyer and a lender who also owns the car: the customer deals directly with an auto dealer who specializes in guaranteed auto loans. (In some cases, online agencies become part of the mix, connecting the buyer and the auto dealer.) The auto dealer decides whether he or she is willing to sell to a customer, and sets the conditions of the sale. These may seem strict. The cars available for sale are usually older vehicles with fairly high mileage; if newer cars are available, it’s because the dealer owns them, not because of his or her affiliation with a new car dealership. The dealer usually asks for a down payment. Once the number of payments and the interest rate are determined, the dealer usually demands that the customer make payments in person every week. If a payment is missed, the dealer can (and probably will) repossess the vehicle.
For Whom is a Guaranteed Auto Loan a Good Idea?
Guaranteed auto loans are rather like buying from a private seller: you’re dealing directly with the owner on a strictly individual basis. For folks with very bad credit, young people who’ve just gotten their first job and are ready to buy their first car, people currently going through bankruptcy, and individuals newly arrived in the country without a Canadian credit rating, guaranteed auto loans may be the way to go.
What are the Benefits of a Guaranteed Auto Loan?
If you really need a vehicle right now and can’t find an established lender who will extend credit on good terms, the guaranteed auto loan is going to let you get your foot in the door. Making payments every week in person may seem inconvenient, but it does help get you organized and on track in terms of money management. It also helps you establish a network of contacts that you can call upon later if personal references from the community become necessary.
What are the Drawbacks to a Guaranteed Auto Loan?
Because you’re working with the auto dealer on a personal level, you’re probably not going to have the opportunity to build up your credit rating by paying off the guaranteed auto loan in a timely fashion. The dealer you’re working with has the option of reporting your payments to the credit bureaus, but most of these dealers don’t. The dealer is also going to be prepared to repossess his vehicle if you miss a payment; this stands to reason, as he is in a highly risky market and needs to be constantly vigilant of his bottom line. The quality of the car you can buy through guaranteed auto loans is probably not going to be high, so you’ll want to be working to build a strong credit rating as quickly as possible; this way, the next time you purchase a vehicle you’ll be able to get a better car on better terms.