Buying a used car when your credit is rough

1. Work out what you can actually carry, before you fall in love with anything

Most people start by picking a vehicle and then hoping the payment works. Do it backwards. Sit down with what actually comes into your house in a month and figure out what you can hand somebody without wrecking the rest of your bills.

Then remember the payment is not the only cost. Every month a vehicle also costs you:

• Full coverage insurance. If you're financing, you'll be required to carry it. On an older vehicle with a rough driving record this can run more than people expect — get a quote on the specific vehicle before you sign, not after. Have the year, make, model and VIN handy and any agent can quote it in a few minutes.
• Fuel. A V8 Expedition and a four-cylinder Spark are not the same vehicle on a 40-mile commute. Run the math on your actual drive.
• Repairs. On a vehicle with 150,000 miles, something will need attention. Not maybe.

A good rule: if the payment plus insurance plus fuel is more than about a fifth of your take-home, it's going to be tight. That's not a law, and plenty of people carry more because they have to. But go in knowing.

2. What buy-here-pay-here actually is, and what it costs you

At a regular dealership, the lot sells you the car and a bank or credit union lends you the money. If the bank says no, the deal is over.

At a buy-here-pay-here lot, the lot is the lender. We carry the note ourselves. That's why we can approve people banks won't — we're taking the risk directly instead of passing it to somebody in another city.

Here's the honest tradeoff, and any lot that won't tell you this is a lot to be careful with: you will pay a higher rate than somebody with good credit at a credit union. In Texas, finance charges on vehicle sales are capped by the Office of Consumer Credit Commissioner, and the ceiling goes up as the vehicle gets older. Rates in this part of the business commonly run in the high teens to the mid twenties. If a lot quotes you something, you are entitled to see the rate and the total in writing before you sign anything.

What you're buying with that higher rate is access — a vehicle now, from somebody who will actually work with you, without a bank in the middle. Whether that's worth it depends on how badly you need to get to work. For a lot of people it plainly is. Just don't let anybody tell you it's free.

3. Questions to ask any lot before you sign

Ask these out loud. Watch how they answer as much as what they answer. A straight answer given easily tells you a lot about who you're dealing with.

• “What's the total price, out the door?” Sticker plus tax, title, license and any dealer fee. Get the real number.
• “What's the interest rate, and what will I have paid when it's done?” Both numbers. Not just the payment.
• “How long is the note, and how often are payments due?” Weekly, every two weeks, monthly. Make sure it lines up with when you actually get paid.
• “Is there a penalty if I pay it off early?”
• “Can I take it to my own mechanic first?” This is the big one. See the next section.
• “Is it sold as-is, or is there a warranty?” Get it straight, in writing, before money changes hands.
• “What happens if I'm going to be late one week?” Ask before you need to know. A lot that shrugs and says “call us” is different from one that won't answer.
• “Do you have the title?” Ask. If the answer is complicated, slow down.

4. Have it looked over before you buy

Before you sign anything, it's worth having a mechanic you chose — not one the lot recommends — look it over on a lift. A pre-purchase inspection typically runs somewhere in the range of $100 to $200 around here. On a $12,000 purchase that is the cheapest money you will ever spend.

Ask the mechanic specifically about:

• Transmission behavior, especially in an older high-mileage SUV or truck
• Oil leaks, coolant leaks, and any sign of head gasket trouble
• Frame and undercarriage rust or evidence of a wreck
• Brake and tire life — both are real money if they're at the end
• Whether the check engine light has been recently cleared
• What it will need in the next 12 months, and roughly what that costs

Here is the part that matters most: if a lot tells you no, or gets irritated, or says the vehicle can't leave — walk away. There is no good reason to refuse. We hand people the keys and tell them to take their time, because we would rather somebody find a problem before they sign than after. Any lot that's confident in what it's selling will do the same.

5. What you can check yourself in ten minutes

Even if you're not a car person, you can catch a lot standing in the parking lot on a dry day.

• Get down and look under it where it's been parked. Fresh drips are a conversation.
• Pull the oil dipstick. Milky or foamy is bad news. Gritty is bad news.
• Check every tire, including the spare, and look at the date codes. Tires that don't match or are worn unevenly point at alignment or suspension.
• Turn the key to accessory and watch the dash. All the warning lights should come on and then go out when it starts. If one never comes on at all, somebody may have removed the bulb.
• Run the air conditioning. In East Texas this is not a luxury item. Let it run five full minutes.
• Drive it at highway speed, not just around the block. Listen at 60. Brake hard once in an empty lot. Feel whether it pulls.
• Look at panel gaps and paint texture. Mismatched paint or uneven gaps usually mean bodywork.
• Smell it. Heavy air freshener in a used car is sometimes covering water damage or smoke.

6. “As-is” and the sticker in the window

Federal law requires a dealer to put a Buyers Guide in the window of every used vehicle offered for sale. It tells you one of two things: the vehicle comes with a warranty, or it's sold as-is with no warranty at all.

As-is means exactly what it sounds like. Once you drive off, the repairs are yours — even if something breaks the same week. Most buy-here-pay-here inventory in Texas is sold as-is, and ours is too. We say so on our website instead of letting you find it in the paperwork.

Two things worth knowing:

• The Buyers Guide wins. If a salesman promises you something out loud but the window sticker says as-is and the contract says as-is, the paperwork is what counts. Anything you were promised needs to be written down.
• As-is doesn't mean the dealer can lie to you. A dealer still can't misrepresent what they know about the vehicle. If you ask a direct question, you're owed a straight answer.

So ask direct questions. Ask what they know about where it came from, what they've had done to it, and what they'd expect it to need. Write down what they say.

7. What to bring so you're not making two trips

At most buy-here-pay-here lots, including ours, you'll need four things:

• Your driver's license
• Proof of income — usually a couple of recent check stubs. If you're self-employed or paid in cash, call ahead and ask what they'll take. Bank statements often work.
• Proof of where you live — a utility bill or something with your address on it
• Your down payment

You'll also need insurance in place before you drive off the lot. Have your agent's number in your phone.

If somebody is co-signing, bring them and their paperwork too. Don't drive out planning to sort it out over the phone.

8. Things that should make you walk

Most lots around here are run by people trying to do right. A few aren't. These are the signs.

• They won't let you have it looked over. Nothing else on this list matters as much.
• They won't put the numbers in writing before you commit, or the numbers keep changing.
• The payment is the only thing they'll discuss. “What do you want your payment to be?” with no talk of price, rate, or term is how a short cheap-sounding payment turns into a very long expensive note.
• They're rushing you. “Somebody else is coming to look at it in an hour” is sometimes true and often not.
• They don't have the title, or it's a story.
• The VIN on the dash doesn't match the paperwork. Check it. It takes ten seconds.
• Blank spaces in anything you're signing. Never sign a document with an empty line in it.
• They advertise “guaranteed approval” or “everybody approved.” Nobody approves everybody. In Texas that kind of advertising isn't allowed, and a lot that plays loose with its advertising will play loose with your contract.

9. After you buy

Get it registered and titled. In Texas the paperwork has to be filed with the county tax office, and the dealer usually handles it. Ask when to expect your plates and your title, and follow up if the date passes.

Keep the insurance current. If it lapses on a financed vehicle, you're in default on the contract, and force-placed coverage costs far more than your own policy.

Put a little away for repairs. Even twenty dollars a week gives you something to work with when a tire or a starter goes, and it keeps a repair from turning into a missed payment.

If you're going to be late, call before the due date. This is the single most useful thing on this page. Every lot that carries its own notes deals with people whose hours got cut or whose water heater went out. The people who call and say what's happening almost always get worked with. The ones who stop answering the phone are the ones who end up losing the vehicle. One phone call is usually the whole difference.