Dr. Wright, I need a new car, but my husband’s credit is weighing us down.
Purchasing Durable Goods
When buying a car or any durable good, you want to keep in mind 3 rules based on the principle that you consider return, immediacy of need, and alternatives whenever you make a purchase. Ask yourself the following questions, which express the rules:
- Do I know the game of the system I am interacting with? (Rule: Know how your seller makes money.)
- Can I secure financing prior to the point of purchase? (Rule: Know what you are paying.)
- What is the dollar-for-dollar value of the product to my financial well-being? (Rule: Know the value of what you buy.)
In purchase situations, you know already that you never want to be in a position where you MUST buy. In fact, if a salesperson puts you in that position you know right away to walk away. Realize that the 30% deep discounts will come again. It’s the business model of the company. Don’t believe me, walk through the mall this week. Large banners read, “70% off” and “BOGO!” Wait a month and return. New banners read, “50% Off” and “Clearance!” It’s the business model.
With poor credit, it’s difficult to get pre-approved financing. Most Internet applications will have you go directly to the dealership. That’s because they know you would never accept 15% interest online. I say, don’t EVER accept anything over 4%, and that’s when you really need the durable good. If it’s a car, you should be able to qualify for as little as 1.9% just because you have consistent employment.
If the car lot can’t give you on the spot financing for 4% or lower, even with your husband’s bad credit, walk away. Most people don’t realize that this is your greatest bargaining chip. Try it. You will see sellers doing flips to accommodate you. If not, you don’t want to deal with that company.
Also remember, NEVER give a down payment. Know the car you want BEFORE you get to the lot (check online first). YOU have the power because you will be making the payments.
Poor credit just means that we have two issues to address. Here’s the play:
Determine whether you can keep your current car or “renovate” and stick with it for 9-months to a year while you work to repair your husband’s credit. Completely new upholstery can be as little as $1000. New wheels can be as little as $1200. That $2200 can have you feeling like you have a new car, AND save you a financing nightmare.
- You may need to change banks. Realize that your inability to get financing in any combination (you alone, you plus your husband, etc) needs to be addressed with the bank you do business with. They see your money every time you get paid, and they don’t see you as an acceptable risk? I am not a fan. Credit unions and local banks are sometimes more personal in these matters. The paper application may be laborious, but the outcome may work in your favor. Also, check financers connected to the car dealer. Outfits like Ford Credit and Ally Bank, are motivated to provide service because they are industry connected.
- Realign your budget. Obviously, you have to work out a strategy for organizing your husband’s debt, debt-to-credit available ratio, types of credit, and credit history. These are a few of the criterion involved in credit worthiness and computation of credit scores. Also consider the debt-to-income ratio in your household. You can’t always make more money, but you may be able to find ways to spend less money.
- If you just can’t do without the car, get financed through a friend. Otherwise known as co-signing, get a friend, relative, church member, or co-worker to sign on the dotted line and assume risk with you. No? Can’t do that? Okay, we have 3 issues to address. I’m not saying it’s the end of the world, but I may have found an expense that you can decrease. Hanging out and spending money with people who don’t have your back is really wasting money. Maybe, they will drive you where you need to go without asking for gas money. Or, you really don’t need the car. That’s still an option.
Now, run the play.