Choosing the proper car can mean the difference between improving credit rating and making it worse. Once people are approved for bad credit auto financing, they must decide which car they want. An SUV, full-sized sedan, or minivan may be the most appealing, but selecting one of these cars could be a long-term mistake.
Lenders offering bad credit auto financing charge higher interest rates than are typical for standard car loans. When a higher-priced car is selected, monthly loan payment could exceed the budget. Drivers also must realize that these cars have lower fuel economy and are more expensive to insure. As insurance premium and fuel prices rise, drivers can find themselves with a vehicle they cannot afford.
Fuel price should not be underestimated. According to a recent survey by AAA auto club, it is one of the major contributors to increasing car ownership costs. When driving 15,000 annually, it costs about $11,085 per year to own a four-wheel drive SUV. Compare this to a $6,496 annual cost for small sedan ownership and the savings become clear.
The AAA report made smaller sedans look even more attractive by noting that this vehicle category had the smallest ownership cost increase, just 2.9 percent from the previous year. Higher fuel prices have led more drivers to purchase small sedans, making this the only category with decreased depreciation costs. By selecting a small sedan rather than a midsize one, drivers can save more than $2,000 annually.
Choosing a smaller car has another positive effect on bad credit auto financing. Borrowers may be able to use money saved in ownership expenses toward paying off the loan, shortening the loan term. By choosing a car with affordable monthly payments and paying each installment on time, drivers may be able to finance their next vehicle at a lower interest rate.
