The Best Vehicle for You and Your Credit

You have decided you want to buy a vehicle, but you are unsure what to get. There are many options on the market, but your credit rating may limit your choices.

Things to Know

If you have bad credit you should expect that you will be paying higher interest. This is a minor inconvenience, but does give you the chance to rebuild your credit — and establish a relationship with a lender — while driving a reliable vehicle.

If the interest rate on your car loan is fairly high (above 7%), you should look to trade that vehicle in as soon as you qualify for a better interest rate. Many lenders have loyalty programs that allow you to trade in for a lower interest rate once you have made a set minimum of your payments on time. In this case, choose a new vehicle that will hold its value. Any negative equity (a position where you owe more on the car than it is worth) will need to be added to the new car loan unless you have the cash to cover the difference.

When you are rebuilding your credit, try to stay away from new vehicles. New vehicles can lose up to 30% of their value as soon as you drive them off the lot. If you are planning on trading the vehicle in after only eight months, this could put you in a negative equity situation.

Vehicles that are only two or three years old seem to be the best options. Someone has already paid the off-the-lot deprecation on them, and you can usually pick one up for a good deal.

Also try to stay away from luxury vehicles. New luxury vehicles are usually sold for a premium but do not always hold all of that value.

Brands that hold their value and work well for high interest loans are Hyundai, Nissan, and Chevrolet.

Try to trade in your vehicle for something with a lower interest rate, and transfer any negative equity to the new, lower interest loan. This allows more of your payment to go to the cost of the car and less interest to the lender.