Does a certified pre owned car make sense if you plan on financing it with a bad credit auto loan
Making a smart choice
At Auto Net Financial we realize that that with the cost of new vehicles rising every year, most credit-challenged customers that fill out our bad credit car loan application and get approved will conclude that it is much more affordable to raise their FICO scores and reestablish their auto credit with a 2 or 3-year-old pre-owned vehicle. With the quality and durability of vehicles at an all-time high, this decision makes sense.
Goodbye to beaters
Unlike “tote the note” and “buy here pay here” dealers, modern special finance lenders who do their financing through franchised new car dealers usually require either new or newer, low-mileage used cars that these types of dealers are comfortable selling.
The reason for this is quite simple: if a customer, even a bad credit customer, is driving a newer and more reliable vehicle, that customer is more likely to make their payments on time and less likely to consider repossession since newer cars don’t break down as often as the traditional beaters sold at in-house financing car lots.
And when you combine this with the fact that the average new car loses between 15% and 30% of its value as soon as you drive it off the lot, we can see why so many bad credit car loan shoppers decide that it is more cost effective to go with a 2 or 3 year old pre-owned car rather than a new one.
Now these same consumers are faced with another decision: should they buy a regular used car or a certified used car – more commonly known as a CPO (or pre-owned) car?
Certified pre-owned, a history
CPO programs began with the luxury brands back in the early 1990’s as the manufacturers sought to boost the residual values of their models by keeping their lease turn-ins away from the auto auctions where they were being sold, because of the sheer volume, at below-market values. Dealers were enticed to keep these off-lease vehicles for resale when the manufacturers came up with a solution: If the vehicles met certain age, mileage and inspection requirements, the dealers could purchase the cars back and sell them with a service contract that was very similar to the warranties found on new vehicles - except that the number of miles and years was extended to cover up to 3 additional years and a total of 100,000 miles.
Noting the success of the luxury brands, everyone else, including the domestic brands, jumped on the CPO bandwagon, which means today, buyers of used cars in all price ranges now have a choice of either a regular used car or a certified pre-owned car of the same make and model.
How CPO programs work
Real certified pre-owned cars are vehicles that are either traded-in or returned off-lease (once the new car lease is finished) to the franchised dealer. Based on certain base factors (year, mileage and general condition) that qualify them for the manufacturers CPO program, these vehicles then go through an inspection and certification process (that involves replacing worn and broken parts) in order to qualify for the manufacturers CPO program.
If a vehicle meets these age, mileage and inspection requirements, dealers can use these trade-in or lease turn-in (that have been purchased back from the company) vehicles and sell either one with an extended service contract that is very similar to the warranties found on new vehicles – the only exception being that the number of miles and years can be extended past the original warranty termination date to cover additional months and miles the amount of which depends upon the manufacturer and the program involved.
The cost factor
Because of the requirements involved for certification, these CPO vehicles are more expensive than their non-certified counterparts. The costs involved for an inspection, the required replacement of certain warn and defective parts as well as a fairly expensive manufacturer-backed service contract all add to the price of a CPO vehicle. But, in all fairness, it can be difficult to put a price on the peace of mind buying one these vehicles can bring to many bad credit auto loan customers.
The Bottom Line
Keep in mind that certified pre-owned vehicles are usually more expensive than their non-certified counterparts. The costs of an inspection, the required replacement of warn and defective parts as well as a fairly expensive service contract all add to the price of any CPO vehicle. Before buying one, it makes sense for customers, especially those who are credit-challenged, to do some research and compare the selling prices of both certified pre-owned vehicles and their non-CPO counterparts (priced with a comparable warranty).
There are a lot of choices in the marketplace if you’re a bad credit car loan shopper looking for a pre-owned car. Although you will have to decide for yourself if a CPO car is worth the difference in price, knowing how the various programs stack up against each other can be an important factor in the decision-making process.
For more information about bad credit car loans, go to our web site at www.autonetfinancial.com and begin the process of rebuilding your credit by filling out our secure online credit application. If you need additional assistance, go to the “About Auto Net” tab and click on the “Contact Us” line where you will find our toll free number.
