Two weeks ago, our only car broke down. We’ve been a one vehicle family for five years now because it was the cheapest way to go - less maintenance cost, and less insurance expense. We’ve learned to get by. However, we can’t get by without a car completely. That left us with a decision to make.

Should we:

• Repair the car we have?
• Buy a used car?
• Finance a new car?

Our past bankruptcy further complicated things. We have been working to raise our credit scores ever since our bankruptcy was discharged. Given the current state of the economy though, we weren’t sure we could obtain financing on a new car even if we wanted to!

So? How did we handle it?

We made a list of our priorities first. What mattered most to us? Having a new car that we made payments on, but was reliable? Having a used car without a payment and putting money into savings?

In the end, we explored all of our options.

I jumped on Craigslist, and found a list of local used cars in our price range. I also called KIA, and Ford, and spoke to their sales reps. I was honest with them about our current credit scores, our past bankruptcy, and our entire situation ($1,500 down and a trade-in).

The good news is that KIA and Ford both said they could get us financing. That was excellent news! If you’re reading this because you want to finance a car after your bankruptcy, it may pay for you to go to KIA or Ford first, before you investigate the “buy here, pay here” lots. Who you borrow money from does mater to your future lenders, so it looks a lot better to be financed by a major dealership than by “Bob’s Stop and Drop Truck Depot”. Seriously. Besides, the major lots are backed by major banks, and have more ways to work with someone who has credit problems than the small lots do.

You can probably get financed at those small lots, don’t get me wrong. That was our third option - if KIA and Ford didn’t approve us, we were going to accept that we had to have a sub-prime loan from a buy here pay here lot. I am just glad that it didn’t come to that.

In the end, we decided to buy a used car instead.

We found a 1996 Ford Taurus for sale, in the low end of our price range. It has just over 100,000 miles, and no air conditioning. It has been excellently maintained though, and the owner kept a record of the work he had done on the car, and he shared it with us.

Why did we buy a used car instead of financing?

Even though I believe we could have successfully financed a new car, we do not want a high monthly payment. Even though we have worked hard to repair our credit scores, with a bankruptcy on there, it is still going to be a few years before we qualify for a loan at a decent interest rate. Personally I have no desire to pay the bank 20% interest on a car loan - even if they can approve me.

I would rather take they money that I would have used on a car payment, and put it into my own savings account to earn interest. Then, when we need a car again, or this one breaks down, we have the money to have it repaired.

Having the extra money in savings will help us in other ways too. What if my husband or I lose our jobs? Get sick? Anything. Making a regular car payment would have stretched us a little bit. Personally, I’m tired of living “stretched”. Living that way was one factor that caused our bankruptcy, and I don’t ever want that to happen again.

I would also prefer that my money stay with me as long as possible! Instead of letting it fly out the door as soon as I get my hands on it, I can keep putting a little bit extra away. I don’t expect this car to last forever. We are certainly going to have to make repairs to it, and spend money taking care of it. Even knowing that, I felt that the pro’s outweighed the con’s.

Having a new car, with no maintenance issues is a form of security. But having several thousand dollars in the bank, with no particular place to go - that is real security.

Based off of my experience here - if you need a car after bankruptcy, consider your options carefully. If you’re married, sit down with your spouse, and talk honestly about your goals. Decide what is most important to you. Then take a hard look at your financial picture, and see if your money can support your goals comfortably. Then decide if a regular car payment is the best way to use your money.

Will financing a car help you achieve your long term goals? Or will it make those goals more difficult because you are adding on another monthly payment?

Now my husband and I know that we can get financed - that’s a good thing, because it opens up our options. This time around at least, we decided that it would make our family more secure to have a lesser car, and more money that belonged to us in the bank. It also let us keep the car that broke down instead of trading it in. Now that we have something else that runs, we can have a mechanic work on all of the problems our previous car had. Once that car is fixed (and it needs a lot of work) we will have two working cars - that will be new for us!

It is certainly an individual choice, and what’s right for your family will depend on your needs.

Do you have a car story? Did you buy your last car used, or finance it? What was your experience like? I would love to know! You can tell me about your car in the comments section below. Or if you have a question, you can ask me about that too, and I’ll answer it.

Thanks,
Jenna

Keep Reading:

• A Few Questions About Bankruptcy
• Bankruptcy Recovery: Lessons Learned
• Can Your Creditors Still Sue You After Bankruptcy?

This entry was posted on Wednesday, November 5th, 2008 at 11:58 am and is filed under Bankruptcy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.