When you have bad credit and need a car, you’re not limited to some old beater, but a new vehicle might not be a good choice, either. Ideally, you should find a used car that’s sitting in the sweet spot of being two or three years old. This is when a vehicle is still holding most of its value but has already seen its first major drop in depreciation.
Get a Used Car in the Sweet Spot
Cars are depreciating assets, which generally means they lose value as they age. Typically, new vehicles go through a depreciation cycle that begins as soon as they’re driven off the lot. They typically lose around 10% of their value at this point.
By the end of their first year on the road, most cars lose approximately another 10% in value. After this, depreciation continues more slowly over the next two to four years. Generally, a vehicle hits its next steep drop in depreciation when it's around five or six year old, at which point it typically checks in around 40% or less of its original value.
When you're shopping for a used car, it's important to consider depreciation and look for a reliable model that isn’t too old. A good way to do this is often by seeking a used vehicle that has just come off lease.
A car coming off lease typically sits right in the sweet spot of two to three years old. Off-lease vehicles still hold approximately 50% to 70% of their value, and usually have lower mileage than a standard used car. Many off-lease vehicles end up as certified pre-owned (CPO) cars.
Certified Pre-Owned Vehicles
CPO vehicles are the best of both worlds between new and used. They have sticker prices closer to used cars, and manufacturer-backed warranties that give you peace of mind like a new vehicle.
Plus, CPO cars are typically newer than regular used vehicles, often just coming off lease. They go through an inspection process, and are refurbished by manufacturer-trained technicians before being put out on the lot.
When you’re looking for a certified pre-owned car, make sure it’s a true manufacturer-backed CPO vehicle. In some cases, you may find cars that are listed as dealer-certified. This is not the same thing.
Dealership certifications don't have the support of an automaker like true manufacturer-backed certified pre-owned vehicles. Cars that are only dealer-certified are just backed in-house by that particular dealership instead of a manufacturer.
Getting a Reliable Used Car
As a bad credit buyer, a CPO vehicle makes for a good target, but it isn't the only option you have when it comes to buying a reliable car. A used vehicle may be a better option if you’re looking for something even more affordable, or if you’re struggling with credit issues.
Used cars tend to be older models without the added security of a warranty like CPO vehicles. However, you can target used cars that haven't seen their second major depreciation drop yet to get some value.
It’s very important that you have used vehicles inspected before purchase because they’re sold as is. Even though they don’t have the added protection of a manufacturer-backed warranty, you can often purchase third-party extended warranty coverage for extra peace of mind.
Buying the Right Vehicle for Your Situation
As long as you’re working with the right lender for your situation, you may have several options within reach. Getting the car you need means choosing what’s right for your driving situation and your budget.
Whether that’s a new vehicle, used car, or something in between depends what you’re looking for, how much you can afford, and where your credit stands. However, getting a used vehicle that’s in the two- to three-year-old sweet spot is ideal.
If you have bad credit, you should try to do this through a subprime lender first. An auto loan from these lenders that work through a special finance dealers can help you build credit. If this sounds like the right move for you, let Drivers Lane help.
We work with a nationwide network of special finance dealerships. Fill out our free, no-obligation car loan request form, and we’ll get to work connecting you with a local dealer.
