Almost everyone has met one of these individuals; someone who owns an extremely expensive car, but has no money whatsoever. While some are simply annoyed by them, others try to understand how it is possible to be broke and own a late model car.
In order to explain this phenomenon, it is important to understand the fact that “broke” means different things to different people. Some individuals may consider those who are in debt to be broke, and others may use the term in order to refer to those who only have a credit card debt. You could even call someone broke due to the fact that their savings are not enough to pay their future bills for a large number of months or years. Regardless of how you define it, the fact that broke people own expensive cars tends to make most people angry.
To most, it is obvious that buying a car that you can’t afford is a bad decision; however, who can say what someone can or cannot afford? Is there a formula or a rule that could be used as a guide in order to establish what people can buy?
The first things that you must do are understand your credit report. There are companies that will enable you to view your credit score, and also provide you with tools designed to help you understand both your score, as well as your credit report. The company also offers a credit monitoring service that will help you keep an eye on your financial situation. This way you will be able to avoid situations where you lose track of your expenses.
Having said that, some of those who buy expensive new cars without being able to afford them are, for all intents and purposes, extremely childish. They see something that they want and choose to finance themselves into oblivion in order to get it, without actually thinking about the long-term effects of their actions. This is a reality, and there is no point in ignoring it. People choose to ignore obvious dangers in order to get what they want.
While this is one (and probably the most popular) of the reasons why broke people own expensive cars it is not the only one. While it is somewhat less obvious, there is another explanation for this phenomenon.
Most people know that it is important to buy a reliable vehicle that you can afford and that in order to find a good deal, you should probably go online, rather than try to choose one out of a shady used car lot that offers little guarantees. The internet is full of websites that offer great deals on various types of cars, as well as loans to those who need them in order to make a purchase.
In order to better understand the difference between buying a vehicle as an average individual with normal credit vs buying one as someone with poor credit, let us look at two situations.
First of all, let’s consider the purchase process of someone who has decent credit:
As you would expect, an average individual would first go to the bank and apply for a loan, wait to get approval, and then choose an affordable car that fits in the budget. After that, he would use the car and make the payments until he pays off his loan.
Now let’s look at how someone who does not have any credit buys a new car:
People who do have poor credit or do not have the money for a down payment do things a little bit differently. They first go to a car lot and choose a car. When it comes to paying for it, they choose to apply for financing at the dealership and then drive their car home. The big problems with doing things this way is that they will practically have to make payments for a much longer period of time that they would have if they went to the bank.
Real life situations
Cases in which people find themselves close to bankruptcy and in need of a car are not rare, by any chance. This is one of the realities of our society, and it happens more often than we would like. It could be that someone needs a vehicle in order to get to work after a long period of unemployment, or that an individual has recently gone through some expensive medical procedures and requires a vehicle in order to get to his new job. There are many situations that can put someone in this difficult position.
While we can all agree that having to walk a mile to work isn’t a good enough reason to buy a new car, things change when we find jobs at an office that is on the other side of town, or on its outskirts. People in these situations tend to go for cash loans, if it is possible; however, sometimes even this option is denied.
Furthermore, banks do not loan money to people who are in active bankruptcy, and this forces many individuals to go to dealerships and seek to get financing there (however, some may not qualify for this option either). Most dealerships offer bad credit financing that comes with extremely high-interest rates. While some may think that this won’t be a problem as long as they purchase the cheapest car that they can find, things tend to be a little more complicated. Why? Because apart from the high-interest rate, the loan terms are extremely restrictive, and most people end up having to pay a lot more than they first expected.
This can be extremely difficult if the one looking for financing is going through one of the situations described above.
Possibly the most infuriating fact about bad credit financing is that it comes with strict rules regarding what type of vehicle you can buy. Some finance companies only offer financing if the car is 3 years old or newer, and its odometer must read under 60,000 miles. Furthermore, the vehicle must not have any history of accidents. These rules usually mean that most are unable to buy the cheap cars that they are hoping for.
The explanation for this is quite simple. Most companies consider that someone that has a poor credit or is lacking the money required for a down payment has a high risk of default. As a result, they do everything in their power in order to ensure that the vehicle will still be valuable if they ever have to repossess it, thus cutting their losses.
This strategy usually leads to people having to make large payments for prolonged periods of time, complicating their already difficult lives with an extra monthly expense (that cuts into their budget while they try to get their lives back on track).
Luckily, if you look hard enough, you may find companies that offer more flexible financing to those who do not have great credit.
All things considered, it may now be safe to say that some of those who are completely broke but drive expensive cars are merely victims of the way in which bad credit financing companies do business. Those who are in a similar situation as the ones described above may find themselves having to go through this process and end up having to buy a much-too-expensive vehicle, whether they want to or not.
While you may think that these people should have been more careful in order to avoid getting in these situations in the first place (and you would be perfectly right, up to a point), once someone gets into this situation, regardless of his or her intention, there is little that can be done in order to fix it. This generates a difficult chain of events that can hamper someone’s efforts to get back on track.
Say an individual has finally found a job after a long period of unemployment, but a result of him being unemployed is that he has poor credit. If he finds a job 20 miles away from his home, he will need a car, and in order to buy one, he would be required to get financing. Once he has the vehicle, he will have to pay a large portion of what he earns each month in order to pay off his loan, and this will make it extremely hard for him to save money and prevent getting into a similar situation in the future.
In the end, these people choose to submit to the rules of bad credit companies and buy a car that they know they can’t afford in order to go to work, regardless of how high the price may be. Even if they choose the cheapest car on the lot, there is a high chance that they will still have to pay a lot of money.
Nobody is saying that all those who own expensive cars and are broke have gone through difficult situations and have been forced to buy them. There are still some who act like children and do everything in their power in order to buy whatever they want, when they want it, regardless of the consequences; however, the next time you see that someone is driving a late model car but doesn’t have enough money to buy a cup of coffee, think about why they are in this situation.
Some may not have any patience, others may simply not know that there are better ways to buy a new vehicle (such as the possibility to donate a car and then to claim it on your tax return). Either way, hopefully, this article has shed some light on why broke people drive expensive cars.
Remember to do a lot of research before buying a new car, or you may find yourself in a similar situation.