Bad Credit - Long time Hertz Rental?

[FuyuKei]

Bit of bad luck -- both our cars died this month. They aren't worth much, and we're probably going to end up selling it for parts/scrap.

My problem with buying another cheap used car is we drive a lot and I'm tired of being in the vicious cycle of throwing all our money at a junker to keep it running, plus all the stress from constantly having to be worried about a car breaking down.

I got a rental this week from Hertz just while we figure out what to do about a new vehicle and was surprised -- it would be only about $500 a month. Considering our very bad credit (545 & 575. Yes, we are working on it.), and the fact that we don't really have money for a downpayment without draining our emergency funds (we just hit our numbers on that when this happened And it's only $2k) I was thinking it might be best to just keep renting the car from Hertz until we can gather up a downpayment and improve our credit (maybe 6 months).

Thoughts? Anyone see any downsides to doing this?

[tyrion]

A few thoughts:

1. I would check with your insurance to make sure it's covered. I believe the rental car insurance follows the regular car insurance, and if you have beaters then you may not be covering comprehensive/collision.

2. Shop around with other companies to see who has the best monthly rate. Enterprise, Budget, etc.

3. I would also check leases on basic cars. I know one poster on here leases them for $199/month all in. Obviously you need to be careful with mileage limits, as you say you drive a lot. And I have no idea how your credit scores factor in to this, but you should as least investigate. There is a large gap between $500/month and 200/month.

4. To a large extent, this is exactly what an emergency fund is for - unexpected expenses.

[heartwood]

Bit of bad luck -- both our cars died this month. They aren't worth much, and we're probably going to end up selling it for parts/scrap.

My problem with buying another cheap used car is we drive a lot and I'm tired of being in the vicious cycle of throwing all our money at a junker to keep it running, plus all the stress from constantly having to be worried about a car breaking down.

I got a rental this week from Hertz just while we figure out what to do about a new vehicle and was surprised -- it would be only about $500 a month. Considering our very bad credit (545 & 575. Yes, we are working on it.), and the fact that we don't really have money for a downpayment without draining our emergency funds (we just hit our numbers on that when this happened And it's only $2k) I was thinking it might be best to just keep renting the car from Hertz until we can gather up a downpayment and improve our credit (maybe 6 months).

Thoughts? Anyone see any downsides to doing this?

Consider how you'll cover the insurance. Generally your personal car policy covers a rental car. It also covers collision/comprehensive at your policy limits for those coverages at the same deductibles. You might confirm that they will cover long term rentals.

There are several threads here about using your credit card for collision/comprehensive. If that's your plan you should comfirm if its primary or secondary coverage, i.e., does your insurance company pay first. I've used Amex Premium Car Insurance for years. It's primary for collision/comp, good for up to 42 days at either $19.95 or $24.95 based on level of coverage, but you need to have a real AMEX card not the FIA type.

You might also shop around for rental rates. We rent for a couple of months a year, a month at a time. Recently Costco was by far the cheapest (it sent us to Avis). But in the past its been Alamo, Enterprise, or through some local websites that put you into whatever any of the big companies have available. That said, w/o knowing the class of car or the market you're in, $500 a month doesn't sound too bad.

[Watty]

Be sure to check on any insurance that you were expecting through a credit card. That is typically only good for 15 to 30 day rentals.

If you bought a "beater" for $1000 and it only lasted for two months then you would come out ahead of renting at $500 a month. Even if you don't have experience with working on cars there is a lot you can learn to do yourself with videos on the internet or books from your local library. You can also learn a lot on how to inspect a car and even with a low end car there is a good chance that a carefully selected one will last six months or even a lot more. This is especially true if the car is inexpensive because of cosmetic problems or body damage that doesn't affect the drivability of the car.

The car rental rates can also vary a lot depending on the time of year so you may very well find that it is much more expensive next month if there is more demand for rental cars then.

[nordlead]

A quality used car can be had for ~$1-2k/year in operating costs, much less than the $6k/year rental rate you are quoting. I'd go spend $2k right now and hope you get more than 4 months out of the car. If it passed inspection on the day of purchase you should get at least 1 year out of it, making it cost ~$166/month.

If you can afford $500/month in rental fees AND save money, you can replenish that $2k in less than 4 months.

Your credit will not rebound in 6 months enough to do anything meaningful unless a bankruptcy is about to fall off of your history. In other words, you won't save much if anything on interest by waiting and will pay much more in rental fees.

[FuyuKei]

Thank you everyone. A lot of good points. I very much appreciate the perspective on all this. It very much may be worth buying another junker just to get through the next few months to get us to work.

I don't mind owning a junker. I have for years. I even know a lot of basic maintenance and I've been building up my tools collection...but tools themselves are an upfront investment that I just don't have a lot of yet. I'm still asking for a torque wrench for Christmas. Also, while I don't mind learning, I'm spending just about every second of my spare time studying for work right now. In the long run, studying for my career will have a bigger financial impact on me than studying much more car repair.

I suppose my one "hidden cost" of owning a junker that I'm concerned about is even if it's cheaper to maintain than renting -- breaking down all the time isn't good for work. My boyfriend is having to drive around all day for his job. Breaking down on the way to a set (he works in film) too often might get him fired. It's hard to get into film in the first place, so I don't want to squander that opportunity. We can live with one car if we need to. I can walk to work. He can't. Still, it may be worth it to rent the car for just another month and buy a "decent" car for around $4k.

Your credit will not rebound in 6 months enough to do anything meaningful unless a bankruptcy is about to fall off of your history. In other words, you won't save much if anything on interest by waiting and will pay much more in rental fees.

Well, I do hope to improve my credit score, but my idea was more that I could save up a bigger downpayment to offset my bad credit. Or just save up more in general and outright buy a better used car. We save quite a lot every month--we just haven't been able to do that for very long. We both just got good jobs fairly recently, and even then we are both in junior positions.

[mhalley]

What exactly is wrong with your credit, and what are you doing to correct it? Is it late payments, bankruptsy, too high debt to utilization ratio? Some of these things are fixable, you need to figure out what the problem is and take the steps to correct it. You could have a much better score in a year if you don't have one of the huge problems. So hopefully you can get a decent beater till then.
http://www.bankrate.com/finance/debt/7- ... ore-1.aspx
http://www.cardhub.com/edu/improve-credit-score/
Mike

[FuyuKei]

Lack of credit history+ some things in collections.

We were just saving up an emergency fund (just hit the $2k goal) before we started to work on credit. We are aiming to work on getting it fixed and I have a plan to do so-- we just haven't gotten that far yet. I don't even owe that much to collections (maybe $1000), but we needed a buffer. It's obviously been the right decision as I'm about to have to dip into that emergency fund.

[ResearchMed]

Lack of credit history+ some things in collections.

We were just saving up an emergency fund (just hit the $2k goal) before we started to work on credit. We are aiming to work on getting it fixed and I have a plan to do so-- we just haven't gotten that far yet. I don't even owe that much to collections (maybe $1000), but we needed a buffer. It's obviously been the right decision as I'm about to have to dip into that emergency fund.

Why is there ~$1k in collections?

You do NOT want to incur debts you cannot pay in the future, once you get back to "zero".

However, if there are cash flow problems, perhaps due to illness/missed work (thus temporarily missed pay, or extra high med bills, etc.), then you should be speaking with the company you owe money to.
They might be willing to allow a payment plan, or let you wait an extra month.
Even if they charge a bit for this (that's fair; they have their own bills), that is still MUCH better - and probably less expensive - than getting the various hassles (and credit hit) of dealing with "collections".

And in some cases, the company might reduce the charge, depending upon your circumstances and theirs (but don't count on this part).

If you had debts go to collections because you just couldn't pay AND couldn't deal with it, then you should make sure that IF such a thing happens again, you speak with the company billing you as soon as possible and work something out.

RM