Buying a Car While on a DMP, What You Need to Know

My Journey out of Debt

Featured customers currently enrolled in a CareOne Debt Relief Plan, share journey to become debt-free; hear how they juggle family, finances, and more.

Buying a Car While on a DMP, What You Need to Know

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Reading some of the forums, I see many people asking about whether or not it's possible to buy a car on the Debt Management Plan (DMP). 

Since my car died only a few months into the program, I wanted to share my experience and some tips I learned.

Buying a Car While on a DMP, What You Need to KnowFirst, let me start by saying that if you are in debt, you should not buy a car just because you think yours is old and don't the way it looks. You should consider the purchase of a new car ONLY if the one you have is not drivable or not worth repairing.

About six months after joining the Care One DMP, my car's transmission died and it would not go over 35 mph. It was 11 years old, had over 150,000 miles on it, and I didn't have the $2000.00 it was going to cost to rebuild the engine. 

I was beside myself. How can I possibly swing a car payment on top of my DMP payment that I just started? It felt like a huge setback. 

Instead of wallowing in my self-pity, I decided to take some action. I really had no choice but to figure it out. 

I was promoted at work on October 1, and my car died that weekend. Luckily, it was a decent promotion, but I still only had $700.00 in an emergency fund for a down payment. After re-doing my budget, I figured I could swing a $300.00 payment if I added a couple more hours teaching Pilates on Saturdays.  

Having worked as a purchasing assistant for almost a year, I knew it was important to do as much research as possible about car dealerships and the tactics they use to get their cars sold. So I went online and found It contains some really great information on scams, loans, credit score problems, and also has a few negotiating tips. 

Here are a few things you should do before going to the dealership:

1. Know your credit score and look at your credit report. It's important for loan purposes. I did not qualify for a loan through my credit union because my debt-to-income ratio was too high. I had to apply for a loan through the dealer, and knew I'd have to be smart when negotiating a price. My report stated I was on a DMP. So it came as no surprise when the dealer tried to use that as a reason to increase my interest rate.

2. Buy a certified used car. Most dealerships have certified used cars with low mileage that will save you thousands vs. a brand new car. I purchased a certified used car with only 14,000.00 miles on it, and the MSRP was already three thousand dollars less than a brand new vehicle.

3. Good cop, bad cop. When you go in to the dealership, the first guy you talk to will not be the one you negotiate with. He'll probably tell you he's been there for just a few weeks or one month, be really nice, and he/she will continuously go back and forth to their "supervisor/manager." The supervisor/manager is the one who will try to play hardball. He's the one who told me he had to increase my interest rate because I was on a DMP, banks don't like DMP's, and I didn't have much of a down payment, etc. Once the negotiation was over, he tried to insult me by saying, "you don't need to talk to one of your girlfriends first, do you?" It was annoying, but I expected some grief.

4. Negotiate the price of the car - not the monthly payment. This tip was a great one and spot on! The "good cop" kept asking me "how much can you afford every month?" I kept saying, "I don't know, how much the car is?" I knew I could afford approximately $300 per month, but I also knew this amount didn't really matter without doing the math for the purchase price of the car. For example: I tell the dealer I can afford $300.00 per month. He shows me a car in my "price range," but we don't go into detail on the price. When it comes time to do the paperwork, I don't realize that he's just sold me a car for $12,000.00 at an interest rate of 10% for a total price of $18,000.00. This is based on a five-year loan with a payment of $300 per month. Whereas, if I negotiated the price of the car, I could get the same $12,000 car at an interest rate of 5% for $250.00 per month for a total price of $15,000.00. This would save $50.00 per month and $3000.00 off the total price.

Get the idea? Make the dealer do the math for you - then double-check it. They don't like it, and they even tried to make me feel stupid for insisting on it, but it will save you some money.

5. Don't take out a loan longer than 5 years. Let's say you're not comfortable negotiating the price of the car. Maybe it's just not your thing and the "bad cop" was too intimidating. Even if you blurted out you can afford $300 per month and were given the first loan in the example above, don't do a loan longer than 5 years. Be adamant about this. Because now, you're not only paying for that same car at a 10% interest rate, but if you multiply 300 x 84 payments, (seven year loan) instead of 60, you've now paid $25, 200.00 instead of the $18,000.00. This is how they make their money.

6. Don't get too excited about the car. Dealers count on you being excited about your new car and play on that during negotiations. This is how someone can get manipulated. Don't go on and on about how much you love the car or can't wait to get rid of your old one. They're playing a game and you need to play one too. I acted like I was just looking even though I needed a car that very weekend.

7. Give them 30 minutes and time them. This was a tip I apparently missed in my research. Dealers want to hold you hostage for as long as possible so you'll buy the car. I made the mistake of giving them my driver's license so they could make a "copy," then they checked my credit report, which seemed to take forever. I was there longer than I wanted to be, which took up most of my afternoon, which made me just want to purchase the car and get out of there. I learned later that this is another tactic. Each time the "good" dealer goes to ask the "bad" dealer about your report or history, remind him/her that they took 10 or 5 minutes off of your 30-minute time limit.

I ended up negotiating the price of my Honda down from $15,000 to 13,500.00 at an interest rate of 5% for a total of $16,875.00. This would have made my payment $281 per month. I did add a warranty, and one month of insurance, which increased my total price and monthly payment, but I was still under $300 per month.   

Here are a few more financing tips:

  • Try to finance through your bank, if possible.
  • If your bank won't give you a loan, the dealer always will - no matter what your credit score. Why would they do that? The loan you're getting is either insured or may not be loan at all. You could be getting a Retail Installment Sales Contract. According to, "The dealer signs the RISC with you, and then sells it to a bank, or other lender, hopefully at a good markup on the contract. Sometimes they also participate in the interest rate. So the higher APR they charge you, the more money they make. Car dealer financing is not a service they provide for you, it is a product they sell to you, if they can get you a better APR, fine. But if not, have your own financing ready to fall back on."
  • Avoid leasing if possible. Sometimes a lower credit score forces you to lease. If you have to, do not lease to buy, and don't lease for longer than three years. This is something I've learned on my job as a Purchasing Director. Turn in your car after three years and after your credit scores go up, look into a purchase. Leases have too many hidden fees most people aren't aware of - I'll get into that in another post.
  • I learned that warranties are no good unless you take your car to the dealership for maintenance every time. Keep that in mind before you agree to one. I never needed to use the warranty I paid for. However, I don't believe the dealer would have honored the warranty because I didn't use them for regular maintenance.

Lastly, some people have asked for advice regarding purchasing a new car because they are paying too much on their current car loan, cannot get refinanced, and/or the car is not worth what they paid for. Remember this; no car will ever be worth what you paid once you are finished with your loan. 

The value of a vehicle drops the minute your drive it off the lot. Unless you're paying $700 or more per month, my advice would be just to pay off the loan, drive it for at least a few more years, and then look for another car. At least you'll be loan free for a few years. It doesn't make much sense to sell your current car, just to get another five-year loan that you'll still struggle to make payments on.

If you're thinking you'll go to one of those dealerships that promise to pay off your car no matter how much you owe, you could be setting yourself up for a scam. Check for more info. Remember, whether you are debt-free or not, cars are generally not a good investment. Do your homework, don't buy a car unless you absolutely have to, stick to whatever your budget might be, and remember, everything is negotiable!   

Happy hunting and negotiating!

Related Posts: - Annual Top 10 Car Dealer Scams Alert List

New Year, New Financial Goals

How to Negotiate the Price of Your New Car

Cheryl BigosCheryl Bigos

Cheryl Bigos graduated from the Debt Management Plan (DMP) in 2008. She is now blogging about life as a DMP graduate in the My Journey out of Debt blog. She works as a Purchasing Manager in Los Angeles, teaches Pilates, and lives with her boyfriend of four years. Cheryl is looking forward to sharing what she has learned from her experience in the DMP and after! Look for great tips about life 'after' debt! Compensated CareOne Blogger.

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  • Hi there Cheryl, it's 2019 and I just found this article.  I'm in the midst of considering entering into a DMP and also will likely need to buy a car any moment as the transmission is beginning to show signs of failure (although its not out yet).  Are there any new learnings to this situation that you would want to share at this time?   I'm in the stages of contemplating DMP and contemplating buying a car.  Any advice is appreciated!  Sending you good fortune and vibes!!  Thanks!

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