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Archive for October, 2013

Buying a Car with Bad Credit in 2013

You need to be more careful with your decisions when buying a car with bad credit. One reason is unscrupulous entities are lurking around the market to take advantage of credit-challenged consumers. To avoid getting into costly car deals just because you have dull credit, we listed down some tips that can help you during the process. Here’s how you can snag the best possible car deal this 2013.

1) Be honest about what you can afford.

If you’re a typical bad-credit holder, you will mind your expenses, find the best way to save money and be careful not to do anything that will make your credit worse. Surprisingly, a lot of car buyers with bad credit apply for an auto loan and write in their application a luxury model as the vehicle they wish to be financed. To remind you, AAA’s 2013 Your Driving Costs study shows that the average cost of owning a vehicle in the U.S. rose to more than $9,000 per year.

Be realistic with your car choice when buying a car with bad credit. Some suggest picking a used car instead of new. But the choice should still depend on how much you can afford to pay every month. And this amount is the remainder of your monthly net income after all your personal expenses. When setting the budget, remember to factor in the actual costs of ownership like maintenance and repair, insurance premiums, fuel, accessories and parking fees along with the purchase price and loan payments.

2) Monitor auto loan rates.

If you are serious about getting the lowest possible rate, you should monitor the current auto loan rates. Let us remind you that the interest rates offered to credit-challenged buyers are higher than what are offered to prime borrowers. But you don’t have to take on a high and burdensome interest rate when you can find the lowest possible rate.

Bankrate.com is an excellent source of information for current auto loan rates. They post weekly updates of national average rates for new auto loans and used auto loans. It is also wise to shop around, getting several quotes from different lenders in your area and comparing them with each other to find the best rate.

3) Step into a dealership only after arranging financing.

Getting dealership financing may be convenient but dealers mark up auto loan rates. And they are more likely to mark them up when they work with people with bad credit. In March 2013, the Consumer Financial Protection Bureau (CFPB) placed indirect auto lenders, particularly dealerships, under scrutiny for their discriminatory rates.

To avoid getting a higher interest rate at a dealership, get approved for an auto loan beforehand. Auto loans for people with bad credit are also available in several banks, credit unions and other financing institutions. Moreover, you won’t have to discuss financing with the dealer anymore, which could otherwise make things more complicated during the negotiation, if you had arranged financing already.

4) Don’t mind the legalese.

Regardless of the kind of credit you have, you should never sign on the dotted line without reading what the papers say. Although the sales rep would assure you that the contract says this and that, you should still read the terms yourself. A lot of car buyers complain after realizing that they signed up for something with terms they don’t really agree with.

Further, bad credit car buyers are more prone to being ripped off. If the dealership promised you low monthly payments, for instance, make sure it is clearly written in the contract.




 


 

Is an Auto Bubble About to Pop with Easy Loans?

With tight credit standards that followed the Great Recession, buying a new car was impossible for a lot of consumers. But new car sales are rising these days with the most recent 8% gain as credit standards loosened. But this happens as other economic indicators like unemployment rate shows to be dismal. Are easier auto loans then good news or bad news as they are seen to make another bubble pop?

Easier lending standards, longer repayment periods and the availability of auto leases are key drivers for the growth of new car sales, according to an Automotive News report. The average auto loan term at present is 65 months. New car loans that went to subprime borrowers or borrowers with credit scores of less than 700 increased to 27.4% in the second quarter of 2013. And the average credit score in the U.S., according to credit-reporting agency Experian, is 736 on VantageScore scale.

In 2012, about 14.2% of the population belonged to the lowest ranges of FICO scores. (FICO scores range from 300 to 850 while VantageScore is from 501 to 990.) But with more than a quarter of new car loans that went to people with poor credit, it seems that subprime borrowers are excessively represented in the most recent data of new car sales.

Loose credit standards help consumers repair their broken credit and start a good one again. But analysts are concerned about the similarity of today’s auto lending trends to the ones observed before the housing bubble popped.

Predictions for new car sales in 2013 are set to 15.5 million. To keep up with the demand, automakers double their production. Interest rates could rise and if they do, consumers might find new cars less affordable. This would obviously affect the demand. If demands decline, automakers will have to find ways, like offering discounts, to stimulate sales. If they keep on doing this, discounts will slash their profits which could impact the automotive industry and eventually the economy. A similar domino effect was last seen in 2008 when the crisis struck.

But even if interest rates go down, easy auto loans are not always a breath of fresh air to the car-buying public. Long auto loan terms and leases, which both make lower monthly payments, do get people behind the wheel, but they could also place buyers into something they couldn’t actually afford.

Repaying an auto loan in a longer period can make a new car more affordable but it could give you problems when you want to trade the car in. You would also end up paying more interest, making the purchase more costly than it should be.

If you’re looking to buy a new car, compare three or more auto loan quotes from different lenders before taking an offer. Keep the loan term short as much as possible. Experts say 48 months is the longest car buyers should go. Short loan terms may have bigger monthly payments but their benefits certainly outshine their very few disadvantages.

 


 

Foolish Excuses People Give for Having a Bad Credit Score

ABC News reports about crazy excuses people give for explaining a bad credit score—not to teach consumers to use the same excuses but to let them know that they may no longer work today. So don’t try explaining to your lender using excuses such as these:

1) A borrower who had been way behind his loan payments said, “My wife and I were abducted by aliens and implanted with a device.”

2) A man trying to explain to his mortgage lender why he has a bad credit score said perhaps something like this, along with other reasons, in a 10-page letter, “I discovered I was married to a devil. I should’ve known that as my marriage license number is 666.” He also mentioned he had gout and hurt his back.

3) A woman trying to get credit said in a letter, “It wasn’t my pot pipe that started the fire. It was my boyfriend’s.”

Karen Deis, founder of an online training company for loan officers, said that many of the excuses were actually true but consumers weren’t just able to explain themselves well, which hinder them to get credit.

The law allows lenders to base their loan decisions on the borrower’s creditworthiness, job and income stability, and the amount of down payment willing to be doled out. But lenders need explanation for instances like fire, child support, divorce and foreclosures as these can affect their decision.

Debt advisers always give this piece of advice to every consumer who has incurred bad credit: Be honest about your situation. Deis told ABC News that consumers should have everything they claim documented and consider talking to a loan officer.

A loan officer can help you identify which credit issues matter to lenders and which do not. It’s important to identify so you won’t have to give explanation for everything. It’s the job of the loan officer to help you explain. He or she can also write the explanatory letter, something he or she could do better than you.

As a bonus, the story concluded with some real examples of statements you shouldn’t tell a potential lender when trying to explain a bad credit score:

“We decided to pay off our credit card debt and stopped making our house payment for a year.”

“I stopped making credit card payments and filed bankruptcy because I didn’t want any debt when I buy a house…I should get approved, right?”

“I pay late fees every month, so that should get me a better credit rating.”

“My car broke. I stopped making payments. Wanted them to come and get their junk car.”

“The construction workers moved my mailbox and could not find it for three months.”

“I thought she was payin’ it—she thought I was payin’ it.”

“The bill was always due at a bad time of the month.”

“I make all my payments on time…to the collection agencies.”

Borrower explaining late payment of Mobil Credit Card: “I got bad gas.”

“The stamp fell off my payment envelope.”

 


 

Buying a Car with Bad Credit and No Cosigner

Although it’s been discouraged to take out an auto loan with less-than-perfect credit (or sometimes encouraged to do so only with a cosigner), consumers are still persistent about bad credit auto loans—even without a cosigner. The good news is buying a car with bad credit and no cosigner is possible. And many lenders willing to finance in such conditions are open for business.

But before you get too excited and rush into a deal, take some time to relax and read through this quick guide. We don’t want you to go about the process uninformed.

YOUR BAD CREDIT AND A COSIGNER

Bad credit, which is indicated by a low credit score, is no fun at all. It makes obtaining credit more challenging. There are also the high interest rates waiting for you if ever you get approved. This is the reason why you may need a cosigner when taking out a loan with bad credit.

A cosigner, who must be someone you trust, willing to take on the obligation in case you fail to make the payments, and have good credit, can make you less of a high-risk borrower. In other words, lenders can lower your interest rate and may grant you an auto loan faster if they see you’re signing up with someone.

But convincing someone to be your cosigner isn’t that easy. And asking a close friend, family member or relative to be your cosigner puts the relationship at stake. You can still get approved for an auto loan even with bad credit and without a cosigner. But let us share with you some tips first on how to get approved easily.

WHAT WOULD LENDERS WANT TO SEE

Stable Income
Lenders would want to see that you’re earning well and enough for them to be convinced that you can be trusted with an auto loan. A stable income can be proven with more than a couple of your most recent pay stubs.

Down Payment
A bigger down payment can help you get approved for an auto loan with bad credit and no cosigner. Putting down more than the ideal 20% tells lenders that you are serious about the auto loan you’re trying to get and that you are willing to pay it off on time.

A bigger down payment requires quite a lot of cash, though. You will need to save up for this ahead or use the trade-in of your current vehicle.

Honesty and Full Compliance
Believe it or not, your story on how you got a low credit score and whether you comply with the requirements can affect the lending decision of your potential lenders. If you are serious about getting approved for an auto loan, make sure you don’t give lenders crazy excuses for your poor credit. A loan officer can help you draft a good explanatory letter for this.

Make sure as well that you completely fill out the application form with honest and authentic information. Wrong information or incomplete application can delay the loan decision or cause your application to be denied. You should also provide all the required documentation—and only authentic ones.

WHAT TO DO

We suggest doing the following as you apply for an auto loan with bad credit and without a cosigner:
• Review your credit report and find out your credit score.
• Save up for a bigger down payment.
• Do away with expensive cars.
• Find legitimate lenders in your area and compare at least 3 auto loan quotes before picking a lender.

 


 

Americans Take Out More Loans for Cars

U.S. consumers are apparently taking out more loans for vehicle purchases and education as non-revolving debt increased.

According to the Federal Reserve, non-revolving debt, which includes auto loans and student loans, increased by $14.5 billion in August, following a $12.2 gain in July.

It led to overall consumer borrowing expansion of $13.6 billion, which exceeded the economists’ prediction of $12 billion increase. Consumer credit climbed $10.4 billion in the previous month.

American households have more money because of the lucrative stock market and better home values. This enables consumers to avail of cheaper financing products to buy big-ticket purchases like cars.

Further, the August sales of cars and light trucks are at annualized pace of 16 million, the strongest since 2007, data from Ward’s Automotive Group showed.

Ford Motor Co. senior economist Jenny Lin said that interest rates continue to be “very low and favorable” for vehicle purchases.

compare-auto-loans

Meanwhile, student loans rose by $21.9 billion in August after advancing by $4.8 billion in July.

But Americans are also being more careful about taking on more debt by financing other purchases as credit-card debts declined for a third time.

Revolving debt, which includes credit cards, went down by $883 million, following a $1.8 billion fall in July, the Fed’s figures showed. It is the longest string of decline in revolving debt since November 2010.

Gregory Daco, senior economist at Oxford Economics USA, said that people are willing to spend but leery of having insufficient income.

 


 

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