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What
to do if you have poor credit.
If you have
received a bankruptcy or have sustained poor credit
in the past, your financial record can seriously affect
your ability to get favorable interest rates and terms
on your next loan. There are ways to still get low advertised
finance rates that manufacturers offer. Before I discuss
such methods, it should be pointed out that they apply
to people with poor credit who:
1) Have
had bad credit but all creditors are currently paid
up. You may have had loans or credit cards go to collections
and have since paid them off.
2) In the
case of bankruptcy, bigger is sometimes better. This
statement sounds absurd, but it is true. It goes to
credibility and character. For example, if you had businesses
go under and lost your house and other loans totaling
a million dollars or so, your bankruptcy is understandable.
You were in no position to pay back that kind of money
in your lifetime. On the other hand, if you went bankrupt
for say $20,000 just to get rid of collectors, you may
be in a case where people do not understand your situation.
Many collection agencies are so harsh they literally
do drive people to bankruptcy, but the lending institutions
don't recognize this as an excuse for taking such action.
They believe that this amount was payable, even in small
amounts, over time. If the second example describes
your situation more closely, you will need to build
a strong case to make lending institutions understand
your plight. Doctor's notes testifying that your stress
level was high to a clinical level doesn't hurt. The
useful links section will have resources you should
visit for more information on credit and improving your
situation.
3) Have
a good down payment - usually 20% of the loan.
It should
be pointed out that you will be seeing the dealer finance
manager to arrange this loan. It is important to tell
this person every detail of what happened to you during
this time. Doctors notes, divorce settlements, and anything
else to shed light on what happened is of great importance
and will help them get you a loan. Remember that if
they get you a loan, they sell a car!
So how do
you secure a low interest loan advertised in the paper?
1) Method
One. Apply for a low interest lease with a large security
deposit (instead of a loan).
Leasing
is not a bad alternative to financing. You have a shorter
term, you still get great rates, and you improve your
credit rating! With a traditional lease you would have
to pay first payment and security deposit up front.
In this case, you would apply for a lease with the manufacturer
and offer $2,000 to $3,000 as a security deposit - not
a down payment. A security deposit is required on most
leases and it usually closely matches the payment amount.
At the end of the lease, you would get it back from
the lending institution. By offering 2 or 3 thousand
dollars for the security deposit, the finance manager
may be able to persuade the lender to accept you. At
the end of the lease you would get it back!
2) Get a
qualified cosigner. If a close friend or family member
is willing to sign with you, it can often secure a loan
because they are backing you. If you fail to pay, the
banks go after them for the payment giving the banks
better security. Just remember that what you do affects
their credit rating as well.
3) Try for
a loan with a large down payment. This method works
on some loans and is well worth a try. Financing less
money allows the bank to take back a car and sell it
at auction to recover their loss. It makes it easy to
get their money back. If you financed the whole amount
and defaulted on the loan, your car is worth less than
the money owed due to depreciation. You can lose a considerable
amount just driving it off the dealer's lot. Financial
institutions want to safeguard their money in as many
ways as possible.
4) This
is the last resort for securing manufacturers low interest
loans - Use all three methods above. Get a lease with
a large security deposit and a good down payment and
back it with a cosigner. It is a lot of work to set
up and you need some cash, but it is worth it in the
end - both in interest savings and improving your credit!
(It is a better alternative than high interest sub prime
loans that are for people with bad credit. They are
usually 20% or higher and often do not report to a credit
bureau if you make your payments on time.)
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