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.)
Chapter Four Part Six: Top
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