Car Loans and FICO Scores
by Steve Cypher on Friday, August 7th, 2009In the current economy more and more consumers may find themselves turning to a car loan in order to improve their credit scores.
How did you get where you are?
If the current economy has resulted in a personal event such as a change in employment, unexpectedly large medical bills or if you’ve even gone through a divorce or experienced legal troubles and this event has turned what was once a good credit score into a bad credit score, you need to know that there is a way you can regain that good FICO score.
Even in these challenging times, those of us here at Auto Credit Express want you to know that there are lenders out there that are willing to help those who, at one time, had a good credit score and now have bad credit – especially if the lender can identify a single economic event that caused your formerly good credit rating to drop.
Often, when a consumer’s credit turns from good to bad, this person will end up losing their vehicle, either through bankruptcy proceedings or repossession; once that happens, most consumers find themselves, after much trial and error, getting a bad credit auto loan through a subprime auto lender.
Improving your credit score
Getting a car loan after a bad credit experience provides an excellent opportunity to raise your credit score. As you go through the process of purchase a car, here are some things to consider:
• The first loan following a severe drop in your credit score will be at a higher (sometimes much higher) interest rate than you are used to.
• In the future, you will qualify for a better rate provided that you make the payments on time on your first bad credit car loan.
• Because of the possibility of negative equity, you may not be able to refinance, or trade in your vehicle until at least half the loan term has been reached (for example, 30 months on a 60 month loan).
• If you don’t make your payments on time with this loan, your credit score will drop even further.
The finer points of a bad credit loan
Before you buy a car after a bad credit experience, you will have to decide what is most important to you. If re-establishing your credit is your biggest concern, we would recommend buying and financing an inexpensive car with a loan term of 36 months or less. If you do this and make all of your monthly payments on time, you should be able to trade in the vehicle after 18 months or so and qualify for a much better interest rate (although this rate may not yet be a prime one).
The other choice isn’t nearly as prudent: Many customers choose to purchase an expensive vehicle with monthly payments that just barely fit within their budget. Because of the higher selling price, these vehicles have to be financed for up to a 72 month term. After 18 months, when their credit rating has improved, it is nearly impossible to trade in the vehicle and get a newer car with a lower interest rate.
The choice, then, is simple: if you choose to purchase and finance a vehicle for 72 months after a bad credit experience, you should plan on keeping that car, and the higher interest rate, for quite some time.
The Bottom Line
At Auto Credit Express, our business is to help people with bad, blemished, bruised and tarnished credit buy cars and reestablish their credit at the same time. Our national network of affiliate dealers specialize in bad credit car loans. If you have any additional questions, our web site will help you determine how much car you can afford and, unlike other sites, our toll free number is listed on every page in case you have any additional questions.
For more information, visit our web site at www.autocreditexpress.com.
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My name is Mary Levine i am in a terrible situation. May 6, 2009 i was laid off from my job where i have been working for 3 years. I am a single parent with four kids. I am currently getting 351.00 a week for unemployment compensation. I am doing the best that i can to maintain my rent which is 550.00 a month and other household bills and my kids.I also have a 2006 Nissan Altima that i am paying 451.00 a month. I have been keeping the payments up so far, but things are starting to get a little more difficult. I was thinking about just letting the car go back until someone told me about the refinance option. I tried it through the bank that finance me the car in the beginning, but they turned me down. Would i be doing the right thing? Are there other options out there for me to take? Could you please help me come to a solution!
Mary,
If it’s any consolation, yours is not the worst case I’ve seen. Probably the reason the bank won’t refinanance your current vehicle is that you don’t have a job and unemployment income doesn’t count. It may not be fair, but that’s the way it is. And while we aren’t lawyers and we don’t give legal advice, it would appear that you have a couple of options at this time:
A. Sell the Altima
1) You could try and sell the Altima on your own through an online web site such as Auto Trader or through craigslist. Before you do this, you’ll want to visit a dealer to see how much it appraises for as well as go online to see what other Altimas are selling for to price yours accordingly
2) You could sell the Altima to a dealer, provided you owe less on it than it is worth, otherwise you would have to come up with the difference in cash in order to complete the transaction.
B. Call the bank and arrange for a voluntary repossession. By returning it to the bank yourself, you avoid the towing and repossession fees – although it will still appear as a regular repossession on your credit report.
Because you don’t have the money for a down payment and taxes – something a “buy here pay here” dealer will require, if you need a vehicle to replace the Altima you will need to find a “rent to own” dealer.