Consumers going through a divorce that have cosigned for their spouse’s car loan need to be aware of how lenders view an auto loan contract that was previously executed even though this is addressed in the divorce decree.

Here at Auto Credit Express we’ve been helping car buyers with questionable credit looking for online car loans find those new car dealers that can give them their best chances for car loan approvals for more than twenty years.

We’ve also seen the results of what can happen to an auto loan as the result of a divorce. We also feel it’s especially important that car buyers with bad credit know about this, since it could affect their FICO scores as well as their chances of repairing their credit and qualifying for another loan.

Divorce decrees

When we receive questions regarding credit problems and divorce decrees it usually comes down to one of the exes, usually the one with poor credit, becoming solely responsible for an auto loan that was cosigned by the spouse with better credit.

The question is usually asked because the spouse now responsible for making the loan payments isn’t making them. The cosigner wants to know, because the divorce decree states they’re not responsible for the loan, if these late payments or the possibility of an impending repossession will affect their credit history and credit scores.

The answer they get is usually not the one they were thinking it would be. Here’s why:

Agreements outside a contract

When applicants receive a car loan approval the lender is basing the approval on the information that was provided in the loan application. Once the loan documents are signed and the loan is funded, this agreement is then considered to be a binding contract.

In terms of any circumstances that might follow, the contract from that point on is considered to be a “pre-existing agreement.” In terms of an auto loan, this means that even if a judge rules that only one spouse is responsible for making loan payments and enters that stipulation into the divorce decree, the lender can still hold both signers jointly and individually responsible for making payments.

In this case, the divorce decree is considered an outside agreement that was made after the signed contract was accepted by both parties. Since the court documents are not part of the loan contract (that is, the original loan contract doesn’t contain any wording of what will happen if the primary signer and co-signer decide to separate or divorce), both spouses continue to be responsible, individually and jointly, for any and all remaining loan payments.

This means that if payments are late or if the vehicle is repossessed, this information will be reported to the credit bureaus and will affect the FICO scores of both borrowers. In addition, lenders can legally collect the remaining contract balance, plus any fees associated with the repossession, from either or both the primary borrower and the co-borrower.

Planning ahead

If you are involved in a divorce and have joint accounts with your soon-to-be ex, be sure to close those accounts and pay the balances on time. Better yet, before the divorce is final, be sure all joint loans are refinanced under an individual name – making just one person contractually responsible for each loan.

As we see it

It’s important to remember that a joint contractual obligation that was entered into before a divorce will not change just because the decree now states that just one person is now responsible for it.

One more thing to keep in mind: at Auto Credit Express we match applicants that have experienced car credit problems with dealers that can give them their best chances at approved car loans.

So if you’re ready to reestablish your auto credit, you can begin now by filling out our online car loan application.

A study conducted back in 2011 by Experian Automotive makes it clear that consumers with bad credit who finance used cars with subprime auto loans are at greater risk to be the targets of fraud than the average buyer.

Here at Auto Credit Express we are aware of this unfortunate statistic because for more than a decade we’ve been helping problem credit car buyers searching for online auto loans locate those car dealers that can offer them their best opportunities for loan approvals.

So why is understanding the exact condition of a used car so important?

Used cars

For most credit-challenged car buyers, choosing to finance a used car is typically in their best interests. That’s because, according to Consumer Reports, the average new car can lose up to 47 percent of its retail value over the course of just the first three years of ownership.

But buying a used vehicle also comes with the risk that its condition isn’t necessarily what the seller would lead you to believe. This problem is twofold: just like purchasing a new car, there is no cooling off period once the loan documents are signed. Additionally, most used cars, unlike new ones, and are not covered by state lemon laws with many sold “as is” and without warranties.

Title washing

If this isn’t bad enough, in some cases the title held by the seller only “clean” because the vehicle’s previous “branded” title was altered by re-titling it in another state in a practice known as “title washing.”

In other cases, used car buyers have unknowingly signed branded titles without realizing it.

So what does this mean for car buyers?

If this happens, these buyers, without realizing what they’ve done, could end up financing a used car with hidden damage. For car buyers with credit problems it goes beyond this as it could jeopardize their efforts at credit repair.

It’s also something that, according to Experian Automotive, does happen more often to buyers with poor credit scores.

Experian study

Back in 2011 an Experian Automotive credit trends study compared a vehicle’s history to loan performance. Here is what it found:

“…vehicle history can have a major impact on loan performance. The study found that more than 2 percent of the late-model used vehicles (model year 2005 and newer) had a negative vehicle history event (frame damage, salvage, odometer rollback, etc.), which can significantly impact the vehicle’s value.”

The study also found that “while these instances occur across all credit segments, more than 3 percent of financing outside of prime had negative vehicle history.” At the same time it also noted that “Vehicles with a negative history event also referred to as ‘brand’, also have a higher percentage of charge-offs for lending institutions.”

Buy used car no credit tips

There are at least three things that used car buyers can do to avoid purchasing a used car with a negative vehicle history.

1. Go to www.nicb.org and check the vehicle’s history using VINCheck (be sure to copy the VIN number from the vehicle’s VIN plate)
2. Order a vehicle history report from either Carfax or AutoCheck.
3. If the vehicle passes both tests, have it inspected by an ASE Certified Master Mechanic as well as a body and frame expert before making a buying decision.

The Bottom Line

The first step to successfully reestablishing auto credit is making any vehicle chosen won’t end up incurring hundreds or even thousands of dollars in maintenance costs due to a previous event.

It’s also important to note that even if a branded car turns out to be reliable, any vehicle whose title has been washed due to previous damage will be worth much less at trade in time as there’s an excellent chance that that damage will finally be uncovered. A vehicle like this could also reduce the ability to trade it in sooner, since there’s a good possibility there will be a negative equity situation for most of the loan term.

Another important thing remember: Auto Credit Express specializes in helping applicants with car credit issues find those dealers that can give them their best chances at auto loan approvals.

So if you’re ready to reestablish your auto credit, you can begin now by filling out our online auto loan application.

Car owners with poor credit on tight budgets who finance their vehicles with higher-risk car loans are often especially sensitive to the costs of car insurance.

At Auto Credit Express we’re familiar with this situation because for over twenty years we’ve been helping consumers with questionable credit applying for online car loans find those dealers that can give them their best opportunities for car loan approvals.

These buyers aren’t helped by the fact that in some states drivers can, in part, be rated on their credit scores. But there is a form of car insurance that, even under these circumstances, can make those auto insurance premiums more affordable.

PAYD

Called pay as you drive (PAYD), its auto insurance that, in addition to the other factors, calculates a portion of your premium based on how far you drive. By considering the reduced risks that lower mileage poses, it gives these drivers a discount over what they would normally pay.

State Farm and SYNC

Last year State Farm Insurance and Ford announced a partnership that included an expansion of State Farm’s Drive Safe & Save program to include select SYNC-equipped Ford vehicles.

State Farm customers who drive these vehicles can reduce their auto insurance premiums by using the Vehicle Health Report feature of SYNC to report their mileage.

State Farm stated that initial savings will be about 5 percent, with the actual premium savings determined at each six month renewal date interval based on the miles driven during the previous six-month period.

The auto insurance company also estimates that drivers who average 1,000 miles per month will save about 10 percent, while even lower-mileage drivers could save up to 40 percent.

State Farm and OnStar

Drivers of General Motors vehicles equipped with OnStar that have an active subscription that includes OnStar Vehicle Diagnostics can also take part in State Farm’s Drive Safe & Save program.

At the time OnStar owners sign up, State Farm will request up to the six most recent historical odometer readings to compute the discount. As with the SYNC program the premium is recalculated with each six month policy renewal.

Unlike the Ford system, however, there is a charge for the OnStar subscription service required to do this and customers may not always save enough to recover the cost of the OnStar subscription.

One other point that should be made is that currently the Drive Safe & Save program is available all 50 states and according to the State Farm web site, while OnStar participates in all of those states, Ford drivers with the SYNC system cannot yet sign up in the states of Georgia and Washington.

The Bottom Line

PAYD auto insurance, such as the State Farm Drive Safe & Save program, could certainly help low-mileage drivers that have experienced auto credit problems – especially in those states where auto insurance rates are partially based on FICO scores.

So if you have bad credit, a vehicle equipped with OnStar or SYNC and you’re shopping around for car insurance, be sure to check out all your options including State Farm’s PAYD car insurance program to see what your savings might be.

One more thing it’s always a good idea to check out: at Auto Credit Express we match applicants that have experienced car credit problems with dealers that can give them their best chances at approved car loans.

So if you’re ready to reestablish this type of credit, you can begin now by filling out our online  loan application.

The current grading system for businesses used by the Better Business Bureau makes it much easier for consumers with poor credit to compare the various online auto loan websites.

Here at Auto Credit Express we feel this was the right move by the BBB. That’s because for over a decade we’ve been helping car buyers with problem credit find those new car dealers that can give them their best opportunities for approved auto loans.

Why it matters

Buying a new or used vehicle is usually the second-most expensive purchase most people will ever make. For this reason, car shoppers should do their research and, if they have bad credit, it should include the web site where they plan to apply.

It’s also why we paid particularly close attention to information released both the Detroit BBB office and the Denver BBB office that described the new rating system.

This is what it had to say:

In order to help consumers make better-informed decisions on where to spend their hard-earned dollars, BBB will now assign letter grades to local businesses ranging from A+ to F beginning on December 29, 2008. The letter grade system—which replaces a less-detailed scale of “satisfactory” or “unsatisfactory”— represents BBB’s degree of confidence that the business is operating in a trustworthy manner and will make a good faith effort to resolve customer concerns.

“…consumers literally can’t afford to make bad buying decisions,” said Vickie Galpin, President & CEO of the BBB Serving Eastern Michigan. “These reports make it extremely easy and convenient for consumers to research and compare local businesses—before they buy.”

BBB’s proprietary ratings formula takes into account 16 weighted factors, using objective information and actual incidences of a business’ behavior that have been verified and evaluated by BBB professionals. Specific issues affecting a business’s rating are described in detail in BBB Reliability Reports™. Ratings factors include:

• The business’s overall complaint history with BBB, including the number and severity of complaints to BBB from customers
• Whether complaints have been resolved in a timely manner or the business has demonstrated a good faith effort to resolve them
• How long the business has been operating and whether it meets appropriate competency licensing
• Government actions against the business related to marketplace activities
• Advertising issues evaluated by BBB
• Whether the business is a BBB Accredited Business and has committed to BBB standards

Both BBB Accredited Businesses and non-accredited businesses in the Better Business Bureau’s database will receive a letter grade as part of their report.

Checking those grades

Dale Mingilton, President and CEO of the Denver/Boulder BBB also suggested that, in addition to checking a company’s letter grade, consumers also read and consider the full BBB Reliability Report(TM), which includes more information and details.

“We also offer help to BBB Accredited Businesses in overcoming any deficiencies that might develop. We always recommend that every business consistently treat its customers in a fair and honest manner. And, if mistakes are made, take prompt and appropriate action to resolve issues as quickly as possible,” Mingilton explained. He added, “It is more important than ever for businesses to contact their BBB to make sure we have up to date and accurate company information.”

Mingilton also warned consumers about alternative screening or referral services that are profit-oriented and based on tiered advertising programs. These services typically do not investigate, nor help resolve complaints and therefore may result in unreliable and unverified information. Mingilton adds, “BBB is really the gold standard – everyone knows it. In fact, BBB ratings are used by these other services to prescreen businesses.”

The Bottom Line

With the new realities of online shopping and information sharing, it’s more important than ever to be able to trust the businesses behind the web sites to which you’re entrusting your private data.

As a BBB Accredited Business, we want our applicants to know that we adhere to the bureau’s standards of addressing customer concerns and resolving any disputes in a timely manner.

We also want you to know that Auto Credit Express specializes in helping applicants with car credit issues find those dealers that can give them their best chances at auto loan approvals.

So if you’re ready to reestablish your auto credit, you can begin now by filling out our online auto loans application.

Usually one of the first questions we get from car buyers with questionable credit is what interest rate they’ll be required to pay on an auto loan. And while that usually can’t be predicted, borrowers rarely ask what type of interest rate it is – something that could be equally as important.

We know this because here at Auto Credit Express we’ve been helping car shoppers with problem credit looking for online car loans find those new car dealerships that can give them their best opportunities for car loan approvals.

The fact is that while the types of interest rates aren’t usually considered to be important by most buyers, knowing the kind of interest rate the loan specifies can make a big difference especially for consumers with bad credit. That’s because the type of interest not only affects the amount of interest paid over the loan term, it’s also important if there’s a chance the vehicle will be traded in before the end of the loan.

Simple interest

The most common type of vehicle loan is the simple interest auto loan. With a simple interest loan the interest is charged on the daily loan balance.

This means that if a payment is made before the due date or if more than the amount due is paid (early payment, overpayment), less interest will accrue. The reason for this is that the running balance, on which interest charges are computed, will be lower. In a way, simple interest loans reward those who pay early or overpay as these borrowers will pay lower interest charges over the loan term.

Also, if the loan is paid off early, the interest expenses stop at that time with no further interest accumulating on the loan. This means that loan payoff amount at any point in the loan is the original loan amount, plus the interest charges to date, minus the payments made. There is no interest penalty and borrowers stop paying interest the moment the loan is paid even if it’s paid off early.

Rule of 78s interest

Most consumers aren’t familiar with another type of interest, the rule of 78s, simply because this method is not used nearly as much as it once was.

With the rule of 78s, the amount of interest to be charged on the loan is computed beforehand and calculated by using amortization tables. Once the interest charge has been determined, a portion is then built into each payment. Because of the way amortization works, typically ¾ of the interest charges are paid during the first half of the loan. Because the monthly payment never changes and the interest is “front-loaded”, if the loan is paid off early the payoff amount at that time is usually higher than that of a simple interest loan.

Although lenders w typically “rebate” a portion of the pre-computed interest charges in an early payoff of a rule of 78s loan, borrowers still end up paying more in interest charges than a similar simple interest loan.

Auto loans

In 1992, the use of rule of 78s interest for all closed-end loans (those with a fixed final payment date) over 61 months in length was declared illegal. Arizona, Delaware, Idaho, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, Nevada, New Hampshire, New York, Oregon, South Dakota and Vermont have also outlawed this type of interest computation in loans with terms of 61 months or less.

Currently, most lenders offer only simple interest loans. However, a handful of high-risk auto lenders dealing with really bad credit borrowers as well as many buy here pay here dealers and tote the note car lots in the remaining states that still allow it can use the rule of 78s to compute the interest charges for their auto loans.

Spotting a rule of 78s loan

To spot a rule of 78s loan, be sure to read the finance contract carefully. If it has the words “refund” or “rebate of interest” or if the wording in the “prepayment” section states anything other than “no penalty”, it isn’t a simple interest contract. In this case borrowers should avoid signing it, if possible.

The Bottom Line

When it comes to auto loans for credit-challenged consumers, it’s not just the interest rate but also the type of interest that can end up costing borrowers more money. To avoid accidentally signing a rule of 78s loan, look over any finance contract carefully.

One more thing to think about: at Auto Credit Express we match applicants that have experienced car credit problems with dealers that can give them their best chances at approved car loans.

So if you’re ready to reestablish your auto credit, you can begin now by filling out our online car loan application.

Understanding credit problems

Here at Auto Credit Express we’ve spent the past decade helping car buyers with bad credit looking for online car loans find those new car dealers that can offer them their best opportunities for auto loan approvals.

But we also realize that everyone’s situation is different and that it’s important that consumers understand the different kinds of higher risk auto lenders. This is especially true for those applicants with questionable credit that ask, “how hard is it to get a car loan with a repo?”

BHPH car dealers

For those unfamiliar with what the phrase “buy here pay here” means, it refers to a car dealer where you can not only purchase a car, but a dealership where you can finance it, right there, as well. In this case financing is arranged with money that is borrowed from the dealer instead of a bank, credit union or finance company.

Many people in the market for a used car – especially if they have very poor credit – start the buying process by visiting one of these dealers, thinking there is no choice other than signing up for a buy now pay later car loan.

These buyers believe that because of their poor FICO scores, no regular car dealer will be able to get them approved for a loan. The fact is that in many cases, this may be true.

Low income, short job time, no credit history, multiple repossessions

For those consumers that have a low income, say $1000 per month, a short time on the job – maybe 3 weeks – and no credit history, the chances of getting financed at a regular dealership – even one that offers auto loans from higher-risk auto lenders – are pretty slim.

Multiple repossessions or a single repossession from a subprime lender are two additional situations that are also often deal killers for even the lowest tier of finance companies.

So for these customers a BHPH car lot really may be the only way that they can finance a vehicle.

But many car buyers who think that a “buy here pay here” arrangement is their only option may be pleasantly surprised at the number of additional opportunities for car finance that they really have – but more on that later.

BHPH pros and cons

The biggest attraction BHPH car lots have is the fact that they don’t require credit checks. But this also means that even if buyers make every payment on time, repaying this type of loan will not improve their credit since most of these dealers don’t report loans or good payment records to the credit bureaus (in many cases they will report repossessions and, in some instances, poor payment histories to the bureaus).

This means that, for the most part, even after successfully completing a loan these buyers will find themselves in the same credit situation the next time they need a vehicle.

The Bottom Line

For some consumers the only choice for getting a car loan with a repo is going to be a BHPH dealer.

But for others there are dealers that work with a wide array of lenders to maximize the chances for a loan approval. These loans require a credit check, but once approved, each car payment made brings consumers one step closer to rebuilding their credit scores and reestablishing their financial future.

So if you need a car and think that your only option is a “buy here pay here” dealer, we want you to know that Auto Credit Express specializes in helping applicants with car credit issues find dealers that can give them their best chances at approved auto loans.

So if you’re ready to reestablish your auto credit, you can begin now by filling out our online auto loan application.

At Auto Credit Express our job for the past two decades has been helping consumers with bad credit searching for online car loans find those auto dealers that can give them their best chances for a loan approval. At the same time we try to point them in the right direction when it comes to choosing the right vehicle.

Making the right choices

What it comes down to is that most consumers with poor credit will reach the conclusion that it’s more affordable to finance a 2 or 3-year-old used car, especially with a high-risk auto loan.  Considering the current level of vehicle quality as well as the high depreciation most new cars experience, this decision makes a lot of sense.

Almost immediately those same car buyers are often faced with another decision: should they buy a regular used car or a certified used car?

Certified used cars

Typical certified used car programs (also called as CPO or Certified Pre Owned) work this way: if a vehicle meets specific age and mileage requirements, it’s eligible to go through an inspection process. Following the required replacement of worn, broken or defective parts, a franchised new car dealer can then sell it with a manufacturer-backed extended warranty (really a service contract).

Because of the additional parts and labor costs, certified used cars are usually sold at a premium over their non-certified counterparts.

Kelley Blue Book

Because the benefits of buying a certified used car come at a price, the purchase decision usually comes down to affordability. Up until 2010, it was often difficult to determine a competitive price for one of these manufacturer-backed certified used cars since the used car values listed in both NADA and Kelley Blue Book only covered regular used cars. But that all changed when, in May, visitors to kbb.com were able to determine the value of a certified used car.

According to Kelley, certified used car values are calculated in the same way as that of a conventional used car, while also factoring in the “value that is associated with the certified used program.”

This is not as easy as it may seem, because the certified used car programs for each manufacturer vary widely. This also means that the difference in value between a regular used car and a CPO vehicle also fluctuates by manufacturer since some offer longer warranties and more additional services (such as rental cars) than others.

It also means that comparing one Chevrolet certified used car to another certified used Chevy is easier than comparing a certified used Chevrolet to a certified used Ford model. To help solve this dilemma, Kelley also has a feature that allows you to list up to four different manufacturers programs, side-by-side, to directly compare their various features.

Be sure it’s manufacturer-backed

“Many car shoppers have heard the term ‘certified’ but they aren’t sure exactly what that means, let alone if it is right for them or what they should be paying for a CPO vehicle,” said James Bell, executive market analyst for Kelley Blue Book. “The CPO section on kbb.com and Kelley Blue Book’s CPO Value take the mystery out of CPO and provide shoppers with all of the tools and advice they need to research and purchase a CPO car.”

Keep in mind that the programs being discussed are those certified by their respective manufacturers. Unfortunately, just because a dealer advertises a car as certified doesn’t necessarily mean it has to be part of a manufacturer-backed program.

If it isn’t, you may be required to pay for any repairs up front and submit the receipts to an outside warranty company for reimbursement – a process that can prove to be a hassle.

As we see it

Certified used cars are usually pricier than their non-certified counterparts. The costs of an inspection, worn and/or defective parts replacement and a fairly comprehensive service contract can all add up. Before buying one, it makes sense for all buyers, but especially those with poor credit, to research and compare the selling prices of certified pre-owned vehicles to their non-CPO counterparts (priced with a comparable warranty from a reputable warranty company).

One more thing to consider: at Auto Credit Express we match applicants that have experienced car credit issues with those dealers that can give them their best chances for approved car loans.

So if you’re ready to reestablish your auto credit, you can begin now by filling out our online car loan application.

Car buyers searching for online auto loans should be aware of the latest report from Experian Automotive study that shows finance company loans to consumers with bad credit experienced an increase in 30 and 60-day delinquencies during the first quarter of 2013.

Here at Auto Credit Express we don’t see this as good news but we’d also like to point out that the same report also contained some encouraging information for credit-challenged consumers. We should know, because we’ve spent the past two decades helping car shoppers with questionable credit find those new car dealers that can offer them their best chances for auto loan approvals.

From time to time we also field questions from applicants including, “How hard is it to get approved for a car loan?” The fact is that every applicant’s situation is unique. It also has a lot to do with the general lending climate – something addressed in the latest report from Experian Automotive.

Experian Automotive report

The May 14, 2013 report begins with the headline, “30- and 60-day delinquencies and repossessions increase but remain below recession-level highs.”

It then goes on to state that “30-day auto loan delinquencies rose 1.3 percent, 60-day  delinquencies increased 12.4 percent and repossessions rose 16.9 percent when compared with the previous year.”

The report also noted that “automotive repossessions jumped 16.9 percent, going from 0.43 percent in Q1 2012 to 0.50 percent in Q1 2013. While repossession rates for banks, captives and credit unions are all down year over year by as much as 14.9 percent, rates for finance companies increased by 52.1 percent. In spite of the increase, overall repossession rates are still relatively low when compared with the peak rate of 0.71 percent in Q1 2010.”

“Obviously, we never want to see a rise in delinquencies or repossessions, but when you compare the current findings with previous years, they are still lower than the recession-level rates,” said Melinda Zabritski, Experian’s senior director of automotive credit. “As we continue to move forward, we should start to see more increases as some of the subprime loans coming onto the books begin to deteriorate. However, one thing most lenders will agree upon is that today’s subprime borrower is less delinquent than those in the past.”

Other information

The report also found that:

• Total dollar volume of automotive loans grew by 9.6 percent in Q1 2013, reaching $726 billion, compared with $663 billion in Q1 2012
• Banks increased loan portfolios by $20 billion, finance companies by $18 billion, credit unions by $14 billion and captive finance companies by $12 billion

But if you fall into the higher-risk category you should also be aware of the fact that subprime lenders, noting the increase in repossessions, will probably be continuing to exercise caution when approving loan applications.

Knowing this you might consider following these tips:

• Know what’s in your credit reports as well as your credit scores.
• Choose an affordable small or mid-sized car and with a payment that is no more than 10% to 15% of your gross monthly income (the lower the better).
• With lenders continuing to be cautious while looking for lower LTV ratios, the higher your down payment, the better it will look. Not including new car rebates or dealer cash, a down payment of 15% or more will increase your chances of an approval.

The Bottom Line

Although lenders are increasingly willing to work with people with poor credit scores, they are balancing this fact by requiring that buyers have actual equity (cash down, trade equity) in these loans.

One more thing buyers with credit problems should know: if you’ve been turned down for a conventional car loan, it doesn’t mean the only option is a BHPH dealer. That’ because Auto Credit Express specializes in helping applicants with car credit issues find dealers that can give them their best chances at approved auto loans.

So if you’re ready to reestablish your auto credit, you can begin now by filling out our online auto loans application.

Applicants with bad credit searching for online car loans that depend on social security or other types of disability benefits for all or most of their income need to understand that this can pose a problem for most subprime auto lenders. It can, in fact, result in a denial of credit.

Here at Auto Credit Express we know why this happens because we’ve spent more than two decades helping buyers with questionable credit find those dealers that can give them their best opportunities for car loan approvals.

So here, in a nutshell, is the problem concerning car finance for people on benefits:

Disability income

The fact of the matter is that it’s not easy getting approved for a car loan if all of a portion of an individual’s income comes from disability or SSI payments even for car buyers with great credit. Knowing this, it’s also no surprise that it’s even more difficult for applicants with credit problems.

The reasoning for this is simple: Social Security disability income cannot be garnished.

This means that if a person who receives disability income has their car repossessed, the lender can’t garnish that source of income in order to pay off any fees or an outstanding loan balance.

Lenders are well aware of this and, therefore, are especially cautious when someone with a checkered bill payment history and SSI disability income applies for a car loan.

But recipients shouldn’t just blame the Social Security Administration for this. According to the website DebtSettlementLawyers.com, in addition to SSI disability payments this rule also typically applies to “private disability insurance payments” as well.

Despite these facts, there are at least two situations where higher-risk lenders might consider applicants with this type of income:

• If applicants can prove they have another source of income that could be garnished, such as W-2 wages from a job (the longer the job time and higher the income, the better the chances)
• In some situations this will also improve a borrower’s chances for an approval: If applicants can show long-term residence stability and “situational” versus “habitual” problem credit (that is credit problems as the result of a single incident such as a medical issue or job loss versus a history of slow payments to lenders).

One thing to keep in mind: If an applicant is claiming private or SSI disability income, all lenders will require proof of this income. In most cases, this means providing a copy of the original award letter stating the payment amount as well as the duration of the payments. Other supporting documents such as bank statements may also be needed to prove that these payments are being received on a regular basis.

As we see it

Both private and SSI disability income is usually an issue with any car loan but it’s an even bigger problem if a borrower’s car credit is also an issue. To increase the chances of an approval, be sure to bring all documentation with you when you visit the dealership.

If you’re having a problem finding a dealer that’s willing to work with you, we also want you to know that at Auto Credit Express we do our best to match applicants that have experienced car credit issues with those dealers that can give them their best chances for approved car loans.

So if you’re ready to reestablish your auto credit, you can begin now by filling out our online application.

At Auto Credit Express we’ve spent the past twenty years helping consumers with questionable credit searching for online auto loans find those new car dealers that can offer them their best opportunities for an approval.

But other than an auto loan from a high-risk lender in some cases people with blemished credit have another option they can explore in the pursuit of better FICO scores, courtesy of the internet, called peer to peer lending.

Credit scores and lender risk

Peer to peer lending got its start for reasons similar to those of higher-risk auto loans: for many people with less-than-stellar credit, typical credit scores don’t always reflect that person’s true risk or ability to pay back a loan.

Traditionally, other than the subprime auto sector the only lenders willing to work with these consumers were credit card companies able to charge exorbitant fees on top of high interest rates and payday loan centers that, in most states, get away with hammering their borrowers with annualized interest rates that can reach 400 percent or more.

Conversely, peer to peer sites say they are able to loan funds at lower rates by putting borrowers directly in touch with investors willing to lend thereby eliminating a layer of bureaucracy and cutting down on overhead costs. These sites like to point out that this makes it cheaper to extend credit to higher-risk borrowers. More importantly, they also state that the peer-to-peer evaluation process is more suitable to judging someone’s creditworthiness than just looking at credit scores – allowing many applicants with situational bad credit to obtain unsecured loans.

Interest rates

As of this writing, interest rates on these loans from one of these sites, prosper.com, range from a low of 6.38 percent to as high as 35.36 percent and are based on a “Prosper Rating” between AA (the highest and best) to HR (the lowest and worst). In addition, interest rates rise as the loan term increases (standard terms typically include 1, 3 and 5 year loans).

Investors, for their part, can choose the type of borrowers they’d prefer to deal with, although they’re not allowed to set the interest rate. Also, unlike a bank, lending sites such as Prosper give investors the choice of the risk level they’re willing to take (higher-risk loans are often funded by more than one lender) and give those choosing more risk the possibility of a greater return on their investment.

Finally, in most cases people who have borrowed through one of these sites and paid back the loan in a timely fashion will receive a lower interest rate for a second or third loan.

The peer to peer loan procedure

According to the Prosper site, “To get a loan, you create an account along with a listing for your desired loan. You tell everybody how much you’d like to borrow, and you let them know what you intend to use the funds for. You also pick a maximum interest rate that you are willing to pay.”

The Bottom Line

While a peer to peer loan probably will not help reestablish your car credit unless you plan on using it to finance an entire vehicle (borrowing money for a down payment is illegal), it’s certainly a great way to pay off high-interest credit card debt and a much better alternative for cash-strapped consumers than a payday lender. It’s also a great way to improve your credit scores.

One more thing: for consumers wishing to reestablish their car credit, Auto Credit Express matches applicants to those franchised new car dealers that can give them their best chances for auto loan approvals.

So if you’re ready to reestablish your auto credit, you can begin now by filling out our online application.