Cautiously optimistic

The second of the three main credit reporting agencies, TransUnion, released its own report following Experian’s report on Monday of this week and here at Auto Credit Express we find ourselves cautiously optimistic for the first time in quite a while. For us, as for many consumers in both the U.S. and Canada, the past two years have been exceedingly difficult.

Through our web site at www.autocreditexpress.com , we have, in the last 20 years, helped thousands of applicants reestablish their auto credit and raise their credit scores. By filling out our online car loans with bad credit loan application and avoiding a tote the note dealer, consumers with bad credit have been able to begin a new chapter in their lives by getting approved at one of our affiliate dealers for a second chance auto loan. Along with paying the rest of their obligations on time, they are able to eventually qualify for better interest rates on everything from their next auto loan to other types of credit, as well.

We’ve also helped them by advising on how to pick the right vehicle, since choosing one that’s too expensive could stretch their budgets and, in some cases, even result in repossession. If this happens, the only remaining choice is usually a tote the note car dealer. It also means that credit repair and rebuilding their car credit has to be put on hold for at least a year, since even bad credit lenders will only consider applicants with a repossession on their credit report that’s over than a year old.

We also like to keep our applicants updated on what’s happening in the lending industry – something that happens to be in the news this week.

TransUnion second quarter report

In news from TransUnion this week, the consumer credit site released its latest report on automotive lending – this time dealing with auto loans in the second quarter of 2010. These auto delinquency reports, it should be pointed out, are extracted from a huge database consisting of 27 million anonymous credit-active consumer records that are randomly sampled every quarter.

According to Trans Union, the national auto loan delinquency rate fell 19.7 percent between the first and second quarters of 2010, while the year-over-year delinquency rate fell by 27.4 percent in the second quarter.

The analysis

“The national trend we are seeing continues to point to a clear improvement in payment behavior. Although part of the reason for the turnaround in delinquency rates is the influx of new, lower risk loans as we have noted before, consumers do not see a quick fix to the short term economic and employment situation and are focusing their attention instead on savings and lower consumption of discretionary goods,” said Peter Turek, automotive vice president in TransUnion’s financial services group. “This movement toward fiscal responsibility is reflected in year-over-year results as auto delinquency rates now have dropped 27.4 percent since second quarter 2009 – the largest decline since the summer of 2001. On a state-level basis, 46 states experienced a drop in their quarter-to-quarter delinquency rates, while only 3 states showed an increase on a year-over-year basis.”

TransUnion’s report also shows that national bank auto originations increased by “the largest margin since the recession began in 2007” – 18.7 percent on a year-over-year basis.

Bad credit car buyers

The bottom line for bad credit car loan applicants is that the general loan landscape has improved considerably and bad credit auto loan lenders are beginning to increase the actual number of loans they are writing. At the same time, these lenders are only backing off slightly from the conservative lending stance they’ve taken since the beginning of the recession three years ago. When comparing current loans to those approved more than three years ago, this means that an individual with bad credit and a given credit score will still be subjected to higher interest rates (probably with a shorter loan term) and will be asked to put down a larger down payment than in, say, 2007.

Our advice to credit-challenged consumers applying for car loans with bad credit remains the same as it has been for the past 3 years:

•    Know your credit score and what’s contained in your credit report
•    Plan on coming into the loan with at least 10 percent down in cash or trade equity
•    Keep the loan term as short as possible
•    Buy a compact of midsize vehicle and put off financing your dream car until after you’ve reestablished your credit.

As we see it

At Auto Credit Express, we have helped thousands of people with bad credit find the right dealer that can help them get financed. More importantly, the car loans with bad credit that finance these vehicles have started these people “on the road” to reestablishing their auto credit and lay the foundation for a good credit history.

We make no promises in regards to guaranteeing you credit, but we are associated with dealers that have some of the best special finance departments in the country, giving you the best chance possible at securing an auto loan.

So if you’re serious about reestablishing your credit, you can begin the process right now by filling out our secure online bad credit car loan application.

Bad credit auto loan web sites

Bad credit auto loan web sites like www.autocreditexpress.com have helped thousands of credit-challenged consumers reestablish their car credit. Anyone can start the process simply by filling out our auto loans for bad credit online loan application. Avoiding a tote the note dealer and qualifying for a second chance auto loan at one of our affiliate dealers, means that applicants will not only be able to reestablish their auto credit, but they may also find that they can boost their credit scores at the same time.

Unlike tote the note dealers, these second chance car loans originate with lenders that report your payment history to the credit bureaus, which can result in raising your credit score and improving the looks of your credit report

But you need to be cautious. For example, a car that’s too expensive can stretch your budget and may even result in repossession. If this happens, the only remaining choice for most auto loans for bad credit buyers is a tote the note car dealer. It also means that rebuilding your car credit has to be put on hold for at least a year, since even lenders who deal in bad credit car loans will only consider applicants with a repossession on their credit report that’s more than a year old.

Income, PTI and DTI

To begin with, you need to be aware of the necessary disposable income that it will take in order to qualify for a bad credit loan so that you will be able to afford the additional monthly payment you will be assuming when you take delivery of your new car.

The first thing to do is to calculate what is known as your debt to income ratio (DTI). In order to do this, you’ll need to add up all of your regular monthly bills. This list should include your mortgage or rent payments, credit card payments, loan payments, average utility payments and anything else (such as alimony or child support) you are required to pay every month.

Once you’ve come up with a number, you then divide this figure by your total gross monthly income (the amount shown on your paycheck before taxes and other deductions). This calculation will give you your monthly debt percentage. As a rule of thumb, most bad credit lenders will limit your total monthly debt to 50% of your gross monthly income.

If this percentage amount falls below 50% and there is enough room under this cap for a car payment plus the required full coverage auto insurance, then you probably have enough income to support a bad credit auto loan payment.

At the same time, you should keep in mind that most bad credit lenders don’t want you to have a car payment (including insurance) that exceeds 15% of your gross monthly income. This is known as payment to income, or PTI.

As an example, if the monthly gross income is $3,000, then your payment for a car plus full coverage insurance usually can’t exceed $450. Most bad credit lenders will estimate the cost of insurance coverage at about $100 per month. In this situation, this would leave a remaining budget of $350 as a maximum amount for a car payment.

Additional expenses

In estimating your monthly expenses, be sure to make room in your new budget for those other additional expenses such as gas and vehicle maintenance.

And one more thing: if you are planning on buying a used car without purchasing a service contract, you should be setting aside additional funds each month to cover the possibility of major repairs. This is why we usually recommend purchasing a service contract if the vehicle you’re buying is out of warranty and why you should buy it at the same time you buy the car and either pay cash for the policy or include it, along with the price of the vehicle, in the loan contract.

Even though you’ll be paying interest on the cost of the service contract, by including its cost in your monthly payment, you are automatically taking into consideration unforeseen mechanical problems that could otherwise cost you hundreds or even thousands of dollars should a mechanical problem occur.

Know what you can afford

Keeping your vehicle payment at or even below what you think you can afford is especially important when it comes to financing a car with a bad credit auto loan. This is because with the high interest rates that are common with a subprime auto loan, you will be paying much more in interest expenses than you would with a regular car loan.

Also remember to keep in mind that the purpose of a bad credit car loan is to reestablish your car credit, not to finance your dream car. The amount financed should be kept as low as possible – such as choosing a small to midsize sedan instead of a larger car or sport utility vehicle. Another good rule of thumb is to keep the loan term as short as possible (36 to 48 months, maximum) in order to keep your interest expense down and the negative equity window of the vehicle as short as possible.

Double up on payments

During the time that you have your bad credit car loan, try and pay more per month than the amount listed on the loan contract. When you do this, include a note with your payment or make a notation on the check that indicates the additional amount should be put towards the loan principle. You should also call the loan company and indicate this is what the additional payment is for. By following this practice, you can repay the loan earlier and actually decrease the amount of interest that you’ll be charged.

To summarize

By being aware of the hazards that exist in a bad credit car loan, you can rebuild your credit faster and raise your FICO score more quickly while paying the least amount of interest possible on your loan.

At Auto Credit Express we have helped thousands of people with bad credit buy cars and reestablish their auto credit at the same time. Our nationwide network of affiliate dealers specializes in bad credit car loans.

So if you are serious about getting your credit back on track, you can begin the process right now by filling out our secure online bad credit car loan application.

You should know

Before getting into today’s news, if you have bad credit you should know that Auto Credit Express has helped thousands of applicants, just like you, reestablish their auto credit and raise their credit scores. By filling out our online auto loans for bad credit loan application and avoiding a tote the note dealer, consumers with bad credit can begin a new chapter in their lives by getting approved at one of our affiliate dealers for a second chance auto loan. Along with paying the rest of their obligations on time, they are able to eventually qualify for better interest rates on everything from their next car loan to other types of credit, as well.

We are also upfront about what it takes to do this. For example, choosing the wrong kind of vehicle can stretch the budgets of many credit-challenged consumers and could result in repossession. If this happens, the only remaining choice for most buyers is a tote the note car dealer. It also means that rebuilding your car credit has to be put on hold for at least a year, since even bad credit lenders will only consider applicants with a repossession on their credit report that’s more than a year old.

It also means keeping our applicants up to date on what is going on in the auto lending industry, such as Monday’s news from Experian Automotive.

Experian second quarter report

Yesterday, Experian Automotive released its latest report on automotive lending – this time dealing with auto loans in the second quarter of 2010.

According to Experian, the national 30-day auto loan delinquency rate fell 5.88 percent year over year from the second quarter of 2009 to the second quarter of 2010. The 60-day delinquency rate fell even further, dropping 11.85 percent in the same comparative quarters.

Experian’s analysis

“Seeing a drop in delinquencies year-over-year is a positive sign for both the lending and automotive industries,” said Scott Waldron, president of Experian Automotive. “The fact that we’ve seen a drop for the second consecutive quarter is an indication that there could be a light at the end of the tunnel for the economy.”

Subprime lending trends

Buyers in the upper subprime segments also have something to cheer about: according to Experian, “The percentage of nonprime and subprime loans for new vehicles grew a combined 4.5 percent, from 16 percent in Q2 2009 to 16.73 percent in Q2 2010.”

The report does go on to point out, however that loans in the deep subprime tier dropped from 1.56% in the second quarter of 2009 to 1.48% in the second quarter of 2010.

“It appears as though lenders are testing the waters with customers who have less than stellar credit,” said Melinda Zabritski, director of automotive credit for Experian Automotive. “While lenders have not loosened their criteria to the levels we saw three years ago, we do see an upward movement in loans to those middle risk tiers. This could be a very positive sign for the auto industry, as it could open loans to a wider group of potential customers.”

The Bottom Line

The bottom line for bad credit auto loan applicants is that the drop in loan originations has halted and that subprime lenders are beginning to increase the actual number of bad credit car loans they are writing. At the same time, these lenders are only increasing loan originations to the “better” bad credit customers. When comparing year over year car loan environments, this means that an individual with bad credit and a given credit score will still be subjected to higher interest rates with that FICO score (probably with a shorter loan term) and will be asked to put down a larger down payment than in, say, 2007. At the same time, those customers with the lowest credit scores will still find it difficult to get approved for a loan.

At Auto Credit Express, our advice to consumers seeking bad credit car loans remains the same as it has been the past 2 years:

•    Know your credit score and what’s contained in your credit report
•    Plan on coming into the loan with at least 10 percent down in cash or trade equity
•    Keep the loan term as short as possible
•    Buy a compact of midsize vehicle and put off looking at your dream car until after you’ve reestablished your credit.

Give us a shot

If you are serious about reestablishing your car, we suggest visiting www.autocreditexpress.com. Through our affiliate dealers, we have helped thousands of people with bad credit finance a new or reliable low mileage used car. More importantly, the car loans with bad credit that finance these vehicles have started these people “on the road” to renewing their auto credit and establishing a good credit history.

We make no promises in regards to guaranteeing you an approval, but we are associated with some of the best special finance departments across the United States, placing you with a dealer that not only knows special finance, but one that is as close as possible to where you live.

So why not begin the process right now by filling out our secure online bad credit car loan application to see what we can do for you.

Getting ready for better credit

If you’re reading this, it could mean that you belong to a growing number of consumers that, because of the current economy, have bad credit. If you are looking for a loan, in many cases bad credit web sites such as www.autocreditexpress.com can help you. By filling out an online car loans with bad credit loan application, you may have a chance to begin a new chapter in your financial life by getting approved for a second chance auto loan at one of our affiliate dealers. With timely payments and by paying the rest of your obligations on time, you will then be able to raise your credit scores and reestablish good auto credit.

But you should know from the start that the process can be risky if you don’t know what you’re doing. For example, choosing a vehicle that’s too expensive can often stretch the budgets of many credit-challenged consumers and, in some cases, result in repossession. Once this happens, the only remaining choice for most buyers is a tote the note car dealer.

Looking for cash in all the wrong places

But just as there are good ways and a bad ways to re-establish your credit auto, there are also good ways and bad ways to come up with that extra cash you might need in order to cover unexpected expenses.

In this instance, we’re talking about a type of loan that doesn’t appear on our web site because, when it comes right down to it, you should think long and hard before taking out this type of loan.

Car title loans

Unlike car loans with bad credit that help you finance a vehicle, car title loans are loans that are secured by the title to your vehicle. These loans are meant to appeal to people who need cash quickly. They differ from bad credit auto loans because, in order to qualify for this type of loan, you need a vehicle that has a clear title – in other words, you car has to be paid off before you can take out this kind of loan.

Typical car title loan dollar amounts are much smaller than what you might qualify for with auto loans for bad credit and range from $175 to $2,500. The length of these loans is generally 30 days and, not surprisingly, interest rate caps (due to the smaller loan amounts), and is not as strictly regulated as bad credit auto loans. In many states, interest rates average 30% per month – which works out to an annual percentage rate of 360%.

Most of these lenders will also charge an origination fee and the lenders, themselves, operate out of storefront locations which also offer such services as check cashing services and even, in some cases, pawn loans.

How a typical title loan works

Here is a typical title loan: Take, for example, a title loan in the amount of $500. For collateral, you give the loan company your free and clear car title as well as an extra set of keys to the car (if you default on the loan, the car will belong to the lender – regardless of how much it’s worth). You’ll pay them a $15 origination fee and sign a document that says you will pay them $150 in interest (30%) plus the $500 in principal in 30 days.

If, at the end of 30 days, you’re unable to pay off the entire amount of the loan (you usually can’t make a partial payment), the lender will allow you to roll over the loan for another 30 days, provided you pay them the interest due. Rolling over a loan occurs quite often with these types of loans and most states (states, not the federal government, regulate these types of loans) will allow this type of rollover to occur at least four times during the life of the loan.

The true cost

If you ended up rolling over the loan twice, for a total of 3 months, your actual costs for a $500 title loan would look like this:

1.    $15.00 origination fee (a one time charge)
2.    $450.00 in interest charges ($150 times 3 months)

This amounts to a total of $465.00 in interest and charges to borrow $500.00, which equates to an annual interest rate (APR) of 91%. To put it in perspective, this amounts to an interest rate that is many times higher than any bad credit car loan.

As we see it

Most consumer groups (as well as anyone in their right mind) would consider this type of lending to be predatory. In addition to the high interest rates and fees that you pay, you are also putting your personal property at risk. If you default on the loan, you could easily have to surrender a car that is worth many times the amount of the loan. What is even worse is that this might even mean losing your only means of transportation to and from your job

So take our advice and think very carefully before you take out this type of loan. Even the potential embarrassment of having to borrow money from friends and relatives far outweighs the potential risk of losing your only means of personal transportation.

At Auto Credit Express we have helped thousands of people with bad credit buy cars and reestablish their credit at the same time through our nationwide network of affiliate dealers specializes in bad credit car loans. Our web site, www.autocreditexpress.com, 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.

So why not begin the process right now by filling out our secure online bad credit car loan application to see what we can do for you.

Bad credit car loans and credit repair

If you’re reading this, there’s a good chance you have bad credit and you need a car loan. Fortunately, auto loans for bad credit web sites such as ours at www.autocreditexpress.com have helped thousands of applicants just like you find a dealer to get financed, and reestablish their auto credit. You can begin the process simply by filling out our online car loans with bad credit loan application. By avoiding a tote the note dealer and qualifying for a second chance auto loan at one of our affiliate dealers, you will not only be reestablishing your car credit, you will be able to raise your credit scores at the same time as well.

You should also avoid some common mistakes. A car that’s too expensive can stretch your budget and even result in repossession. If this happens, the only remaining choice for most auto loans for bad credit buyers is a tote the note car dealer. It also means that rebuilding your car credit has to be put on hold, since lenders who originate bad credit car loans will only consider applicants with a repossession on their credit report that’s more than a year old.

With a vehicle’s cost in mind, most credit-challenged individuals that fill out our application and get approved at a dealer will decide that it is more affordable to reestablish their auto credit with a 2 or 3-year-old used car. Now those same consumers need to be able to read and understand the Used Car Buyers Guide that is affixed to the window of every used car in a dealer’s inventory.

The Used Car Buyers Guide

The Used Car Buyers Guide is the form that you see in the window of a used car sold by a licensed dealer in the U.S. This form displays important purchasing and warranty information. According to law, the form must display the following information:

•    If the vehicle is being sold “as is” or with a warranty
•    What percentage of the repair costs a dealer will pay if under warranty
•    Oral promises are difficult to enforce
•    Get all promises in writing
•    Keep the Buyers Guide for reference after the sale
•    The major mechanical and electrical systems on the car, as well as some of the major problems that consumers should look out for
•    Ask to have the car inspected by an independent mechanic before they buy.

In addition:

If the seller conducts used car transactions in Spanish, a Spanish language Buyers Guide must be posted on the vehicle. Even if the vehicle is not fully prepared for delivery, the guide must be posted on the vehicle before it is shown to a customer. It must be posted in a visible place – window, inside mirror or windshield. It also must be filled in with the vehicle make, model, model year and vehicle identification number (VIN). The back of the guide needs to display the name and address of the dealer as well as the name and telephone number of the person who should be contacted with complaints.

The Federal Trade Commission

On its web site, the FTC has this to say about the contents of the Used Car Buyers Guide:

When shopping for a used car, look for a Buyer’s Guide sticker posted on the car’s side window. This sticker is required by the FTC on all used cars sold by dealers. It tells whether a service contract is available. It also indicates whether the vehicle is being sold with a warranty, with implied warranties only, or “as is.”

•    Warranty. If the manufacturer’s warranty is still in effect on the used car, you may have to pay a fee to obtain coverage, making it a service contract. However, if the dealer absorbs the cost of the manufacturer’s fee, the coverage is considered a warranty.

•    Implied Warranties Only. There are two common types of implied warranties. Both are unspoken and unwritten and based on the principle that the seller stands behind the product. Under a “warranty of merchantability,” the seller promises the product will do what it is supposed to do. For example, a toaster will toast, a car will run. If the car doesn’t run, implied-warranties law says that the dealer must fix it (unless it was sold “as is”) so that the buyer gets a working car. A “warranty of fitness for a particular purpose” applies when you buy a vehicle on a dealer’s advice that it is suitable for a certain use, like hauling a trailer. Used cars usually are covered by implied warranties under state law.

•    As Is – No Warranty. If you buy a car “as is,” you must pay for all repairs, even if the car breaks down on the way home from the dealership. However, if you buy a dealer-service contract within 90 days of buying the used car, state law “implied warranties” may give you additional rights.

Some states prohibit “as is” sales on most or all used cars. Other states require the use of specific words to disclaim implied warranties. In addition, some states have used car “lemon laws” under which a consumer can receive a refund or replacement if the vehicle is seriously defective. To find out about your state laws, check with your local or state consumer protection office or attorney general.

The Bottom Line

A used car can be a smart and affordable alternative to a new vehicle for any buyer, but it can make an even bigger difference if the financing source is a bad credit auto loan.

At Auto Credit Express we have helped thousands of people with bad credit buy cars and reestablish their credit at the same time. Our national network of affiliate dealers specializes in bad credit car loans and, since our inception, we have processed over 1 million online bad credit auto loans and our dealers have closed over $2 billion in auto loans.

So if you are serious about getting your credit back on track, why not begin a new chapter in your life by filling out our bad credit car loan application now.

If you need auto loans for bad credit

Car loans with bad credit web sites such as www.autocreditexpress.com have helped thousands of applicants with bad credit reestablish their auto credit. You can begin the process simply by filling out the online bad credit auto loan application. By avoiding a tote the note dealer and qualifying for a second chance auto loan at one of our affiliate dealers you will not only be able to reestablish your car credit, you should be able to raise your credit scores at the same time. The reason for this is that these loans originate with lenders that report your payment history to the credit bureaus.

But you need to educate yourself about the bad credit car loan process. A car that’s too expensive can stretch your budget and may result in repossession. If this happens, the only remaining choice for most bad credit buyers is a tote the note car dealer. It also means that rebuilding your car credit has to be put on hold for at least a year, since even most bad credit lenders will only consider applicants with a repossession on their credit report that’s more than a year old.

Credit report

Your credit report is simply a record of your borrowing and payment history. Banks, credit card companies and many other places that extend you credit report your payment history to one, two or all three of the major credit reporting agencies which in the United States include Equifax, TransUnion and Experian. This type of credit is known as “applied for” credit (meaning that you requested to borrow money from the reporting lender).

Your credit report may also contain “not applied for” credit entries. These entries are not a result of a credit application and may include items such as bad checks, medical bills and any tax liens or civil judgments. If you pay all your bills on time, you will not have any of these “not applied for” entries listed in your credit report.

Why you should see your credit reports

Viewing each of your credit reports will let you know if there is anything they contain is incorrect. If there is, much of this erroneous information can lower your credit score. If you plan on buying a car, knowing your FICO score and credit history will tell you whether or not you qualify for a regular car loan or if you need to find a dealer that specializes in bad credit car loans.

When to order your credit report

In addition to looking at your credit report and paying to see your credit score at least once a year, before you begin looking for a car, you should first take some time to prepare to buy that new car. This includes ordering a copy of your credit report from each of the three credit bureaus. Dorothy Guzek, a credit counselor with GreenPath Debt Solutions in Farmington Hills, Michigan, suggest that you pay for your score and pull your three credit reports at least six months before you begin shopping for a car. “This will allow you ample time to correct any incorrect information that you might find.”

Something for nothing

There may be no such thing as a free lunch, but in this case there actually is a way that you can get a credit report from each of the credit bureaus at no cost to you. Back in 1970, Congress passed the Fair Credit Reporting Act that, among other things, ensured that consumers would have access to the information in their credit files. The law was amended in 1996 and in 2003 a new law (the Fair and Accurate Credit Transactions Act or FACTA) amended the act to require credit bureaus to furnish consumers with one credit report per year per company – as well as access to their FICO scores for a reasonable fee (the scores aren’t part of the free package).

How to order your credit reports

There are three ways to receive your report. You can call the toll-free numbers of the 3 credit bureaus, you can write a letter to each of the three bureaus, or you can go to this website: www.annualcreditreport.com. On the site, you will be asked to furnish information that establishes your identity. Once you have done this, you can view and download the report immediately.

Additional services

A number of companies, including the web site freescore360.com, will, for a fee, furnish you with a credit report from each of the bureaus plus a credit score from each. Credit monitoring services are also available that will help you guard against identity theft.

For more information on these services, as well as information regarding bad credit auto loans, please visit our web site.

How Auto Credit Express can help

Once you’ve ordered, viewed and made any corrections to your credit report, you should request a final copy from all three bureaus and pay for at least one credit score. If you find that you fall into the bad credit car loan category (which is usually considered to be a FICO score below 640), the people here at Auto Credit Express can help you find a dealer that can arrange car financing.

At Auto Credit Express we have helped thousands of people with bad credit buy cars and reestablish their auto credit at the same time through our nationwide network of affiliate dealers that specialize in bad credit car loans.

So if you are serious about getting your credit back on track, why not begin a new chapter in your life by filling out our bad credit car loan application now.

Who we are

In yesterday’s article, we discussed bad credit car loans and self employment income. But before we go over today’s topic on tip income, we want you to know that if you have bad credit and you’re serious about reestablishing your car credit and raising your credit scores, we want to help you. When you fill out our online bad credit auto loan application, we’ll send it to a dealer in our nationwide network that can help you get this type of loan. This will not only reestablish your auto credit, it can also help raise your FICO scores.

Tip income

In addition to self employment income, it is often difficult for credit challenged consumers who are waiters, waitresses, and anyone else that depends on tips for much of their earned income to receive an approval for car loans with bad credit.

This means that prior to filling out the credit application; if you are someone who is dependent on tips for a quarter or more of your earned income you need to make sure the yearly income you report, on a monthly basis and minus your regularly monthly bills, qualifies you for a car loan. Because if you don’t declare all or most of this additional tip income when you file your taxes, your only choice for a car may be a tote the note dealer – which usually means settling for an older car, higher interest rates and a greater chance at repossession.

Including tips in your income

We’ve seen it hundreds of times: Due to the nature of the business and the lax rules for reporting tips, this income isn’t always reported on tax returns. In truth, this practice might save you money in the short term, but it could prevent you from getting a loan, especially if your credit score falls below 640.

The IRS and tip income

Many wait staff employees report only a portion of their tip income on their tax returns. This practice has been going on for years and for many waiters and waitresses, it is a way to avoid paying income tax on a portion of their income. Especially if you have bad credit, this may save you money in the short term, but it could end up costing you many times what you saved in the long term. But first, let’s look at the rules:

The IRS is very clear when it comes to the reporting of tip income. If you receive tips, here is what you have to do:

1. Keep a daily record of tips.
2. Report these tips to your employer.
3. Report all tips on your income tax return.

Strictly speaking, this means that if you receive a tip, it needs to be reported as income. Tips that are received using a credit card are usually added to your yearly W-2 (wage and tax statement) by your employer. Tips that you receive in cash are harder to track and, as the waitperson, bellhop, taxi driver or parking valet, it is your responsibility to report this income to your employer.

The IRS even has a form that can be filled out on a daily basis to keep track of tips. In addition to keeping these records, as an employee you are required to not only report this amount, but to pay taxes out of these funds to the employer. Many waiters and waitresses ignore this and think that they are saving money on taxes by failing to report this income. While this may decrease the amount of income tax that they pay, it can make it very difficult to buy a car – especially with a bad credit car loan. Here’s why:

Proof of Income

While traditional lenders usually don’t require proof of income, this isn’t the case with bad credit car loan banks and lenders. If your total income is not listed on a W-2 or on your tax return, it might as well not be there. Even if you have bank records that support this additional income with daily or weekly deposits, if this income isn’t listed on your tax return, according to the lenders you have no “proof” that you earned this income. In many cases, this poses a problem for bad credit auto loan applicants.

Income Requirements

Most subprime lenders have a minimum monthly income requirement. They use this “stated” income and compare it to monthly bills in order to compute a debt-to-income ratio and come up with a budget for a car payment. This can affect individuals with tip income in two ways:

1.    Most subprime lenders have minimum monthly income requirements that range from $1,500 to $1,800. As an example, if your base wage is $3.00 per hour, this computes out to $516 gross income per month (based on a 40 hour work week and 4.3 weeks per month). Even if your employer reports tips of $175 per week (based on credit card sales), this still only adds an additional $753 per month to your gross income. If you add the two together, your total reported gross monthly income is $1269. In this case, the reported income is too low and you would not qualify for a loan.

2.    Even if your reported income meets the lender requirements, there is always the chance that your monthly expenses are out of proportion to your reported income. As an example, let’s say you report an income of $2,000 per month that includes a base hourly wage plus your reported tips. For the purposes of argument, let’s say your actual monthly income is really $3,500. With this level of income, you could expect to have reasonable monthly expenses of $1400. In this case, even though the actual debt to income ratio would be more than acceptable to the lender, the difference between your reported income and your actual expenses would not qualify you for a bad credit auto loan.

As we see it

Especially if you have bad credit, if you receive a significant amount of your income from tips, you need to report this income to your employer. If your actual income is not reported on a W-2 and you’re not reporting or underreporting the rest of it on your income tax form, you could be creating a problem for yourself. This is because lenders that originate bad credit car loans will only allow count your reported income as your actual income for lending purposes.

As is the case with self employed individuals, this means that if your income tax return is not showing sufficient income, or if your monthly debts are not sufficiently offset by enough monthly income, the lenders that originate bad credit car loans will not approve your credit application.

For more information on tip income, visit the tip income portion of the IRS website at: http://www.irs.gov/pub/irs-pdf/p531.pdf

For more information on bad credit auto loans and before you buy a car from a local tote the note car dealer, consider applying for a bad credit auto loan from Auto Credit Express, a leading national car buying service for people with bad credit.

So if you are serious about reestablishing your car credit, you can begin the process by filling out our online bad credit car loan application now.

About 1099 income

We have been in the bad credit car loan business long enough here at Auto Credit Express to realize that one of the most difficult approvals to receive is for credit challenged consumers who are self employed, or anyone else that depends on a form 1099 for their earned income.

So before you fill out our online credit application to finance either a new or a newer pre-owned vehicle with auto loans for bad credit, you need to make sure that you are correctly reporting all your income to Uncle Sam. Because if you aren’t, your only choice for a car may be a tote the note dealer – which could mean settling for an older car, higher interest rates and a greater chance of repossession.

Independent contractor income

One of the most difficult types of car loans to get approved is for customers that are either classified as independent contractors or those who are self-employed. Due to the nature of these types of business and the common practice for these individuals to compute a business profit as low as legally possible, much of the income that these individuals receive isn’t always reported correctly on tax returns. In truth, this practice might save them money on taxes in the short term, but it could also prevent them from getting a loan, especially if their FICO scores fall below 640.

The IRS and independent contractor and self-employment income

Although their incomes are often reported on a Schedule C, independent contractors and self-employed individuals differ from each other.

Someone who is self employed is responsible for keeping their business books in order and reporting a profit or loss on the Schedule C of their 1040 income tax form.

If you are an independent contractor, you receive a form 1099 (specifically a form 1099-MISC) from your employer. You are then required to report this income, less your expenses, on the Schedule C of your 1040 income tax form. In addition, you should know that the IRS has specific rules on whether or not you are actually an independent contractor.

Independent contractor or employee

In determining your employment status, the IRS looks at 3 things: behavioral control, financial control, and the relationship of the parties.

Behavioral control – if you receive extensive instructions on how, when or where to do the work, what tools or equipment to use, what assistants to hire to help with the work or where to purchase supplies and services, you are usually considered to be an employee. If not, you could be an independent contractor. Extensive training on how to perform the work also might suggest that you are an employee.

Financial control – If you have a significant investment in your work, if you are not reimbursed for some or all business expenses, or if you can realize a profit or incur a loss, this suggests that you are in business for yourself and that you may be an independent contractor.

Relationship of the parties – If you receive benefits, such as insurance, pension, or paid leave, this is an indication that you may be an employee. If you do not receive benefits, however, you could be either an employee or an independent contractor. A written contract may show what both you and the business intend. This may be very significant if it is difficult, if not impossible, to determine your status based on other facts.

Proof of Income

Here is how both self employed individuals and independent contractors relate to bad credit lenders: While traditional lenders usually don’t require proof of income, this isn’t the case with bad credit car loan banks and other lenders. If your total income is not listed on a W-2 or on a professionally prepared tax return, it might as well not be there. Even if you have bank records that support this income with daily or weekly deposits, if it isn’t listed on your tax return, you don’t have “proof” of this income.

Income Requirements

Most subprime lenders have a minimum monthly income requirement. They use this “stated” income to compute a debt-to-income ratio in order to come up with a budget for a car payment. This can affect individuals with self employment and 1099-MISC income in two ways:

1.    Most subprime lenders have minimum monthly income requirements that range from $1,500 to $1,800 per month. This means that your business needs to report a net profit of anywhere from $18,000 to $21,600 per year

2.    Even if the reported net profit meets the lender’s requirements, there is always the chance that your monthly expenses are out of proportion to the stated income. As an example, let’s say there is reported net income of $2,000 per month. For the purposes of argument, let’s say that your actual monthly income is $3,500 and there are also reasonable monthly expenses of $1800. In this case, even though the actual debt to income ratio would be acceptable to the lender, the difference between the reported net income and your actual expenses would not qualify you for a bad credit auto loan.

Your tax forms

In addition to the debt to income requirements, auto loans for bad credit lenders will look at line 31 of your Schedule C of your 1040 form which, by the way, must be professionally prepared, and average this income over your last two tax returns in order to determine your income to qualify you for a loan.

One more thing: no loans will be made for commercial vehicles.

As we see it

If you receive your income as a self-employed individual or an independent contractor and it looks as if you may need to finance your next vehicle using car loans with bad credit, you need to take into consideration the net income you report as well as how this net income affects your debt to income ratio.

If your income tax return is not showing sufficient income, or if your monthly debts are not sufficiently offset by enough monthly income, the lenders that originate bad credit car loans will not approve your credit application.

For more information on 1099 and self employment income, visit the Independent Contractor or Employee portion of the IRS website at: http://www.irs.gov/pub/irs-pdf/p1779.pdf

For more information on bad credit auto loans and before you buy a car from a local tote the note car dealer, consider applying for a bad credit auto loan from Auto Credit Express, a leading national car buying service for people with bad credit.

So if you are serious about reestablishing your car credit, you can begin the process by filling out our online bad credit car loan application now.

Purchasing a service contract

With the cost of new vehicles rising every year, we realize here at Auto Credit Express that most of our credit-challenged applicants that fill out our bad credit auto loan application and get approved by one of our dealers for a second chance car loan will decide that it makes more sense to go with a 2 or 3-year-old used car.  Coming to this conclusion makes a great deal of financial sense for a couple of reasons. For one, the quality and durability of used vehicles, as a whole, is at an all-time high. In addition, buying a one, two or three-year old vehicle helps you avoid the 15 to 30 percent depreciation that will most likely take place during these years.

We do recommend, however, that if you are purchasing a used car, whether it is with conventional financing or with a bad credit car loan, that you seriously consider purchasing a service contract that will cover the entire length of the loan.

There are a number of reasons for buying one if you have bad credit and are on a tight budget, not the least of which is that it may help you avoid large, unforeseen car expenses – one of the biggest reasons auto loans for bad credit buyers are forced into repossession.

We also encourage you to buy a service contract from the selling dealer. Buying your warranty from the selling dealer means that you’ll know where to go and who to see if you have problems with your car. You’ll also have someone to go to if you encounter issues with the service contract company.

Take it from experience: there is nothing more frustrating than having your car break down due to a problem with a supposed “covered” system and then having little or no recourse if the warranty company turns down the repair claim and having no one else to turn to.

Be aware of warranty scams

Take it from us, just as soon as you buy a used car (and even if you purchased a service contract from the selling dealer), you will be inundated with cards, letters and even phone calls from companies that “specialize” in used car service contracts. Many of these “warranty” companies will do anything to get you to part with your money. This is how they got your name and how the scam works:

These service contract companies buy lists that contain the names of consumers who have recently taken delivery of a new or used car. These lists are then divided up and given to telemarketers who call these new owners in order to try and sell them a service contract. The problem is that the sales pitch may contain information that is not always accurate. Among other things, customers have been told that:

1.    Their current warranty is getting ready to expire, when that isn’t true
2.    The company is selling them an extended warranty, which is not accurate (they are selling a service contract which does not “extend” the new car warranty and, in fact, may even overlap an existing warranty).
3.    The caller represents the selling dealer, when in fact they are calling on behalf of an independent service contract company.
4.    The caller represents the manufacturer, which is also not true.
5.    The service contract is a “bumper to bumper” warranty just like the factory new car warranty, which it is not.
6.    If they’re not fully satisfied with the service contract, they will get a full refund. In many cases, when the customer calls back to cancel the contract and get a refund, they’re unable to contact anyone at the company.

What to do

If you’re contacted by one of these companies, ask for a name, address and phone number. Remember, if you registered with the Federal Do Not Call List, they shouldn’t even be contacting you in the first place. Contact your Better Business Bureau as well as the Consumer Affairs department of your state and ask if the warranty company is licensed to do business in the state.

If you receive a solicitation in the mail, be sure to follow the same procedure before you contact the company to be sure it is legitimate.

The Bottom Line

Don’t spend your money on any type of service contract until you’ve done your research on the company. In most cases, you should first consider buying a service contract from the selling dealer. That way, if you have any issues, you’ll know who to contact (licensed local dealers also must adhere to your state’s consumer protection laws). Remember, as part of the research process, you can shop around for cost before you buy from the dealer to make sure their service contract is priced fairly.

For more car buying tips and answers to your questions on bad credit car financing, visit our web site at www.autocreditexpress.com. If you are serious about reestablishing your car credit, you can begin the process by filling out our online bad credit car loan application now.

Credit repair

Before we begin discussing no credit check auto loans it should be pointed out that bad credit web sites such as ours, which can be found at www.autocreditexpress.com, can help you if you’re serious about reestablishing your car credit. By filling out the online car loans with bad credit loan application many folks with bad credit have begun a new chapter in their lives by getting approved for a bad credit auto loan at one of our affiliate dealers. Along with paying the rest of their obligations on time, they have been able to raise their FICO score and re-establish their auto credit.

The process can also be expensive – especially if you choose the wrong kind of vehicle or the wrong type of loan.

For example, a vehicle that’s too expensive can stretch your budget and, in some cases, result in repossession. If this happens, rebuilding your car credit has to be put on hold for at least a year, since most bad credit car loan lenders will only consider applicants with a repossession on their credit report that’s more than a year old.

Choosing the wrong type of loan, such as a no credit check car loan, can also be a problem especially if you want to get out of the bad credit rut that you might currently find yourself in.

No Credit Check Car Loans

A no credit check car loan is a loan that doesn’t require a check of your credit history in order to be approved. Other names for this type of loan are “buy here, pay here” car loans and “tote the note” auto loans.

Since the lender doesn’t check your credit, even if it is really bad you are automatically approve. Sounds great, doesn’t it?

The catch

Since we all know that there has to be a catch with this kind of a program, you should know that there are a number of things to consider before you take out one of these loans. So here they are:

•    The down payment will be high. In order to stay in business, the car dealer will require a down payment that is probably equal to the cost of the car (they do this to cover their losses in case the borrower skips town before the first payment is due).
•    The interest rate will be high. Interest rates on these types of second chance auto loans usually start at 25% and go up from there.
•    The car will be an older used car. If you’re lucky, the car you get will be reliable. If not, you will probably end up paying for repair costs in addition to your monthly payment.
•    If you fail to make weekly payments on time (and yes, most programs require that you pay weekly), the car will be repossessed and you will still be required to make the remaining payments (remember, the vehicle cost to the dealer was covered by the down payment – anything the dealer makes above that is profit).
•    Even if you make your payments on time, your positive payment history is usually not reported to the credit bureaus because it’s too much work for the dealer, so your credit scores do not improve.

Time to get serious

If you are serious about reestablishing your car credit, a no credit check bad credit auto loan will not help you. Instead, we suggest visiting www.autocreditexpress.com.

Although we make no promises with regards to guaranteeing you a credit approval, through our affiliate dealers we have helped thousands of people with bad credit finance a new or a reliable low mileage used car. More importantly, the car loans with bad credit that finance these vehicles have started these people back “on the road” to renewing their auto credit and establishing a good credit history.

Fill out an application in the comfort and privacy of your home

So why not begin the process right now by filling out our secure online bad credit car loan application to see what we can do for you.