Qualifying for automobile loans after bankruptcy might seem daunting and impossible. It may seem that any hope of returning to normality or obtaining something as basic as an auto loan may be completely out of your reach. However, one of the important bankruptcy facts to keep in mind is that by implementing some stiff changes in your behavior and budget, you can repair credit after bankruptcy and expand your opportunities.
Once you exit the bankruptcy process, you may need to acquire a car. Bankruptcy will be a major impediment to your goal, but you do have options. The first and best way to get automobile loans after bankruptcy is to begin to learn how to fix credit after bankruptcy, building up your score high enough to enable you to get a good loan. With bad credit, you may only qualify for a loan with a high interest rate, which will only encourage the likelihood of default or another precarious financial tailspin.
If your need to acquire a car is more urgent and you cannot wait to rebuild your credit and qualify for automobiles loans after bankruptcy, you have several options, most of which can net money that you didn’t know you had. Start by tracking your expenses and learning how to create a budget. You might be able to get rid of several costly items that are draining your money: $5 lattes, valet parking, and even eating out several times a week. Just by picking up some skills behind the stove, you might increase your income by $30 a week. By taking a second job, you will lose some free time, but you can add $300 to $500 a week with a part-time, minimum-wage job. You may not want to work 60+ hours a week forever, but if you are able to afford a new car, it might be worth it for a little while.
Another opportunity for adding to your income can come by asking your boss for an advance on your paycheck. Your employer may be more likely to grant you a loan, plus these type of loans usually don’t have any interest attached to them. However, before you ask your boss for a raise, be prepared to answer some of these questions, including the reason you need the loan, how you will repay it, and why his company should consider doing this. You might also ask a family member to grant you automobile loans after bankruptcy, and you should expect to give them the same solid reasons for giving you the money, maybe even by offering better interest rates than they are accumulating in a savings account.
Credit unions and local banks are also great places to obtain automobile loans after bankruptcy. They may be likely to offer you better terms and lower interest rates than a mainstream lender, particularly if you have already have established a relationship there.
You can consider obtaining a co-signer for a loan, though you will have to give them some special provisions to safeguard the risk they will be absorbing. For example, you might consider giving them the ability to control the payments or access the account online so that they will feel more confident. Though it is a risk, you could offer to pay the co-signer two or three months in advance. They could just take the money and run, but when have poor credit, you don’t always have the luxury of perfect solutions.
Credit repair always your best option. However, if you take a look at your situation and recognize the opportunities around you, you may find plenty of opportunities for automobile loans after bankruptcy.
Bankruptcy can be a staggering blow to your financial stability as well as your confidence, and you might think you will never qualify for a loan after bankruptcy.
Let’s start by talking about the bankruptcy facts. If you are like most people, you might feel hopeless and embarrassed. But declaring bankruptcy does not brand you a failure. Some prominent people who have filed for bankruptcy include Donald Trump, Walt Disney, and Henry Ford. As long as you dedicate yourself to fiscal restraint and learn about credit repair after bankruptcy, you can rehabilitate your credit score in a few years.
In fact, a careful campaign of credit improvement can even help you get a personal or business loan after bankruptcy in relatively short order. Follow the tips below and you will be well on way to obtaining a loan after bankruptcy.
Though a bankruptcy will severely damage your credit score, it also gives you a chance to rebuild your finances without looking over your shoulder and worrying about creditors. After filing for bankruptcy, your credit score will bottom out, and you will need to begin acquiring lines of credit and slowly improving your score. But first create a structured plan for recovery that allows you to work within your limits. Obtain a copy of your credit report and make sure all debts have been marked as “discharged through bankruptcy” and that all your accounts have a balance of zero.
Next, open new lines of credit so that you can demonstrate a newfound ability to responsibly manage your debt. Because credit-scoring bureaus place more weight on recent credit activities than your past history, your credit score will begin to rebound as creditors recognize a regular pattern of timely payments. Opening up lines of credit may be difficult at first, so you might need to use secured credit cards or become a credit card authorized user.
A secured credit card requires you to provide a cash deposit or access to a savings account as collateral for a new card. Secured credit cards frequently have high interest rates and low limits, but if you can create a history of responsible behavior, you’ll be able to transition to a regular card with corresponding benefit to credit score.
Another way to improve your credit score so that you can qualify for a loan after bankruptcy is to have a family member with good credit add you to an account as an authorized user In essence, you are borrowing this person’s good credit to improve your credit rating.
Soon after a bankruptcy, you will probably have to offer collateral to obtain a loan. If you have a car or a property, this could be enough to ensure a loan after bankruptcy. If you do obtain a loan without collateral, the odds are that interest rates will be relatively high. You can also accelerate your chances to secure a decent loan by making a sizable down payment. Like offering collateral, this offer will gain your valuable credibility and will help to reassure the lender that you will be able to carry through on your loan payments.
Though bankruptcies once prevented borrowers from receiving loans for 10 years, or the time it takes for a bankruptcy to be erased from your record, you may now be able to obtain a personal or business loan after bankruptcy within two years, providing you are assiduous in carefully building your credit. Be sure to create a plan for yourself and start a new, healthy pattern of promptly paying your debts on time by learning how to fix credit.
What’s the relationship between student loans and credit scores? You might be surprised! In this article, we take a look at the nine things you should know about student loans so that you can build a great credit score.
Nine Things You Should Know About Student Loans and Credit
First a little background. Student loans are unsecured loans (without any collateral backing them) issued to help with the costs of tuition, books, board, and other school-related expenses. As with any other loan, your credit score is deeply impacted by your student loan. When you make your student loan payments on time, your credit score will improve. If your payments are late or if you skip a payment, your score will drop.
Student loans are a great way for young adults to begin the all-important task of showing lenders that they can handle debt. If lenders see that you can make payments on time and in full, your credit score will go up and you will be more likely to get larger loans in the future.
This is important because you will need credit upon graduating from college. Your first employer might run a credit check, assuming that your credit score is a good indication of whether you are responsible or not. And a landlord will definitely run your credit before renting a home to you.
With all this in mind, here are nine things you should know about student loans and credit.
Student Loans and Credit, Fact #1:
When you apply for a student loan, your credit might or might not be pulled. Some lenders do require a credit score, but others do not. If your credit score is pulled, a credit inquiry will be added to your credit report. This might cause your score to drop, but the impact will be minimal.
Student Loans and Credit, Fact #2:
About 30 percent of your credit score is determined by your outstanding debt: the ratio of how much you owe versus how much you have paid. The more you have paid and the less you owe, the better your score. If your payments are being deferred until you have graduated, or if you have deferred payments for another reason, the ratio will not be in your favor, and your score might drop. However, it will start to increase after about six months of timely payments.
Student Loans and Credit, Fact #3:
With this in mind, consider that students who are positioned to pay back their loans before graduating will enjoy a faster ride to good credit. Even though a lot of student loans do not require repayment until you have graduated, your credit score might be higher if you start repaying the loans immediately. Keep in mind that some employers will run a credit check when you apply for your first post-college job, so having a high credit score could behoove you.
Some people have speculated that if borrowers pay back their student loans too fast, they will lose credit points (presumably because the maximum interest on the loan will not be accrued if the loan is paid off early). I think this is a bogus claim. The exact details of credit-scoring formula have not been released, so I cannot definitely confirm this theory one way or another, but I seriously doubt its accuracy. Credit-scoring bureaus are not interested with your creditor’s ability to earn the most interest, but rather with your ability to repay your loan on time. The bureaus want to know that you will pay your debts on time. Paying your student loans sooner rather than later is a wise thing to do because your debt-to-principal ratio will drop and your score should increase.
Student Loans and Credit, Fact #4:
Before you leave college, avail yourself of the opportunity to receive exit counseling, a service most schools offer to prepare their students to repay federal student loans. This counseling can provide you valuable information about your rights and responsibilities and the terms and conditions of your loans.
Student Loans and Credit, Fact #5:
Once you begin repaying your loan, never miss a payment. Here’s something you might not know about student loans and credit: 35 percent of your total credit score will be drawn from your payment history on credit cards and loans.
Student Loans and Credit, Fact #6:
If you cannot make a payment, ask for forbearance, a short-term agreement that allows you to make smaller payments, or no payments at all. Otherwise, you will harm your credit score. Keep in mind that if you do not make payments, interest will continue to accrue and the amount due will grow larger.
Student Loans and Credit, Fact #7:
Keep in touch with your lender. If you are struggling with your payments, never wait until the lender approaches you or until a delinquency notice is logged on your record. Instead, initiate communication with your lender. Talk about forbearance or student loan consolidation.
Student Loans and Credit, Fact #8:
Student loans can never be discharged during bankruptcy.
Student Loans and Credit, Fact #9:
Making regular payments on your student loans is a great way for young adults to begin building their credit score, setting the foundation for better loan terms and lower interest rates on future loans, and saving bundles over the course of a lifetime. But this isn’t enough. As you move on after school, you should try to incorporate different types of credit into your finances while keeping current on your payments. The mix of credit you have makes up 10 percent of your score. The credit scoring bureaus want to see that you can handle a variety of types of loans—from credit cards to student loans to car loans.
Now that you know the nine important facts about student loans and credit, be sure you learn the 35 facts the banks don’t want you to know! These money-saving tips and insider secrets about credit scores can help you save a bundle and position yourself for success.
A lot of car buyers hoping to get the best car loan have had embarrassing experiences at the dealership. The buyer picks a car and applies for financing from the dealer. The dealer offers an unfavorable loan package, telling the poor buyer that his credit is bad. The buyer is embarrassed. He feels silly for not entirely understanding the loan package, he has doesn’t have time to learn how to build credit. He has already been subjected to some high-pressure sales tactics, and he just wants to get out of there.
This is a sales tactic! It is a scenario intentionally manufactured by the dealer to get you to sign on the dotted line before you have had time to realize what a poor financing offer they have made you. Sometimes, it is even an outright scam: the dealer tells the buyer that he has bad credit just to get the buyer to agree to an expensive financing package.
I guess I can’t get the best car loan with my shoddy credit, thinks the buyer.
The number one way to avoid this unnecessary situation in the first place and get the best car loan is to already have the financing nailed down before you walk into the dealership. Dealers almost never offer the best loan packages, so it is almost always better to avoid bundling the purchase of the car with the financing, warranty, and trade-in of your old vehicle. Shop around for financing ahead of time, using banks, credit unions, and online auto lenders.
Then the dealer can make you a loan offer if he wants, but he knows you are going to compare it to other, probably better, offers. Even if you truly do have poor credit (unlikely if you have attended our free teleseminar), there are far better sources of sub-prime auto loans than the dealership.
If for some reason you still want to find out what kind of financing the dealer can offer you, then the second important step—after applying for financing from other lenders—is known as “The Folder.” The Folder has your credit reports, your credit scores, and some monthly payment calculations based on the target purchase price, interest rate, and loan term. It also has your financing offers from the other lenders. And it contains information about the price other sellers of your desired vehicle will accept. It is perfectly acceptable, and often less costly, to purchase vehicles online these days from dealers all over the country. Once your local dealership knows that you know this, it will be easier to negotiate. The Folder is hated and despised by auto salesman and puts you in charge of negotiations. If you want to get the best car loan, never enter the dealership without it.
The third important method to get the best car loan is simply this: get up and leave several times before agreeing to a deal. If the sales tactics are too heavy-handed—if the dealer is asking for your credit information even though you are not sure you want to apply for financing, if the numbers they are offering do not make sense, if it just feels like you are not going to get the best car loan—get up and leave. Shake the salesperson’s hand and tell him or her you will be in touch. Then walk out. If they tell you their offer is only good for a day, reply calmly and confidently that you are willing to take your chances, and then go.
Only once the dealer understands that you are knowledgeable, educated, prepared and willing to walk away will you start hearing their best offer. Have confidence and do not get emotional. You have financing from other sources, “The Folder,” and numerous other sources from which you can buy your chosen automobile and get the best car loan—and it is a buyers’ market
In today’s rough environment, knowing how to build credit isn’t enough if you want to also know how to qualify for a loan.
Ideally, a loan sits on a stool with four legs: income, down payment, savings, and credit score. If necessary, a stool can stand with just three legs. It cannot however, stand on just two, and it is important for would-be borrowers to understand this when learning how to qualify for a loan.
You are going to need at least three out of four “stool legs” to get a worthwhile loan.
Before applying for a loan, understand that the lender is in the business of earning a return on its investment. The lender could invest in the stock market, bonds, annuities, mutual funds, or any number of other things. The lender is only interested in giving you a loan to you if the lender can earn a worthwhile return in the form of the interest payments you make as the loan is paid.
To make this determination, the lender considers the four stool legs we discussed.
How to Qualify for a Loan—Stool Leg Number #1: INCOME
The lender considers your income. The higher your income as compared to your existing debts (your “debt-to-income ratio”), the more likely you are to make your monthly payments.
How to Qualify for a Loan—Stool Leg Number #2: DOWN PAYMENT
Next, the lender considers the down payment you are going to make on a loan attached to property (such as a car or home loan). The bigger the down payment, the more protection a creditor has. First, the property has more equity invested in it, meaning it is more likely to have enough equity to be sold at a profit to pay off the loan. As well, the borrower has more invested in the property and is therefore more likely to prioritize loan payments.
How to Qualify for a Loan—Stool Leg Number #3: SAVINGS
The lender considers your savings. Also called “reserves,” your savings are important because they tell the lender your likelihood of weathering any rough spots in your life, getting back on your feet, and making those loan payments.
How to Qualify for a Loan—Stool Leg Number #4: CREDIT SCORE
Finally, the lender considers your credit score. The credit score gives the lender a glimpse into your character and how important it is to you to keep your word and repay your debts. It also further assists the creditor in analyzing your ability to repay by revealing whether you are already carrying large amounts of debt.
When considering how to qualify for a loan in today’s market, a person really needs four out of four stool legs, though some exceptions might apply. If the would-be borrower is strong on any three out of the four, a lender might make an exception, even if his fourth leg is weak. A strong income may make up for a lack of reserves. Or a high credit score can make up for a small down payment. In normal lending environments, a borrower with a strong income, lots of savings and a big down payment will probably be allowed to slide on a mediocre credit score, but s/he would pay high interest rates.
For major purchases, like cars and houses, it’s worth thinking about these four criteria at least six months to a year in advance of applying for a loan.
Keep your income as high as possible when learning how to qualify for a loan. You can get a second job or work to bring home additional commission. This will help your income, savings, and down payment. Dedicate as much of your monthly earnings to a savings account and maximize your reserves. Learn how to create a budget. If you have family members willing to help you with the down payment, get the money from them in advance so that when the lender looks back at several months’ worth of bank statements, the lender will see consistent higher balances. (Keep in mind that you should discuss the tax consequences for cash gifts with a tax consultant.)
Get a copy of your FICO Score and review it for any errors. If you find them, contact the credit bureaus and follow their steps to have the information corrected. Make all you payments on time, and try to pay down your balances on existing accounts. Attend our free teleseminar so that you can learn how to improve your credit score quickly.
Although the four legs of our stool are the most important criteria, learning how to qualify for a loan means that you take a look at some smaller factors as well. How long have you been at your current job and address?
- People who move around a lot are generally consider bigger risks than borrowers with proven job stability and a permanent address. From a lender’s perspective, a stable lifestyle—two or more years at the same address—equals a safe investment.
- In addition, the lender wants to know that you have a history of making plenty of money to afford the loan. Ideally, your job should also be stable, meaning you have been employed for at least two years at the same company.
In today’s market, knowing how to qualify for a loan can be tough. Lenders have more stringent guidelines than ever before. Remember to start early and learn everything you can about building picture-perfect credit!
Do you think it is fair that the very same banks who are being propped up by your taxpayer dollars – the banks who got big bailouts – are unwilling or unable to tell you how to get a loan by increasing your credit score?
I don’t, which is why I went into a major bank with a SpyCam to see whether the banks are training their bankers to tell you how to improve your credit score and qualify for a loan.
And guess what? After the government unilaterally decided to give the banks a loan using your money, the banks won’t tell you how to improve your credit score so you can qualify for a loan.
The government forced us to give them a loan, and now they won’t tell us how to get a loan. Does that seem fair?
They should tell us:
- How to build credit so that you can qualify for one of their loans.
- How your credit cards impact your credit score (a factor I call the “credit card score.”)
- All the facts about bankruptcy and foreclosure, and how you can bounce back from these financial crises.
“I need a personal loan quick but I have bad credit.” An old friend of mine was calling for advice. “What’s the best way to get my hands on money? Should I go to one of those places that offers instant cash?”
If you are like many cash-strapped Americans whose scores fall below 720, you should–of course–learn how to build credit. But what do you do in the meantime?
You might think you must rely on high-interest loans with large penalties and lousy terms. But sadly, too many people desperate for money end up exacerbating the situation by applying for loans intended for people with bad credit, which guarantees that they will pay extra fines and interest rates. The irony, of course, is that people with bad credit are the ones who are least able to afford these loans.
If you find yourself saying, I need a personal loan quick but I have bad credit, consider one of two options:
1. If you have a long and strong relationship with your boss, ask for an advance. This is an interest-free way to secure some quick cash, and your boss might let you pay the loan off slowly by simply taking small deductions out of each paycheck.
Only implement this strategy if:
- You have been at your job for more than one year,
- You have a strong relationship with your boss, and
- The company has a solid bottom line.
You should also pay close attention to the amount of the loan. After working for me for only three weeks, a former housekeeper of mine once asked me for an advance on her salary.
“I need a personal loan quick but I have bad credit,” she told me, begging for 10 percent of her salary! I had no idea whether she would work for me long enough to repay the loan, nor did I know whether she was the type of person who took her financial obligations seriously. I refused her the loan, and our relationship was permanently scarred.
To protect your relationship with your boss, follow this general rule:
If you have been employed for more than one year but less than two years, ask for no more than 2 percent of your annual salary. Your boss might feel comfortable lending you 5 percent if you have been with the company for two to three years; if you have been working for the same company for more than three years, you might be able to secure a 10 percent cash advance.
2. Another low-interest option is to ask a relative for a loan. Be upfront about your situation, but be businesslike. Instead of calling in a panic and saying, “I need a personal loan quick but I have bad credit,” try writing out an agreement that details interest, when the payments will be made, and what you will provide as collateral in the event you are late with a payment. By putting everything in writing, and making every payment on time and in full, you will preserve your relationship and secure a low-interest loan.
Finally, be sure to register for our free teleseminar so that you will never again need to say, “I need a personal loan quick but I have bad credit.”