Lender Constraints(or why you can’t always have the car you want)

In the previous post we talked about things you can do to improve you chances of getting financed, this time we will talk about what the dealer can do to improve your odds.  Here is how this scenario lays out, you found a vehicle you like, the dealer submits the paperwork to the lender for an approval and the lender calls back and says we are not interested in approving this customer on this car, but if you find a vehicle that fits these guidelines(which we will discuss a little later), we would consider extending them a loan.  Now the last thing a dealer wants to do is switch cars around on you, especially after you have found one you like, but given the two options, the first one is telling you we cannot finance you and you leave without a vehicle or the other option, we can probably secure financing for you if we change vehicles, the dealer is going to make every effort to find a vehicle that fits the lenders qualifications, since the bank has hinted there is a chance for an approval.

There are several reasons the banks make these demands, but most of these demands are made with one thing in mind, they don’t want you in a car that may break down and you have to make a choice between making you car payment or a repair.  Most of the time this conditional approval is pretty standard, they would like to see you in a vehicle that is a 2002 or newer, generally no more than 75,000 miles, and something with an $8,000 max price.  Keep in mind this is a positive, if we find a vehicle within these parameters, most likely you will be approved for a loan.

Now here is the part that most people have difficulty understanding, the cars that fit these parameters are  not usually trucks, vans, or SUV’s, they are generally small to midsize sedans.  When looking at these cars, understand it is not your dream vehicle, but if you make your first 12 payments on time, chances are you will be able to trade that car for the vehicle you want next year, it all comes back to re-establishing your damaged credit.

This just a way to get to the vehicle you want, this may not be your ideal vehicle, but in my experience these vehicles are always much newer and nicer than the current one you are driving and have thousands less miles.  So the downside is you get to drive a better vehicle for a year while you rebuild your credit to get the one you really want.  As your credit improves your loan options will open up and you won’t have to deal with banks that tell you what you can and cannot buy.

South Pacific Auto has a very successful stair-step program in place, we have seen many customers go from our in-house financing program to getting financed with preferred lenders with low interest rates.  If you are ready to turn your credit history around and start rebuilding your credit, give me a call at (541) 974-0780, email me at jon@southpacificautosales.com, or fill out our online application by clicking here.

How to improve your odds of securing a loan

When dealing with damaged credit there are a lot more hoops for the dealer and customer to jump through to secure financing with a bank, but at the end of the day there are a things that can be done to increase your odds of securing a loan.  As mentioned before it’s not just the customer the banks make demands on, it is also the dealer, so we will start on the consumer end then move on to the dealer in my next post.

 As a consumer with damaged credit, the banks require a lot more verification, to put it bluntly, they don’t trust you and want you to back up everything that you have put down on your application.  This is also why most dealers require this information upfront before they even submit an application, I don’t know how many times I have seen a loan get approved only to have it put into decline status because income or job time didn’t match up with the application.   As mentioned before, your goal is to build trust with the lender, so don’t overstate your income, the bank is going to require your most recent pays-tub at a minimum, so they will know the facts soon enough.

Banks that deal with special finance customer generally have a list of requirements that need met before finalizing a loan: your most recent pay-stub, a bill showing proof of residence: a phone bill, a power bill, or something showing your name with you address(this again comes back to proving what you listed on your application), landlord name and number, and six complete references with name, address, and phone numbers.  By bringing these items in with you on your first visit to the dealer you have greatly increased your odds of getting an approval. 

Special finance is all about building trust with the lender, submitting the initial application with all the required information makes a very good impression with the lender, it shows them that you are serious about getting a loan, organized, and that you are taking the needed steps to secure a loan.  You’re much better off giving the lender the required information up front, they are going to require it anyways, so why make them ask for it.

Another way to improve your odds is to be realistic on the loan amount, if you have damaged credit, your chances of getting an approval on a $20,000 to $30,000 loan are very slim and most likely unattainable.  If you are more realistic and look for something with around an $8,000 max price, your odds have increased again.  It’s all about risk management with the lenders, they are willing to take a chance on you, but they are only willing to go so far, if they have to reposes a car their loss is likely to be much less on an inexpensive car.

Now here is the one of the biggest things that increase your odds of securing a loan, and that is down-payment.  As I have mentioned before it is all about trust and risk management with the lenders and money down helps with that criteria.  The first thing the bank sees with cash participation on your part is that you now have your own money invested in this car and more than likely you will not want to lose that money in a repossession.  The other part is the risk factor, let’s say you find a $6,000 vehicle and you just put $1,500 down, so you are only financing $4,500 with them, if they have to reposes it after 8 or 9 payment they have reduced their chance of loss significantly.

Obviously there are other factors that go into getting a loan, but if you do the things I listed in this post, you can overcome a lot of the problems associated with damaged credit and greatly increase your odds of securing a loan.

Ways to Improve your Credit Rating

What Is Your Credit Score?

Your credit score is a numeric guide that shows lenders what your future risk is if they give you a loan. It is based only on the information contained in your credit report. In evaluating your credit application, lenders may use only the credit score, a combination of the credit score and your credit application, or their own proprietary scoring system that may combine each of these ingredients.

Your credit score is based on the following variables: payment history, amount owed on accounts, length of credit history, the nature of any new credit, and types of credit you’re using. I don’t know exactly in what percentage these areas have importance, but I can tell you that more than half of the credit score is based on payment history and amount owed.

 

How Do You Improve Your Credit Score?

1. Focus On Your Payment History

The more payments that you pay on time, the higher your credit score will climb. If you’ve been turned down for a bad credit auto loan because of your credit score, you probably have had several late payments. One or two tardy payments won’t kill your score. However, if you’ve been excessively late your score is probably pretty low. Get yourself back on track right away. Six months to a year of good payments can do wonders for your score.

2. Pay off Collection Accounts

You can’t remove a collection account by paying it, but paying them off can improve your score. It doesn’t hurt to ask the creditor to remove the account when you pay it off, but don’t expect them to do that.  Many mortgage companies will insist that you pay off collection accounts before giving you a home loan.

3. Focus On the Amount You Owe

If you’re carrying high balances on your accounts, your credit score may suffer. Being close to your credit limit on your credit cards may show that you’re overextended, and your credit score will suffer as a result. If you can, pay off your cards, or at least get the balances down. When your credit report updates with lower balances your score may be able to raise your credit score fast.

Having said this, carrying small balances on your cards that you have managed to pay on time is much better than carrying no balance at all. 

Also, pay off your debt instead of just moving it around. Shifting balances from one card to another does not qualify as paying off your balances.

4. Avoid Taking On New Debt

Although it matters less than your payment history, taking on new debt may affect your score. People who open several new credit accounts at the same time may seem to be a greater risk than those who are lowering their current debt.

If you’re looking to purchase a new or used car or a home, don’t drag out you shopping activity over months. Having your credit pulled by several companies over the course of a year or so looks like a much higher risk than having this done in a shorter period.  Instead, do your rate shopping in a shorter period.

Opening up a handful of credit cards, for example, may lower your credit score. Some people do this to increase the level of available credit. You are usually better off applying for credit as you need it. If you really don’t need a new credit card, just don’t apply for it. Especially if you’re trying to improve your score.

5. If You Are Trying to Repair Your Credit After a Bankruptcy or Other Credit Crisis

If you are trying to repair your credit score then opening up a new credit care account may make sense. In that case, you should open a new account so that you can begin to establish a good payment history. If, for example, you are coming out of a bankruptcy, we would recommend that you start with a credit card or small installment account and begin to make payments over time. Just remember, as you build your credit and more credit becomes available, don’t apply for it unless you really need it.

6. Limit Your Credit Inquiries

Every time a merchant or lender pulls your credit in order to evaluate a credit application submitted by you, your score will be dropped slightly. This shouldn’t present any problems for you or the lender. However, numerous inquiries that include several different attempts to get credit can lower your score drastically. Multiple inquiries, for example more than ten in a short amount of time, can signal a higher risk of bankruptcy. The credit reporting agencies can distinguish between normal “rate shopping” and someone looking to max out their credit irrationally.

7. Pull Your Own Credit Every Six Months

Pulling your own credit using any of the reporting agencies or other services does not lower your score. Each of the reporting agencies do not drop your score for checking your own history. Also, any time your credit is pulled as a part of a promotional event or item (for example an unsolicited credit card offer), you will not be penalized for that inquiry.

At least every six months you should pull your credit history to check for mistakes or any kind of identity theft or fraud.  Correcting mistakes in your credit report can take time.  Don’t wait until you’re at the car dealership to hear that someone has opened a credit card in your name and wrecked your score.  This isn’t common, but it happens more than you may think.

This wasn’t an all inclusive list of ways to improve your credit score. Your credit score is based on several factors, not all of them available to the public. However, sticking to basics like making your payments on time, applying for credit only when you need it and not having excessive inquiries should go a long way towards improving your score over time.

South Pacific Auto Credit Blog

South Pacific Auto has 18 years experience in helping customers with damaged credit, the main purpose of this blog is to help our customers understand their situation and to help them better their credit rating.  We will be posting video’s and text with explantations of what a bank looks for when considering a loan and things you can do to improve your odds of securing a loan.  We are ecouraging people to leave feedback, if you have any questions please let us know, this blog is being designed around the needs of our customers.