8/24/08 Las vegas, NV
If you run your own credit via an online service, DON’T bet on that score when shopping car loans. The car banks; factory captives, local credit unions and independent banks are creating their own model to determine the lowest possible risk of repossesions. No longer is a 700 FICO an automatic shoo-in to the lowest interest rate or a second car.
“Recently a client wanted to have her father co-sign for her first car,” a salesman told me, “and the bank said no because he had signed on the car loans of two other children. His score was 720, the other children were making the payments perfectly, and his debt to income was in line. The bank said no. Too many cars.”
Add to this concern of too much auto debt, a growing list of car companies opting out of leasing. In the car market today, the bank controls the car deal more than the dealership. Today the average car loan is 6 years/72 mos. and some banks will offer 84 month loans on cars worth more than $45,000, to those with 720+ scores and a low debt ratio
Add to the car loan debacle, if a consumer visits many dealers and allows their credit to be run too often or the dealer sends the application to too many banks, the consumer shopping can find him/herself burned out by too many inquiries to the WRONG financial institutions.
So what can a consumer do to protect themselves? Don’t run your credit at every dealership you visit. When you find the car you want, settle on the price and then run the credit report. Ask to see the report to be sure the information on your report is correct, and you see the numbers. Any score under 700 is no longer an automatic A tier. In fact, some car companies now deem anything under a 700 score an automatic B tier, suggesting a higher interest rate.
Be prepared to have 10% cash down or a trade-in with equity. If you have a car that you owe more than it is worth, double the cash down. Rebates on some models may help reduce the cash out of pocket, but don’t expect to lower your current payment without some financial participation.
If you have had a repossession, bankruptcy, foreclosure or multiple late payments on your auto loans, be ready to show proof of income, residence, tax returns and more. Second chance financing is popular in many states, but you need to understand the process before grabbing the keys. Understand the interest rates of 20% plus are not unusual in states without usary laws. Simple interest contracts vs. compounded are often misunderstood by individuals with credit challenges, so ask which contract you are signing, BEFORE signing. The N.Y Times recently reported car loans for high risk clients are at an all-time high, along with defaults.
Car dealers everywhere see more rough road ahead as consumers once boasting 700 scores and those facing financial hardships find they are no longer on the upside of the negotiation and the bank isn’t making deals.
SLM- www.mycarlady.com
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