Pierre Money Mart Blog

Don’t, and we mean don’t ever drive off the lot until your financing terms are set in stone. Drive your old clunker home or take the bus if the financing is not complete at day’s end.

Good Car, Bad Credit
• Intro
• Know your Credit Score
• How Bad is Bad?
• Bank vs. Dealer Financing
• Look Forward to Refinancing
• What NOT to Do
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• FICO At A Glance
One common shady practice dealers engage in is to let you leave the lot with a contract that isn’t final. In this underhanded routine, you sign a financing agreement “subject to final approval” rather than a binding deal. The dealer then lets you take possession as though you had a binding agreement.

You drive off happily in your new car, then get a phone call telling you that the financing wasn’t approved. You go back to the dealer and are then slapped with a much higher interest rate than you’d originally expected. This is a nasty trick. Don’t fall for it.

• Don’t rely on verbal assurances. Many people, especially those with bad credit, are hustled by dealer finance managers who smooth over ugly parts of a finance contract.

One PierreMoneyMart.com reader wrote to us to say that a dealer first tricked her into making her roommate a co-signer, then left the two with a loan for which the roomie was primary borrower (overextending the roommate’s credit, tangling her legally and ruining the friendship). All along, the dealer had told our reader that the roomie was not being listed as the primary borrower. These kind of things can happen to you easily if you take someone’s word at finance closing time.

• Know the market. Don’t accept a finance contract without checking to see what the going interest rate is for your credit category. Dealers may try to psych you out by throwing out an extremely high interest rate number and insisting that’s the best they can do.

The truth is, they’re tacking on several points of interest onto the loan over what the bank offers, and pocketing the difference. And the more desperate you seem, the higher interest number they’re likely to quote. While a dealer will almost certainly add some additional interest to the loan, you don’t have to let them get away with financial murder.

To get a real-time snapshot of average car loan interest rates for your FICO score, use the loan calculator available at MyFICO.com. That way, you’ll have a good idea of whether the lender or dealer finance manager is in the ballpark.

• Skip the extras. Don’t sign up for add-ons like extended warranties, GAP insurance or credit life policies. They generally aren’t worth what you paid for them. And no matter what the dealers tell you, you are not legally required to purchase them.

“The finance manager will state that these will only cost you an extra $5-20 per month, and that you’ll never miss it, but since you are paying interest on these rip-off insurances, it may cost you as much as $1,000 over the course of your loan,” says Richard Krawczyk, Ph.D., author of “Financial Aerobics – How to Get Your Finances into Shape.”

• Make sure you know whether your loan interest is precalculated. In far too many cases, people with bad credit end up with a loan where the interest is pre-calculated. When loans have pre-calculated interest, your payments may go solely to interest for as much as one-half of the life of the entire loan.

Try to retire the loan early, even to refinance, and you may end up owing much more than you thought. Don’t get a rude shock — while you may be forced to take out such a loan, be very clear up front what you’re facing.

• Watch out for penalties. Know whether there’s a prepayment penalty written into your contract.

Depending on how bad your credit is, you may want to go ahead and accept a loan that includes prepayment penalties. But be prepared: if you pay the loan off early, you may face an additional charge of $25 to $200. This may or may not be significant to you, but it’s best not to face any surprises at payoff time.

I’ll be straight here. I’ll explain and debunk some terrible misconceptions about having poor or bad credit history and hopefully help you through your credit problems. I will also show you how to get your bad credit loans or credit cards approved easily without to much hassle as you might with different financial insitutions. I also look at some lenders provide you access to those who are happy to provide loans and other financial services even to those with the worst credit scores.

Lets first look at bad credit loans. Find out what the sub-prime market has become and how you can still get easily approved loans if you follow our easy to follow steps with the following types of loans and financial products. We look at the requirements and offer solutions on how even in these bad economic times, loans are still possible. It is just a matter of where you are looking.

Life is sweet, but it would be a lot sweeter if our cars and trucks would warn us when heart-stopping repair bills or inevitable replacements lay in wait just around the corner.

Most of us, however, need help recognizing when it’s time to get rid of our ride — whether it’s a 13-year-old Chrysler LeBaron convertible, a three-year-old Toyota Tacoma, or brand-new Mercedes-Benz GL-Class.

That’s why we’ve come up with five smart moves to help you make a hard but satisfying decision.

“Our homes reflect who we are, and our cars reflect who we wish we were,” so the sad (but true) saying goes. Here’s where a cold look in the lifestyle mirror can go a long way. Ask yourself (or better yet, ask a friend), “Is what I drive serving my current needs?”

Your Mazda Miata may have made you the King and Queen of Cool when you were single, but when you started adding little princes and princesses to the castle, that tiny two-seat sports car became royally impractical. Suck it up, daddy, and get a midsize Mazda6.

If you live in New York City, it may be time to bid farewell to that Ford F-350 Super Duty SuperCrew. Be brutally honest. You’ll be happier in the short and the long run. We know plenty of people in Manhattan who don’t even own a car, and that’s the perfect car for them.

Smart move 2. Do an economic reality check.

Make sure you own a vehicle you can realistically afford. Factor in every expense, not just the monthly payment. Include the price of insurance and maintenance, broken down to a monthly average, and don’t forget to calculate the terror of fuel costs.

Total them up and you’ve found the true cost of owning your car. If you can realistically meet this number without breaking a sweat or missing a meal, month in, month out, bravo.

But if you’re struggling to keep up with the bills, and spending $500 or more a month on your car or truck, you should replace it with a new ride that costs more like $250 to $350 a month to own.

When making this decision, follow a simple rule of thumb: Monthly payments shouldn’t exceed 8% of your gross monthly income. If, for example, that’s $3,000, then your payments should be no more than $240 a month.

Smart Move 3. Pay heed to the “Gut-Wrench-In-Its-Presence” Effect.

If merely thinking about driving your car threatens to double you over in pain, get rid of it. No joke. There is no case to be made for accepting 15,000 miles of anger a year. If you hate your vehicle — really hate it — and have no practical considerations that trump your decision making, then dump it, sell it, or trade it in. Life is still too short.

Smart move 4. Beware the “My Mechanic Knows My Credit Card Number by Heart” Syndrome.

If your car has been to the shop three times over the past year for repairs — even legitimate repairs — it’s not a normal, healthy vehicle.

We live in the glory day of automobiles, where virtually every model offers breathtaking quality and reliability. The cliche is that there aren’t any bad cars anymore, but the truth is there really aren’t even any average cars anymore.

Planned obsolescence, the automotive industry’s dastardly plan to design and build cars to last only as long as the warranty, is a myth. Bad luck, however, is not. Your vehicle may be a “Monday morning” car or an early production run of a new model (never a good bet for high quality — new models always need time to get their teething problems out of the way).

For owners of older, very used cars, this is the rule to follow: If you must make three repairs during any 12-month period that add up to the resale value of the car, cut your losses and run.

You can find out how much your car is worth at Edmunds.com or Kelley Blue Book.

Smart Move 5. Keep an eye out for the two symptoms of big trouble.

Just remember: Blue smoke = Bad news. Blue smoke out the tailpipe means you’re burning oil, which very likely indicates the oncoming need for an engine replacement. Never cheap.

Another major symptom worth paying eyes-wide-open attention to is when you notice a bit of slipping between gear changes in the automatic transmission. If you notice the engine revving without any appreciable increase in speed, that’s what a slipping transmission feels like. This problem is not quite as urgent as the engine, nor quite as expensive, but transmission replacements are never a bargain.

Either one means it’s time to sell.

If you’re struggling to keep up with rising mortgage payments and record gas prices, here’s a way to save hundreds of dollars a month:

Downsize your ride.

You may have to overcome an upside-down loan and the shockingly low resale values of most full-size pickups and sport-utility vehicles — the prime candidates for such a switch.

Lower monthly payments: $250. Let’s say you borrowed $30,000 for 60 months at 7% interest. You’re paying about $600 a month. Reduce that to $18,000 for 60 months, and you’ll pay $350.

Less costly fill-ups: $50. Drive 1,000 miles a month averaging 15 miles per gallon, and you’ll spend $120 a month on gas at $1.75 a gallon. Drive the same 1,000 miles averaging 25 m.p.g., and you’ll spend $70.

Reduced insurance premiums: $10. The experts we spoke with say you can save 10% to 20%. That means your premiums could drop from $600 to $480 a year for the same coverage.

Total monthly savings: $310.

That’s far more than anyone can save by scrimping on things like eating out or going to the movies.

You could cut your costs even more if your current vehicle is out of warranty and you buy a new one or a late-model used car or truck that’s still covered by a factory guarantee.

Not having to worry about unexpected repair bills is a big plus, and many 2008 and 2009 cars and trucks are backed with the best warranties we’ve ever seen.

Of course, there’s a trade-off to downsizing your ride — you’ll be getting around in a smaller, less powerful car or truck.

But smaller doesn’t mean cramped. And less powerful doesn’t mean the best small cars, compact cars, compact wagons and small SUVs aren’t a blast to drive.

We think you’ll be surprised at how much fun they are — and how much stuff you can pack into them.

Many people buy a large pickup or SUV for tasks they only do once in a great while, like hauling furniture or tackling a muddy rural road. But they’re paying a lot for capabilities they use very little.

Think how much easier it would be to park a smaller SUV at the grocery store or mall. And that’s something you do every day.

The biggest hurdle to downsizing your ride will be financial.

Edmunds.com says one of every four auto loans is upside-down, which means the borrower owes more than the car is worth.

Many lenders used to allow you to roll that “negative equity” into a new loan on a new car, lending up to 130% of the new car’s value.

But you’ll have a hard time finding that kind of financing today.

That makes it difficult to get rid of a costly car or truck without spending thousands of dollars in cash to make up the difference.

The average deficit has grown to $4,300 as the resale value for large pickups and SUVs — the best candidates for downsizing — has slumped.

Jack Nerad, executive editorial director and executive market analyst for Kelley Blue Book and kbb.com, the most prominent valuation guide for used vehicles, says full-size SUVs “have declined in value about twice as fast as they normally would in the last 12 months.”

CarMax Inc., the nation’s largest used-vehicle retail chain, reports that during the company’s first quarter, which ran through May, wholesale industry prices (the price wholesalers pay for a vehicle that ends up on a used-car lot) for SUVs and trucks declined nearly 25%. That’s almost four times the normal depreciation.

“This is the most rapid depreciation of any vehicle segment that we have experienced in our 15 years,” says Tom Folliard, CarMax’s president and CEO.

Given that, Consumer Reports recently did a study to determine if, and when, trading in a fuel-thirsty SUV makes sense.

The magazine concluded that it’s almost impossible to save enough on gas to make up what you’re losing on depreciation if your vehicle is three years old or less.

It recommends holding onto the truck until it’s at least five years old, a point when most vehicles are paid off or at least worth more than the remaining balance on the loan.

Edmunds.com has a new Gas Guzzler for Gas Sipper calculator to help you decide whether ditching your truck is a good idea.

But here’s the bottom line: If you can’t afford the payments, and the insurance, and the gas, then you’ve got to do whatever it takes to replace your expensive ride, even if you have to take a big hit on depreciation.

You need to cut your expenses now, and this is one way to do it.

With person-to-person auto loans one simply buys from a private party instead of a dealership or a car company. There are many people under the impression that buying a used car directly from an owner will get them a much better deal than they would from a car dealership. This is especially true in cases where the car owner and the car history are well known to the buyer. It eliminates the possibility of hidden surprises springing up along the way. On the whole, these auto loans have a lot in common with other methods of buying cars. However there are also certain differences that can be important concerning private auto loans.Higher rates as compared to buying a new car: When it comes to any used car, the rates for person-to-person or private auto loans invariably prove to be more than those for a new car. To take an example, rates for private party sale auto loans from online auto loans lender will usually be higher by about two points compared to what is charged for traditional new auto loans and about one and a half points higher than the interest rate being charged for used car loans for vehicles purchased from dealers. Another difference is that this type of loan is based more on you than the collateral or the car. Due to this rates fluctuate according to your credit history and other aspects concerning your loan application.

Loan term may be less than that of a new car. The standard duration for financing a new car can be up to seventy-two months. In the case of private auto loans, it may not be possible to finance a vehicle for the same duration. Usually lenders are ready to finance private auto loans for at most forty-eight months, though there may be exceptions when they have been known to finance for periods longer than that. However, it is important that auto loans finance is done for as short a period of time as you can possibly afford. This is to ensure that you don’t end up in a situation where you owe more on the car than its value (upside down car loan) and to minimize the amount of interest you are required to pay.

With many lenders a down payment may not be required for person-to-person auto loans. Despite not being required, it is better to put money down. Doing this will reduce your chances of being upside down in your car loan in the future. Taxes, title and registration have to be paid separately when you purchase a new car from a dealership. The dealer normally combines taxes, title and registration fees into the loan amount. For private auto loans, the lender will not allow you to finance the fees and will require you to pay for them out of your pocket.

On purchasing a new vehicle, the title is put in your name almost immediately. When it comes to person-to-person or private auto loans, it could take longer. The owner of the car you are buying from may still owe money on the car and it could take a week or longer for completing the payoff process. His lender needs to receive the payoff amount before he transfers the title to the car owner and then it can be turned over to you. The duration of this process is mainly based on the location of the lender. In case of the local bank, this process should not take more than a few days. However if the lender happens to be in another state, it could take much longer for the transfer to be done.

To briefly sum it up, private auto loans make a good option if you are a creditworthy borrower. However id your credit happens to be less than perfect, it may be better to turn to your local dealership as the best source for an auto loan.

Your credit score is what lenders use to assess their risk in loaning you money. Your credit score is based on the information in your credit report, so first analyze your credit report and look for errors that could be effecting your score. Improving your score can help you get approved for lines of credit easier with lower interest rates, thereby saving you money.

Once you know your score, follow these easy tips to improve your rating:

1. Pay your bills on time consistently. Late and missed payments, especially accounts that have been sent to collections, have major impacts on your score.
2. Keep balances low on all of your credit cards. Maxing out your credit cards will lower your score, possibly by as much as 70 points.
3. Avoid opening or closing a lot of new credit cards at once. It may seem like a quick fix, however a significant amount of new credit will harm your score, and closed accounts can still have an impact.
4. Use the credit you have wisely. Manage your current accounts, by making payments on time and being aware of balances and limits, to prove to lenders you are responsible with your credit.
5. Moving debt around (e.g. consolidating the debt on your cards) without paying any of it off can lower your score. Keep your debt where it is and focus on paying it off.
6. Check your credit report often to spot errors quickly and track progress.
7. Avoid credit repair agencies that promise an instant fix. Rebuilding your credit takes time, and any agency that guarantees instant credit repair is only looking to exploit people in need.