Pierre Money Mart Blog

The U.S. Congress will be seeing a bill this week that, if adopted, would allow automakers the ability to obtain $20 billion in federally backed loan guarantees. The bill is open to any auto manufacturer including foreign-based Toyota and Honda, but it’s clearly targeted at the domestics. As the credit ratings of the Big 3 continue to drop, this bill could potentially save them hundreds of millions of dollars while fomenting the development of clean-air technologies. U.S. Representative Mike Rogers, the bill’s author, says it would “level the cost of investment capital in the United States between domestic and Japanese auto manufacturers.”

The way it would work is that the U.S. Department of Energy would be given the authority to approve loan guarantees to auto manufacturers for alternative-fuel research and development projects. If the auto manufacturer defaults on the loan, the U.S. Treasury would be forced to repay it.

A Ford spokesman said they support the measure while GM spokesman Greg Martin implied they weren’t seeking loan guarantees. He said, “It’s an intriguing idea that merits consideration, but right now our turnaround and our success rests on the advanced technology that we are putting in our cars and trucks today.”

CLEVELAND (AP) – The national credit crunch isn’t just squeezing the housing market, it’s also making auto loans more difficult.

Lenders are tightening their standards for car loans and that means bigger down payments and monthly installments. Some buyers looking for new mid-sized sedans are settling for used compact cars and others cannot even afford those.

CitiGroup, one of the nation’s biggest financial firms, has cut about 800 jobs in its auto lending business and says it plans to scale back the number of loans it offers.

“People with decent credit aren’t able to get the terms they think they should get,” said Michelle Primm, managing partner of the Cascade Auto Group in Cuyahoga Falls. Primm also represents women dealers in the Eastern U.S. for the National Automobile Dealers Association.

Mary Kay Bean, spokeswoman for JP Morgan Chase, said her company is requiring larger down payments than before and is limiting terms to six years for buyers with lower credit scores.

Bill Miller, a Cleveland State University student who works full-time as a mechanical engineer, said he tried to buy a car a few months ago and couldn’t get credit anywhere.

Miller’s status as a college student with a C-minus credit rating and some credit card debt told him getting a loan would be a challenge, but he didn’t think $7,000 for a used car would be out of line for him and his girlfriend.

“We were declined and declined and declined. I thought I rebuilt my credit, at least to the point of getting a car loan,” Miller said. “I guess not.”

Scott McKown, finance and insurance director for the Classic Auto Group in Mentor, said competition among lenders as recently as last year allowed dealerships to sell cars to people who typically couldn’t afford them.

“In a lot of cases, we’d say, ‘Boy, I hope the customer can pay this,”‘ McKown said. “These guys tended to specialize in that low end of the business.”

The loan squeeze could lead to lower sales in a year that has been one of the worst in a decade. As with the collapse of the mortgage business, lenders blame the tightening of auto credit terms on Wall Street.

Until this year, high-volume lenders would package their auto loans and sell them to investors, who would make their money from borrowers’ interest payments.

But with the collapse of the mortgage market, investors no longer are snapping up loans, especially those to buyers with questionable credit.

Even Ford Motor Credit, General Motors Acceptance Corp. and other lenders affiliated with automakers say they’re looking a little harder at each transaction. But those companies tend to stick to the best borrowers, so dealers said the effect of those changes has been minimal.

“When you have dealers that say they can get anybody a loan, they’re selling financing,” said Pat O’Brien, owner of Chevrolet dealerships in Medina, Willoughby and Westlake. “They’re not selling the car.”

“Bad Credit Car Loans”

One of the most common methods of purchasing a car with poor credit is with a “bad credit car loan“. You can acquire these loans through auto dealerships, online lenders, and high risk lenders. Typically these loans are available for anyone with a credit score below 600. People can find themselves in this situation after a divorce, after bankruptcy, if they have little credit, or if they have made poor financial decisions. The “bad credit car loans” are designed to protect the lender. They have higher interest rates than conventional auto loans. However, it is in your best interest to shop around for a bad credit car loan

Risks of Shopping around

There is a risk of shopping around for an auto loan. Submitting loan applications to several different companies will lower your credit score even more. It is in your best interest to find an organization that will find various Bad credit car loans for you, but only check your credit report one time.

Home Equity Loan

Another way to get auto financing with poor credit is with a home equity loan. The interest rate on a home equity loan is usually lower than the interest rate on a “bad credit car loan”. Another advantage is that the interest is tax deductible on a home equity loan. The one obvious disadvantage to this type of financing is that you are using your home as collateral. If you are not able to pay your loan, then you put your home in jeopardy.

Do not lose hope if you have poor credit. There are still options available to finance your car. Bad credit car loans, and home equity loans can help you achieve your goal of purchasing a new vehicle.

1) Shop Online – Shopping for auto loan online is a great time saver. By comparing from different sites you can get the best deals. Applying also is easy and even some sites will give you information you need within minutes.

2) Know Thyself! – You must know the basic criteria for applying for an auto loan. Basic criteria includes that you must be above 18 years of age. Best if you earn at least $2000 a month. Also needed is residence and employment history.

3) Get Approved First – Don’t have make the mistake of looking for a car before being approved. Get approved first then they will give you a voucher of how much you are allowable to loan. Doing this will save you future frustration and disappointments.

4) Down Payments – This varies from lender to lender, and some don’t even require. But typically its about 10% of the price or $1000 whichever is the lower number.

5) Interest Rate – Interest rate is not fixed as most people think, and yes it can be negotiated. If you have a good credit score and good negotiating skills you can have a lower interest rate. But some factors are way out of you’re control such as the state of the economy.

There you have it. We’ll that’s not all, there’s lot of other things you need to know. But what I’ve enumerated are the vital essentials before applying for that auto loan. One thing also is ask advice from an authorized dealer or loan official. They’re there to help you. If there’s something you don’t understand, ask them now or you’ll might face lots of headaches later.

There are many finance companies online competing for your business, to finance your vehicle. Just beware of unethical lending practices. People with bad credit are often prey to lending scams. Bad credit borrowers have fewer lending options than other borrowers and some finance companies take advantage of that fact. Here are 3 things to do to protect yourself from an unethical auto finance company.

1. Compare Rates Among at Least 3 Different Lenders Online – If you have 3 or more loan offers to compare, you are much less likely to take an offer from a lender who is charging excessive interest rates. If you have 3 or more interest rates to compare, you will have a good idea of what the average interest rate is that is being offered to people with credit problems for auto financing.

2. Get Financing Before You Visit a Dealer – If you are going to buy your car from a dealer, make sure you get your financing before you actually visit the an auto dealership. Dealers and lenders often make agreements to work together to charge the borrower a much higher interest rate than they could otherwise get by shopping around. If you have your financing ahead of time, you won’t have to accept the financing they offer you there.

3. Apply With Reputable Lenders – If you are applying with lenders who are established and reputable, you minimize your chances of being taken advantage of.

The federal government’s $40-billion economic stimulus package will only work if it’s well defined, Auditor General Sheila Fraser told a local crowd Monday.

That means not only defining clearly the criteria determining who gets the money, but also clearly defining success, said Fraser, who is about to take on the herculean task of ensuring the stimulus package is spent properly.

That money needs to get out the door quickly if it is not to hinder, rather than help, any economic rebound, Fraser acknowledged.

But the stimulus plan “should not be a licence to dispense with sound management practices,” she added.

Given the urgency of the spending plan, Fraser’s department plans to do “real-time” audits, looking at the spending as it happens rather than later.

Her role will include auditing the federal government’s loans to auto manufacturers and purchases of mortgages.

She said later that, given the scope of the spending, her department will rely greatly on the internal auditing departments of the federal ministries involved.

“We can’t audit everything that’s happening,” she said.

It’s a widely held misconception that Fraser is the watchdog of government, she said.

“In fact, it’s Parliament that is the watchdog,” said Fraser.

“Our role is to tell Parliament how well its decisions are being implemented.”

Fraser, who has been auditor general for the past eight years, spoke at the Brockville Country Club at a luncheon held by Brockville’s two Rotary Clubs and the Brockville and District Chamber of Commerce.

Her tenure has yielded reports into inappropriate spending leading to some of the largest political scandals of recent years, but Fraser insisted her mandate is not to remain highly visible.

“Our mission in life is not to get a lot of headlines in newspapers, nor to go on a witch-hunt,” she said.

Fraser was largely complimentary of the governments she has seen while in her office, including the vast bureaucracy entrusted with enacting policies that can rapidly shift direction, especially in a succession of minority governments.

“People really do work very hard to implement the decisions,” she said.

Sometimes, however, civil servants do things that raise an auditor’s eyebrows.

When asked to recall the most “interesting” expenses she has come across, Fraser cited the “horror stories” of $400 lunches and the case of one manager in a small agency who had not spent all its money by the end of the fiscal year.

“He divided it up amongst his employees,” said Fraser, to much laughter.

On the question of spending, however, Fraser said another common misconception involves complaints that items are promised in the federal budget, but take months to become a reality.

In fact, that’s how government is supposed to work, she said, noting that budgets are done in the winter while the fiscal year only starts April 1. In the meantime, the measures have to be designed, then approved by cabinet.

“The budget is merely a statement of intent.”

Fraser, whose department functions on an annual budget of $85 to $90 million and employs 630 people, will leave her job in 2011, when her 10-year, non-renewable term expires.

While audit reports do contain plenty of criticism of government activity, Fraser said her job really is to maintain Canadians’ confidence in their government by ensuring it acknowledges mistakes and inefficiencies and corrects them appropriately.

“Ultimately, I believe we have a constructive role to play,” she said.