If you desire to obtain authorized at the very best feasible terms when acquiring a car, it’s essential you understand a car loan provider’s credit rating standards prior to you look for credit rating…particularly if you’re insolvent.
It will certainly conserve you time as well as stress–however even more significantly, it will certainly aid you stay clear of credit rating questions that might reduce your FICO credit report up to 12 factors per questions.
Step 1 in making a lease or buy choice is to identify a loan provider’s credit rating standards.
You beginning by asking if they provide to individuals with a personal bankruptcy. If so, on what terms?
That’s right. You have to be in advance that you have actually submitted personal bankruptcy. Don’t conceal it. We have to encounter the reality that some suppliers simply will not deal with individuals that’ve filed bankruptcy. So our job is to find the ones that do.
Some lenders will only lease to people with a bankruptcy. Others will only offer purchase financing. Yet still others will only lend using a hybrid of the two–this is especially common in Texas.
Ask the finance director at the dealership to direct you as to what structure the manufacturer prefers.
And here’s a quick tip for you: if your bankruptcy doesn’t appear on the credit report your lender pulls–then, in the eyes of the lender, you’re not bankrupt.
The only lenders I would consider using are:
– First choice: Captive lenders (car manufacturers)
– Second choice: Banks (not finance companies)
– Third choice: Credit unions
Ninety-nine percent of the cars I’ve leased over the years have been with captive lenders. Just one was leased by a bank.
That particular deal came from a conversation I had with Amy, the finance manager at the local Land Rover dealership here in Indianapolis. I told her I was open to her financing recommendations, but I preferred financing through the car manufacturer.
I told her my current FICO scores. She immediately said that with my scores she could do better through a local bank. I signed a credit application and told her to go for it.
The next day I signed a lease agreement with that local bank. Being open to her advice literally saved me hundreds of dollars a month on that car.
So be flexible…but be careful. It seems most car dealers call all of their funding sources banks. When in reality some are banks, some are credit unions, and most are sub-prime finance companies.
Here is a list of some of the most commonly used sub-prime auto finance companies:
1. HSBC Automotive
2. Capital One
4. WFS Financial
You want to pass on the sub-prime finance companies–unless you have exhausted all other options. Sub-prime lenders should be your last resort.
And only use credit unions if they report to all three national credit reporting agencies. How do you find out if a credit union reports to all three credit reporting agencies?
Simple–you ask. Ask the branch manager at the credit union if they report. And after you get the loan, check all three of your credit reports and make sure their trade line appears on each one.
The three worst luxury captive lenders to lease or purchase from after bankruptcy are:
The three worst mainstream captive lenders are:
What makes these the worst?
Once these lenders see that you have actually submitted personal bankruptcy, they are less likely to work with you. However, if they are willing to work with you, they’ll want you to be at least several years from discharge and have perfect credit during that time.
Now that I told you how bad the above six lending institutions are–there are times where they may offer you good deals. For example, if one of the above happens to be the biggest dealer in your area, they may be able to offer you special deals that a smaller dealer can’t.
Of course, things change all the time with captive auto lenders. They change their credit guidelines on a whim to meet their own financial goals. So, it’s always a good idea to at least research these dealerships–just don’t get your hopes up too high.
OK, so you’ve done your research and narrowed down your choice to one or two car manufacturers.
Step 2 in making a lease or buy decision is to purchase your FICO credit scores.
It’s important you have your most recent scores when you talk to car dealers (just like I did with Amy). It puts you in charge.
When you enter a dealership with your FICO scores, the dealer will know you’re a more informed consumer and cannot be taken advantage of. Just know that the FICO credit scores auto dealers use are a little different than what we see as consumers. The scores the dealers review are called FICO Auto Industry Option Scores. The good news…these FICO scores may be higher than your normal FICO scores if you paid all previous auto loans as agreed.
Some car dealers have told me that if your FICO scores are higher than the scores the dealer reviews–they may even use your scores to get a better deal.
You can buy your scores from myFICO.com.
Step 3 is to interview the remaining car dealers on a deeper level.
Start by asking them these questions:
– Which credit reporting agency do you use to make a lending decision?
– What is your minimum credit score requirement to get approved?
– What credit score is needed to get the best interest rate?
– Do your lenders prefer offering lease or purchase financing to a bankrupt debtor?
– What incentives are there to lease or purchase right now?
At this point it’s important to remain open to either leasing or purchasing. Evaluate your options and incentives. Remember, you’re buying the financing. In other words, the most important factor is the willingness of the lender to loan you money.
I personally view the lease versus buy decision in three ways:
1. If you’re recently recovering from bankruptcy, the just thing that matters is if you can get approved at an interest rate you can afford through a lender that reports to all three national credit reporting agencies. So you should only consider lenders that are personal bankruptcy friendly.
2. Once your credit scores begin to increase, you can start selecting cars based on which credit reporting agency the lender uses to determine if you qualify. Obviously, you should choose the lender who uses your highest FICO credit score to make a lending decision.
3. When your scores are high enough…or two years have passed after your personal bankruptcy…or your bankruptcy does not show up on the credit score record the loan provider uses, after that you can choose almost any car you like. But make sure you still do your research and use your credit ratings to help you compare interest rates, terms as well as motivations.