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How To Buy A Car
With No Credit Or Bad Credit
IT’S
ALL ABOUT THE BENJAMINS
Ideally
when you buy a car, you want to pay cash
to avoid having payment that you can’t
afford. Unfortunately for many of us
coming up with enough cash to buy a car
simply isn’t possible. When you have
credit issues, this can be a huge
problem to car ownership. But it
doesn’t have to be.
The
obvious solution to this problem is to
save up your pennies and buy a car once
you car afford it. But what if you
can’t wait for a few years to save up
that money? There are still some
solutions!
You
should first and foremost try to apply
for a car loan yourself. If you go to a
car lot that does self-financing, they
will ask you to apply for credit with
them. You will have to fill out a
credit application, but don’t stress out
about it. They specialize in getting
people with less than perfect credit
financing for cars.
The
downside is that you will pay a high
interest rate as we’ve talked about
before. Plus, you are limited to just
the cars that they have on their lot.
The upside is that you will be on your
way toward getting credit established or
re-established.
You may
also want to consider finding your own
financing. There are plenty of places
that you can go to that cater to people
with little credit, no credit, and bad
credit who are willing to loan you money
to buy a car.
The
good news is that buying a car isn’t a
huge expenditure like buying a house
is. More companies are willing to lend
you money for transportation. But you
will probably have to pay more in
interest. The trade off is necessary
when you have no credit or bad credit.
Your
best bet is to apply online to a company
that specializes in credit problem
loans.
Over the last 10 years the amount of
money being loaned to people with poor
credit has tripled.
Even with bad credit, you can probably
still get approved for a car loan.
Applying online will save time and
money. There are companies on the
internet that will offer you auto loan
quotes from more than one lender in
order to ensure that you get the most
competitive quote you can qualify for.
If you are looking for an auto loan
online, remember to use primarily
vehicle loan companies that will help
you compare quotes and offers from more
than one lender. This will help you get
the lowest interest rate and best terms
possible. Also, make sure to fill out
your application as accurately as
possible in order for the lender to give
you the most realistic offer they can.
Many online car loan companies have
programs to finance people with bad
credit history. Whether you have a
recent bankruptcy, foreclosure or
another adverse credit blemish, you may
still be able to qualify for a car
loan. Having poor credit nowadays will
not keep you from getting financing.
Even if you have no credit, you may
still be able to get approved.
Do your homework with these companies
and ask questions. They benefit by
lending you money and you can benefit by
being able to purchase a car! Be honest
with them when communicating and you
will end up in the best situation they
can possibly offer you.
Poor
credit auto loans make it possible for
people with bad credit to buy a car.
Poor credit auto loan lenders expect to
be approached by people who have poor
credit so they don't set strict
requirements for their loans.
With a
poor credit auto loan, people with bad
credit can obtain a car without all the
hassle of worrying about their credit or
being repeatedly turned down. Despite
some benefits, though, there are also
disadvantages to getting a poor credit
auto loan. Both should be considered
before any driver tries for poor credit
auto loans.
As a
plus for poor credit auto loans, they
are fairly easy to obtain. Poor credit
auto loan lenders tend to require that
you have steady employment and a decent
debt-to-income ratio.
Although they will usually look at your
credit, it isn't a major factor in the
loan approval process. It does, however,
dictate your interest rate as we’ve
already told you. The poor credit auto
loan lender will look at your credit
history to determine how great of a risk
you are. The worse off your credit is,
the higher your interest will most
likely be for poor credit auto loans.
Consider trying your own bank for poor
credit auto loans. Since they know you
better than other lenders, they may be
lenient with you.
We have
a note here on the time frame of your
loan. It’s generally a good idea to
only take out a loan for no more than 48
months (4 years). Most people choose
the 60 month (5 year) option because
their payments will be lower.
However, vehicle ownership entails more
than just the car payment. You need to
add in insurance, gas, repairs, etc.
when considering what you can afford in
a car. You don’t want to spend the next
5 or 6 years paying off a car that will
depreciate in value the moment you drive
it. You run the risk of ending up in a
situation where you’ll owe more than
what the car is worth.
Another solution to car financing is to
find a co-signer to apply for the loan
with you. Most often, this would be a
parent or spouse, but anyone can co-sign
for you. Of course, you will want them
to have good credit to improve your
chances of securing the loan.
A co-signer will sign the credit
application basically saying that they
are willing to back you in the purchase
of this car. They are agreeing that if,
for some reason, you don’t make the
payments, they will be responsible for
re-payment of the loan.
This is a big deal for your co-signer
because they are putting their credit
score on the line for you. It’s
important for you to realize that if you
don’t make your payments, you are not
only jeopardizing your credit, but
theirs as well. Plus, if you don’t make
the payments, the car will be
repossessed and future liens could be
put on their income.
When you ask someone to co-sign for you,
be very conscientious about what you are
asking them to do. Some people just
aren’t willing to take the risk, so
don’t be offended if they say no.
Since their name will be on the loan, it
will appear on their credit report as an
additional item. This could affect
their borrowing ability in the future
since most lending companies look
closely at debt-to-income ratio before
they give out money. Carrying too much
debt including your car loan could cause
them to be turned down when applying for
credit.
When you apply with a co-signer, your
name and their name will be on the
loan. This means the loan is really in
the names of two parties at once, but it
does benefit you by establishing credit
in your name, as it is also in your
name.
Having a co-signer is a risky and
delicate matter for many people as it is
a gamble for them to trust you
completely to fulfill the loan
commitment. However, if you are serious
about establishing your credit or
rebuilding your credit, there’s no
reason why it has to be such a risk.
One
warning about co-sign loans is there are
some real unscrupulous car dealers out
there, who lie to you and say you are
getting a co-sign loan. Then they trick
the cosigner into signing the wrong line
of the loan papers and the loan ends up
in their name alone, instead of both of
your names together. This is known as a
Straw Purchase.
They
pull this scam because they know you
would never get approved, and they just
want to sell the car, and it happens ALL
the time. The law requires both people
to be present and sign at the same time,
and you need to make sure the correct
names go on the correct lines of the
application, identifying you as the
borrower, and the co-signer as the
co-signer.
There
is one other option you may want to look
at when it comes to buying a car. You
can try and take over payments from an
individual seller who is no longer able
to afford their car.
A few years ago an industry emerged that
served the needs of individuals who have
had past credit problems, but can now
afford monthly car payments. These
companies help people with past credit
problems. They will find vehicle owners
who can no longer afford their monthly
payments and match them up with people
who can afford to make car payments but
have trouble getting financing.
These owners would gladly allow someone
to take over payments on their vehicle
in order to save their credit, with no
credit check. These companies charge
the buyer between $1,500.00 and
$3,000.00 for their services just to put
these two parties together, without
doing a credit check. However, you CAN
do this on your own with a little
know-how.
Start by looking in the local newspaper
for newer model cars with a higher
asking price – over $9,000 is a good
starting point. Most people will not
own a newer model car outright and be
asking a higher price, so chances are
good that they still have a lien on the
car.
The easiest owner to work with is one
who is considering letting his car go
back to the lien holder for
repossession. You can find these owners
in your local newspaper or local car
magazine.
Best results are obtained in aging these
issues for two or three weeks before
calling. The owners will always become
more flexible the longer they try to
sell their vehicles if you focus on ads
proclaiming "Take over payments" or
"Down and take over payments". These are
individuals who realize that they are in
a negative equity situation and can't
sell their vehicle outright.
Even though their ad might request a
down payment, they will almost always
waive it. Most lenders who recommend to
the seller that he finds someone to take
over his payments will still hold this
individual liable for the payments if
there is a default.
Many of these lenders will request an
application to be submitted from the
assignee. If the seller has been making
his payments on time, the lien holder
may want to keep him in this vehicle.
They will want the buyer to have a
stronger credit rating than the seller,
before they will give their approval at
all.
Traditionally, the companies mentioned
earlier do not even contact or go
through the lien holder. The seller
still remains liable for the payments,
whether or not an application is
submitted. This arrangement allows the
owner to monitor his own payments so he
is actually more secure, as is the lien
holder.
The companies contend that under the
Uniform Commercial Code, Article 9.
Section 311, the owner of a vehicle has
the right to assign his property
regardless of provisions in the original
purchase contract by the lien holder
(which might claim such a transaction to
be in default).
The lender will always hold the original
owner primarily liable for payments.
Even though the payments are submitted
by the buyer, the lender will still
acknowledge the seller as the driver and
owner of the vehicle. This is because
the assignment agreement is between the
assignee/buyer and assignor/owner, and
not between the assignee/buyer and the
lender.
When you have identified several cars
that you have an interest in, you are
ready to make the initial contact with
the owner. Throughout this conversation
your goal will be to find out if the
owner is in a negative equity position
(or upside down) on their vehicle. Best
results are obtained if the owner is
just asking for what he owes on the
car. Be sure to project a professional
telephone personality.
You will typically have to make twenty
or more phone calls to find a vehicle
owner willing to assign his vehicle. One
very important thing to remember, be
persistent… keep calling. There are
thousands of desperate people needing to
get out of their vehicles in every area
of the country. It's also a good idea to
call the owner back a week or so after
your first contact. The longer he sees
that he can't sell his vehicle, the more
eager he will be to work with you.
The owner will normally want the car out
of his name. His credit is riding on
your making the payments. You will need
to show him that he is secure and
protected in dealing with you. When
meeting face to face, it is extremely
important that you present yourself in a
professional manner. Treat this meeting
as you would a job interview. This
person is essentially giving his
approval of you to assume his
investment.
Once you have seen the car and feel that
it is what you want, you are ready to
make a proposal. Explain to the owner
that you earn more than enough income to
afford this car payment, but you cannot
get financing from a bank because of
some credit problems that you had in the
past or because you don’t have enough
credit.
Tell the owner strengths about yourself
that show your stability and
credibility. That should include:
·
The length of time you’ve resided in
your house or in the area
·
The length of your current employment
·
Your job description or job title
·
Home ownership if applicable
·
The reason for your credit problem
·
If you paid back past creditors
·
What your income level is with bonuses,
future pay raises or possibly a job
promotion
Describe what makes you a good risk. Let
the owner know that you are building his
equity in this vehicle, until you pay it
off. The more payments you make, the
less will be owed on it.
Give him a copy of your credit report,
personal references and a copy of your
driver's license. Allow him to verify
your employment and that you make your
rent or mortgage payments on time.
Show them a copy of the suggested
Assignment Agreement which we will give
to you at the end of the book. You want
to make them feel as comfortable as
possible when dealing with you and
having an agreement such as this could
give them that security. This agreement
would be a legal and binding contract
with the two of you, so having it ready
is a huge advantage for both of you.
Once you have satisfied all the owner's
questions, and have subdued all fears,
you need to get a commitment. If the
owner will not commit and wants to think
about it, find out when the due date is
for the next payment. The closer he gets
to the next payment, the more flexible
he will become.
If the owner remains undecided, you may
try offering him concessions. You could
offer to make a whole payment or two
payments in advance. He may request some
kind of security deposit, which would be
held for damages. At this point, be
creative and willing to empathize with
the owner's concerns.
There, of course, are some questions
that the seller is likely to ask.
Having the answers ready will reassure
the seller.
1.
What if you wreck the car?
The insurance company will issue a check
with both your name and the lien
holder's name on it. This check will be
applied towards repairing the vehicle.
2.
What if you get a ticket while driving
this car?
Any points are charged to my individual
driver's license, not to the car.
3.
What if you hit someone?
The Suggested Assignment Contract states
that I am driving the vehicle, and am
responsible for all liabilities. Your
liability is limited because I will
carry 100/300/50 liability coverage or
whatever your Purchase Agreement with
the lien holder requires, which will
protect you. As the owner of this car,
you are put in the same position as an
independent leasing company or car
rental agency. You own the car, but you
are not driving it.
4.
How do I know that you'll make these
payments?
You'll receive a cashier's check or
money order made out to the lien holder
at least ten days before your payment
due date. If I'm late, you have the
legal right to take the vehicle back.
Believe me I don't want to lose it. The
agreement basically states that I will
make the remaining payments or pay it
off early. As long as I do this, you are
under contract to sign over the title to
me. Nothing hidden, no surprises, it's
fair and legally binding.
5.
What about the license plates?
You are still the legal owner, just as
leasing companies and rental agencies
are. As such, the license plates on the
car will have to be yours. However, I
am the one who is primarily liable for
what happens while it's in my
possession.
6.
What if you move and cannot be located?
I am giving you a list of personal
references, my driver's license number
and my social security number. Any
repossession firm could track the car in
a matter of hours. I can understand your
concern, but let me assure you that I
have no intention of going to jail for
car theft.
As far as insurance is concerned, keep
in mind that regulations differ widely
from state to state. The simplest and
most widely accepted structure for this
arrangement is to list the owner as
primary insured and you as additional
insured. The loss payee will always be
the lien holder.
The policy address can be that of either
the buyer or seller. Insurance can
remain on the existing owner's policy by
just adding the buyer as an additional
insured. The owner may prefer to set up
a new policy so that the buyer's driving
record will not affect the rates that he
pays for his other vehicles.
Recommended liability limits should be
$100,000/$300,000/$50,000: $100,000
maximum limit of liability per person,
per accident; $300,000 maximum limit of
liability for all persons per accident;
$50,000 maximum liability limit for
property damage, per accident. These
higher liability limits normally will
account for a minor increase in rates.
If the seller has a poor driving record,
that would make your insurance premiums
prohibitive; however, you do have some
options. Some insurance companies will
allow you to list the buyer as Primary
Insured and the seller as Non-Driving
additional insured.
They will treat the policy just like a
normal lease. In the place of the
leasing company, they will insert the
name of the seller. The Loss Payee
remains the bank or lien holder. Let the
insurance company know that you have the
Power of Attorney for this vehicle.
If this is the direction that is most
economical for you, then you may want to
find a creative, knowledgeable agent
(this is not always easy). Many agents
may reject your policy without fully
understanding the relationship or
legality of it.
It is generally recommended that you
talk directly to the underwriters if the
agent does not seem knowledgeable. If
you do set up your policy in this
manner, then you may want to contact the
Department of Motor Vehicles in order to
see if a lease tag can be issued in your
name without changing the title.
When registering the vehicle, most
states again have different policies
regarding an agreement such as this.
The most common is to register the
vehicle in the seller's name in care of
buyer's name and address.
You should keep Limited Power of
Attorney with registration. In most
states, limited power of attorney along
with the assignment contract is
sufficient to register a vehicle.
Registration and license plates are to
remain in seller's name, (normally leave
the same license plate on the vehicle).
This may seem like an impossible
arrangement and one that no one would
agree to, but think again. When a
person has a large car payment and they
are in danger of having the car
repossessed, they want to avoid having
such a large hit on their credit report.
Many people will explore whatever
options they have to avoid repossession
and the blemish it will leave on their
credit. If you can show them that you
are serious about owning your own car
and that you can easily make the
payments, this is a win-win situation
for both of you!
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