If you want to get approval on the best terms when you buy a car, it's important to understand the credit guide of the car lender before applying for credit... especially if you are bankrupt.
This will save you time and frustration - but more importantly, it will help you avoid credit inquiries and may lower your FICO credit score by up to 12 points per query.
The first step in making a lease or purchase decision is to determine the credit criteria of the lender.
First, ask if they are providing loans to bankrupts. If so, what conditions?
that's right. You must file for bankruptcy in advance. Don't hide it. We must face the fact that some dealers will not cooperate with those who have filed for bankruptcy. So our job is to find those who do it.
Some lenders will only be rented to bankrupt people. Others will only provide purchase financing. However, others will only use a mixture of the two to lend - which is especially common in Texas.
Ask the dealer's financial controller to guide you through the structure that the manufacturer likes.
Here's a quick tip: If your bankruptcy doesn't appear on the credit report provided by your lender - then, in the eyes of the lender, you are not in bankruptcy.
The only credit I am considering using is:
- Preferred: exclusive credit [car manufacturer]
- Second choice: Bank [not a financial company]
- Third choice: Credit union
99% of the cars I rented over the years are self-provided lenders. Only one is leased by a bank.
The deal came from my conversation with Amy, the financial manager of the local Land Rover dealer in Indianapolis. I told her that I was open to her financing advice, but I prefer to provide funding through car manufacturers.
I told her my current FICO score. She immediately said that with my score, she can do better through local banks. I signed a letter of credit application and told her to do it.
The next day, I signed a lease agreement with the local bank. Keeping her advice open literally, I saved hundreds of dollars a month for this car.
So be flexible... but be careful. It seems that most car dealers refer to all sources of funding as banks. In fact, some are banks, some are credit cooperatives, and most are secondary financial companies.
Here are some of the most commonly used secondary auto finance companies:
1. HSBC Automotive
Capital one
3. AmeriCredit
4. WFS Finance
You want to pass the secondary financial company - unless you have exhausted all other options. Subprime lenders should be your last resort.
Credit unions are only used when reporting to all three national credit reporting agencies. How do you know if a credit union reports to all three credit reporting agencies?
Very simple - you ask. If they report, please ask the branch manager of the credit union. After you have obtained the loan, check all three credit reports and make sure that each credit report shows its trading line.
The three worst luxury lenders that are leased or purchased after bankruptcy are:
BMW
2. Mercedes
Porsche
The three worst mainstream exclusive credits are:
Honda
2. Kia / Subaru
Toyota
What makes these the worst?
Once these lenders find that you have filed for bankruptcy, they are unlikely to work with you. However, if they are willing to work with you, they will want you to have at least a few years after discharge and get a perfect reputation during this period.
Since I tell you how bad the six lenders above are - sometimes they might give you a good deal. For example, if one of the above happens to be the largest dealer in your area, they may offer special offers that small dealers cannot provide.
Of course, things are always changing with the attention of auto lenders. They change their credit guidelines as they wish to achieve their financial goals. Therefore, it is always a good idea to at least study these dealers - just don't let your hopes get too high.
Ok, so you have completed your research and narrowed your choice to one or two car manufacturers.
The second step in making a rental or purchase decision is to purchase your FICO credit score.
It's important to get the latest score when talking to a car dealer [like me, like Amy]. It makes you responsible.
When you enter a dealer with a FICO score, the dealer will know that you know the consumer better and cannot be used. Just know that the FICO credit score used by car dealers is a little different from what we think of as a consumer. The score reviewed by the dealer is called the FICO automotive industry option score. Good news... If you pay all previous car loans as agreed, these FICO scores may be higher than your normal FICO score.
Some car dealers tell me if your FICO score is higher than the score of the dealer review - they may even use your score to get a better deal.
You can purchase your score from myFICO.com.
The third step is to interview the remaining car dealers at the defect level.
First ask them these questions:
- Which credit reporting agency do you use to make a loan decision?
- What is the minimum credit rating requirement for approval?
- What credit score is required to get the best interest rate?
- Is your lender more willing to provide lease or purchase financing to the bankrupt debtor?
- What rewards can I rent or buy now?
At this point, it is important to keep the lease or purchase open. Evaluate your choices and incentives. Remember that you are buying financing. In other words, the most important factor is that the lender is willing to lend you money.
I personally view rental and purchase decisions in three ways:
1. If you have recently recovered from bankruptcy, the only important thing is whether you can get approval at a rate you can afford by lending to all three national credit reporting agencies. Therefore, you should only consider bankruptcy-friendly lenders.
2. Once your credit score begins to increase, you can begin to choose a car based on the credit reporting agency that the lender uses to determine if you qualify. Obviously, you should choose to use your highest FICO credit score to make a loan decision.
3. When your score is high enough... or two years after your bankruptcy... or your bankruptcy has not appeared on the credit report used by the lender, then you can choose almost any The car you like. But make sure you are still researching and using your credit score to help you compare interest rates, terms and incentives.
Orignal From: Is it better to buy or rent a car after bankruptcy?
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