Car Loans for Bad Credit – What Options Exist

July 22nd, 2010

The credit scores of millions more Americans are sinking to new lows.

Data published by FICO show that 25.5% of consumers — nearly 43.4 million people — now have a credit score of 599 or below, marking them as poor risks for lenders. It’s unlikely they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use.  Because consumers relied so heavily on debt to fuel their spending in recent years, their restricted access to credit is one reason for the slow economic recovery. This includes credit for large ticket items like a mortgage, car loan or refinance car loan.

FICO’s latest analysis is based on consumer credit reports as of April. Its findings represent an increase of about 2.4 million people in the lowest credit score categories in the past two years. Before the Great Recession, scores on FICO’s 300-to-850 scale weren’t as volatile. Historically, just 15% of the 170 million consumers with active credit accounts, or 25.5 million people, fell below 599, according to data posted on Myfico.com.

More are likely to join their ranks. It can take several months before payment missteps actually drive down a credit score. The Labor Department says about 26 million people are out of work or underemployed, and millions more face foreclosure, which alone can chop 150 points off an individual’s score. Once the damage is done, it could be years before this group can restore their scores, even if they had strong credit histories in the past.

On the positive side, the number of consumers who have a top score of 800 or above has increased in recent years. At least in part, this reflects that more individuals have cut spending and paid down debt in response to the recession. Their ranks now stand at 17.9%, which is notably above the historical average of 13%, though down from 18.7% in April 2008 before the market meltdown.

There’s also been a notable shift in the important range of people with moderate credit, those with scores between 650 and 699. The new data shows that this group comprised 11.9% of scores. This is down only marginally from 12% in 2008, but reflects a drop of roughly 5.3 million people from its historical average of 15%.

If you are in the market for a new or used car or in the market to lower your existing car loan payments, go online to OpenRoad Lending. There you can find informative information about car financing and refinancing.

Consumers are always asking how they can improve on their credit scores and how do those with good scores keep them that way is such a turbulent economy.Yahoo.com published this great information about what those with good credit do right to keep it that way. There are really only five distinct categories that effect your overall credit rating. Below goes into the details of each. It is worth sharing:

Here are the two things that account for two-thirds of your credit score:

Your Payment History: Having a long history of making payments on time on all types of credit accounts including car loans is one of the most important items lenders consider before approving you for a loan.

Owed versus Available Credit: This compares the amount you owe versus the total amount of credit available. Your credit score can be lower when you use more than 50 percent of your available credit for each account. That’s because when you are close to maxing out on all of your credit limits, lenders see you as a higher risk and more likely to make late payments in the near future.

There are three other factors that account for about a third of your credit score:

Length of Credit History: In general, a credit report containing a list of accounts opened for at least ten years or more will help your credit score. The score considers your oldest active account and the average age of all accounts.

New Credit: Opening several new credit accounts in a short period of time can lower your credit score. Also multiple credit report inquiries may be seen as risky credit behavior on the near horizon, and can therefore lower your credit score. But “soft credit inquiries”, which include requests made by you, an employer or by a lender who “pre-screens” or “pre-approves”, have little or no impact. Also, multiple inquiries by automobile and mortgage lenders over a 30-day period count as just one inquiry, so shopping the lenders to get the best car loan rate should not hurt your score.

Type of Credit You Use: Your mix of credit cards, retail accounts, finance company loans and mortgage loans is considered.

Your credit score ignores your age, salary and occupation. It also does not take into account financial gifts, support you receive, or your financial assets. For this reason, credit scores are less important for borrowers who seek loans that take these factors into account.

If you want to take action to increase your credit score, then take a look at folks with the highest credit scores. About 13 percent of folks have credit scores of 800 or higher. If you look at their credit profile, they have:

four to six credit card accounts
no late payments in the past seven years
at least one installment loan — a mortgage or a car loan — with excellent payment history
an average of 10 years credit history per account and a few accounts with 20 years of good history
a low number of credit inquiries (fewer than three in the past six months)
no bankruptcies, foreclosures, charge-offs or collections
debt levels at no more than 35 percent of their overall credit limits per account
The Bottom Line: Having a long history of making all payments on time, using the right mix of credit, and not maxing out on available credit are the keys to a having a great credit score.

And, to help with future financial happenstances, it could be helpful to do some research about accounting online.

If you are looking to for a refinance car loan to lower your existing payments or a car loan for that new or used car purchase you are about to make, look no further than OpenRoad Lending. You can find an easy application and have a loan decision back within minutes of applying.

Saving cash today is easier than it was in the past. Rates of interest are low and you can reduce your monthly payments by refinancing your car or truck. Auto refinancing will help you have a better monthly interest rate, improve the overall terms in which you repay your loan, and at very low or minimal fees. Most auto refinance loans are available for you to move the loan entirely to a different lender. Nevertheless the savings accumulate quickly. You should use the additional money to repay other debt or make a long awaited purchase. You will be surprised at how a small interest reduction will save you over the life of the loan.

In case you are paying on your vehicle loan a rate of interest which is absurd by today’s standards, automobile loan refinancing could be the road to suit your needs. Even with a bad credit score, you can get a better rate mainly because rates are lower today compared to where they were just recently, for poor credit. A good general guideline will be the 1% rule. With rates at the level they are now you should be able to save at least 1% from the rate you are paying now. Some customer are cutting their current auto loan rates in half. Even 1% may well not appear to be a lot, but over the long haul, it could make thousands of dollars difference.

The original loan must be with a different lender compared to the one you might be working together with for an auto refinance. Most lenders require you to have a mileage lower than 80,000 on the car or truck you are refinancing. Most all lenders will not do a car refinance loan on commercial vehicles, motorcycles, or business use cars. The auto refinance terms on the car are based on the number of car loan payments you have remaining to pay and the overall valuation on the vehicle you are refinancing. Most auto refinance companies will require a loan balance of at least $10,000 and usually will not do a refinance loan for more than $50,000.

The whole process of auto loan refinancing resembles that of a refinance you might do on your house. Do your research and find the lender that best suits you. Most companies are now offering refinancing options online and that is the easiest method to complete. No longer do you have to go into a bank or local credit union. Some companies allow you to complete the entire auto refinance process online in the comfort of your own home or place of work. Find the best deal. You might look for better rates of interest, low or no fees, and other benefits. Lenders may also offer gap coverage, which can be additional protection on your motor insurance. In just a few clicks you could be savings thousands of dollars on your car loan. Don’t you think you owe it to yourself to give it a try?