Getting Approved With Bad Credit

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Everyone I know hates the word “No.”  Have you ever been told “No” by a bank, credit card company, car dealership, or even a landlord?  It’s one of the worst feelings, even worse than the stress you probably caused yourself just before applying for that loan in the first place.  This book was written to give you the confidence to know you will be hearing “Yes” in the very near future.

Let’s face it, and by now you have realized it, if Cash is King, Credit is the Ace.  To succeed in life, at some point you will need the credit to do so. The days of just buying everything in cash have come and gone due to inflation.  Take these numbers into consideration:

Toyota Land Cruiser

*1980 price: $8,288

* 2014 price: $80,530

*1980-2014 price difference: $72,242

Chevrolet Suburban

*1980 price: $8,388

*2014 price: $47,295

*1980-2014 price difference: $38,907

Ford F-Series

* 1980 price: $6,090

*2014 price: $26,220

* 1980-2014 price difference: $20,130

Honda Accord

* 1980 price: $6,349

* 2014 price: $22,775

*1980-2014 price difference: $16,426

Those numbers are based of vehicle prices in 2014!!! At the end of 2016, the average car price was almost $25,500.  And the cost of cars has continued to climb higher and higher over the last few years. The car market has seen an almost 300% increase in price over the last 40 years.

You don’t even want to think of the inflation in the housing market. In 1980 a new house cost $68,714.00, within 10 years the new cost of homes had almost double to $120,00.00!!! At the beginning of 2018, the median cost of a new home in America is approaching $330,000.  That means the average cost of homes has more than quadrupled!

What about household incomes? How does the inflation compare? In 1980 the average income per year was $19,170.00, in that same 10 year span the housing market doubled the average household income increased to $27,210.00.  The average as of the beginning of 2018 was approaching $59,000. Minimum wage in 1980 was $3.10, minimum wage in 2016 was $7.25. <Shaking my Head> When you can make more money each month by staying home and receiving government benefits, than you can working 40 hours a week at minimum wage….no wonder we have a problem.  Still think you won’t need a loan at some point in your life now?

That’s just the cost of inflation, do you know how much your loan will cost you in interest when purchasing a new car?  A credit score over 650 should get a single digit interest rate, if you are under that 650 score you can expect an interest rate anywhere from 10%-25%.  The car you are looking at still cost the same, but the amount of money that banks make off higher interest rates is astronomical. Take this into consideration….

New Toyota Camry

Estimate Cost: $23,000

Person A: 

  • Credit Score: 725
  • Interest Rate: 2.99%
  • Est. Monthly Payment: $375
  • Est. Total Interest Paid: $1500

         

Person B:

  • Credit Score: 599
  • Interest Rate: 14.99%
  • Est. Monthly Payment: $525
  • Est. Total Interest Paid: $11,500

In essence, bad credit will cost you almost $10,000 more over the course of the loan to purchase the exact same car. Ever wonder why people with good credit always seem to have more money than the person with subpar credit?

Let’s examine new car ads for a moment. Ever seen the ad for a new car for an extremely low monthly payment that sounds too good to be true?  Generally it is! Have you ever truly read the fine print? Most fine print gives you an exact stock #, which is usually the very base model vehicle.  It will also state “With Approved Credit” or WAC, which means you have to have a really good credit score to get approved for this specific deal. Then comes the money down disclaimer.  Generally these promotions require anywhere between 10%-20% down, on a $20,000 car that can be anywhere from $2,000-$4,000 down. Ever noticed the +T.T.L.? That means plus taxes, title, licensing and fees.  T.T.L. can be another couple thousand dollars depending on the price of the vehicle. Well Yeah, if I have $5,000 down….I would expect a low monthly payment!!!! So when you see an advertisement for a vehicle with a really low down payment, remember….that’s only the down payment and they will generally need the T.T.L. in addition to complete the loan.  Don’t get fooled by advertising lingo. As Low As, No More Than, and Up To are all approved and legal statements they can make and advertise to stay within the laws of advertising. A dealership cannot quote exact payments without all the facts.

So what is the best way to get approved with the best possible interest rates even with bad credit?  DO YOUR RESEARCH! DO NOT SETTLE! If you are in need of a newer vehicle and your first stop is the Buy Here Pay Here dealership…..you are doing it wrong.  Yes, you should definitely try to obtain a loan on your own first. Start with your bank.

Many Credit Unions and Banks will give you a loan based off your loyalty and previous business with that particular institution. If you hear the word “No,” don’t get discouraged but definitely beware.  If you are approved, be sure to know what guidelines are set forth to finalize such loan. There may be year, mileage, or loan to value disclaimers. Loan to Value means that the bank will only loan a certain percentage of what the book value of a vehicle may be.  Example, bank will give you a 95% ltv loan. That means if the vehicle has a book value of $15,000, and they bank gives a loan of 95% LTV, you can only get a loan on said vehicle for $14,250. Keep in mind, that excludes T.T.L. So if you have been declined by your local bank, now you will depend on the dealership to obtain a loan for you.  These loans may not be the most desireable. When you know your buying power, you take away the dealership’s advantage.

The best way to get a good loan is to give the bank equity and less risk.  The less risk a bank has to take in loaning you money, the less they may charge to obtain a loan.  In essence, if you want to buy a vehicle valued at $15,000 but only need a loan for $10,000, you will receive a better deal on your loan.  The smartest way to buy a vehicle is to have the 10%-20% down and be able to cover your T.T.L. That should and will create equity in the vehicle you are purchasing.  Equity in a vehicle or a home is money in the bank!

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