3 Things to Understand When Purchasing a Car on Bad Credit

If you want to buy a car but you have a bad credit, expect the dealer to require you a downpayment. But, if you know how, you can purchase a car without shelling out any money. You just need to understand a few things:

1.) The reasons why a down payment is required
The usual reason why a downpayment is needed is that it brings in additional profit to the sale. Aside from this, it is also needed in order to bring down the entire amount that will be financed for the approval of the lender. If you know the real reason why your lender is seeking for a downpayment from you, then you can work your way to lowering the amount or minimizing it completely.

2.) Your financing options are not limited
Even if you have bad credit, you are not limited to seek your financing from a car dealership. Many people think this way that is why they do not dare try seeking for bank loans. Moreover, settling for car dealership financing is the main cause of unnecessary expense because of the unreasonable finance charges. To avoid this, try traditional loans or other means to obtain cash for your car. You will never know if a bank or other lender will reject or approve you. You might as well try because you may be in for a surprise.

3.) Car dealerships increase their car prices
Everyone knows this and so must you. Not only do they mark up the prices of the car they are selling. They also do this for the interest rate they charge with it. If you seek financing from them, they will give your application to a lender. Then, the lender will give you an offer at a certain rate. Since you have a bad credit, the dealership will increase the interest rate by an average of 3%. The additional rate goes to the dealership as profit. This is not yet accounting for the revenue they already get from the sale of the car without the interest.

Bottom line, you can buy the car that you want without the need to give a downpayment or even despite of your credit standing. You only have to seek for other loan alternatives aside from car dealership financing.

Is Debt Consolidation Effective in Debt Settlement?

Debt consolidation is a process of settling your debt. Although very popular, most people ask if it is an effective method even for people who are already swimming in debt.

The straightforward answer to this is NO. Usually, opting for debt consolidation does not decrease the total amount of debt you owe. What it simply does is to combine all your debts and allow you a way to make monthly payments that will settle a portion of all your dues. Your payment goes to an agent or debt consolidator who will normally charge a significant fee for the service they are providing of getting your monthly payments and making sure that every creditor is paid on time with the sufficient amount.

In the past years, there have been plenty of scams associated with debt consolidation that have taken away millions of dollars from individuals who paid their dues and later realized that their money never reached the creditors or were handed in late that is why penalties and high interest rates were charged. This led them to suffer a worse condition compared to where they started.

There are also loans for debt consolidation that are charged with high interest rates for those who do not have sufficient cash to settle their bills each month. This is an even worse option in many cases. The reason for this is that the loan will most unlikely cover all of your debts which means that you still owe a lot to your creditors and you have another loan to a new creditor. When you carefully analyze this, you have a higher total debt than the time you started with the consolidation.

Debt consolidation and loans may just lengthen and worsen your existing debt. Oftentimes, they do not get people out of their debt situation.

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Irrelevant Factors in a Credit Score Computation

There are many wrong notions about credit scores. There are people who believe that their area of residence and race affect their score. There are those who believe that several other factors do influence the credit rating that they obtain. This article presents what does not matter in the computation of your credit score.

About one in every six individuals think that their race and gender affect the credit rating that they are given, according to a study conducted by Visa that was released during the previous month. The results showed that many people have mistaken thoughts about their credit scores. Moreover, the results reveal that 42 percent of Americans do not check their scores regularly. But, these thoughts must be corrected and is worthy of understanding because the credit score literally affects your ability to obtain a car or home loan as well as a job, low interest credit card and even a life insurance.

Stacy Johnson, founder of Money Talks News shares some of the biggest misconceptions about credit scores. In the survey that Visa conducted, here are some of the top factors and the number of people who believe that these affect their credit ratings.

1.) Employment History 59.9%

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2.) Debt Interest Rates 58.7%
3.) Age 38.6%
4.) Assets or Savings 53.1%
5.) Nationality 21.6%
6.) Place of Residency 25.3%
7.) English Speaking Abilities or Fluency 21.6%
8.) Race 15.7%
9.) Gender 17.2%

However, none of these factors really have even the slightest impact on your credit score. It would be unethical more so illegal for Fair Isaac, the country’s most popular company that computes for your FICO or credit score, to account for these factors in their calculation.

This however does not mean that work history and income does not matter. In fact they do. They matter more to a landlord and a loan officer. But when it comes to your credit score computation, they are considered irrelevant.

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One of the things that is continually asked these days is “Should I refinance my home mortgage?”

Things are moving so quickly with the economy, that it is no wonder that you may be confused and not sure whether or not to get a mortgage refinance.

The recent downgrading of the US credit from AAA to AA+ was a big hit to the nation and many people are trying to work out whether or not that is going to have an effect on home mortgage interest rates.

Keep in mind, Fannie Mae and Freddie Mac are part of the Government so the downgrade affects the two largest mortgage holders in the nation.

Additionally, the FED has announced that rates are going to stay low for the next 2 years. When the FED says low, that means close to zero.

I’m going to talk about things to think about before refinancing, but before I do, I want to say that it may be a good idea to refinance if you have great credit, and the interest rate you lock in can drop your monthly payments by hundreds of dollars.

Three Factors to Consider Before Refinancing

Recently, the Fed announced that they are maintaining the low interest rates until the year 2013. This is good news for those with good credit standing and for those with some home equity left because these individuals and families still have a chance to refinance their mortgage with the lowest rates. However, even if low rates are available at the moment, this does not mean that it is always a good idea to refinance. Here are the reasons why:

First, since low rates will continue for a little while, refinancing should not be rushed. Individuals and families can still make use of the time to build a strong credit so that when the decision is made to finally refinance, the lowest rates are obtained.

Second, it is best to consider the fees that come with refinancing. With this, it is best to keep the loan long enough to be able to justify the charges. Find out about the fees that you might potentially pay; those that you will surely pay; and those that you may or may not pay. Familiarity with these charges is important before refinancing in order to generate extra savings.

Third, note that points gathered from payments can be deducted in one’s taxes for the entire duration of the loan. With this, the cost of the loan will greatly decrease because of tax savings. For example, if an individual obtains a mortgage of $300,000 and pays 2 point or 2%, he or she has to make an upfront payment of about $6,000. If the person belongs to the 25% tax bracket, the savings will be 25% of $6,000 or $1,500 for the entire duration of the loan. When computing for the real after tax cost, the 2 points will generate a tax savings of $4,500. This is obtained from deducting $1,500 to $6,000.

Despite the low rates these days, it is best to think things through before refinancing. Consider and compute the costs and check if there are savings that can be obtained from it. Otherwise, postpone refinancing if after a thorough computation, it ends up as a bad deal even when the rates obtained are lower.

Whether or not to refinance is really a personal choice. I have friends that have refinanced 5 times in the last year. And, everytime they have refinanced, they have saved hundreds of dollars. Their current interest rate will be 4%. Now, their mortgage is close to 1 million. They live in a home in Hawaii.

The point is, you need to make sure that you do the numbers, do the research and make sure that you are comfortable with the numbers.

Home Loan Refinancing Options for Individuals with Bad Credit

Over the past few years, many Americans have refinanced their home loans to take advantage of the low interest rates. But, the low rates are not offered to all homeowners. Currently, the 30 year fixed interest rate is around 4.35%. This is only available to borrowers with good credit. Those with poor credit standing are usually given higher rates than the average.

People with bad credit who are seeking a refinance loan from Bank of America or Countywide must know that they need a credit score of at least 740 to qualify for the 30 year fixed interest rate of 4.5% or below. Moreover, their debt to income ratio must fall below 40% in order to be qualified for this refinance rate.

Sadly, the reality is, these are very difficult requirements to meet for people with poor credit. However, if they are determined to take advantage of good rates, they must try to boost their score by paying down their debts especially the ones incurring high interests. These include credit cards, payday loans and personal loans.

Moreover, even if Bank of America is considered as one of the country’s major financial institution, the low rates are not only exclusive to them. It is a common misconception of Americans with bad credit that not many lenders would want to work with them. In fact, there are plenty of institutions that are looking for customers and would welcome anyone regardless of his or her credit standing.

The website of FDIC provides a list of the mortgage lenders who can help in refinancing a home loan no matter what the status of the borrower’s credit is. There are about 7000 financial institutions all over the country with FDIC insurance that can provide assistance in home loan refinancing with the lowest mortgage rates of interest.

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