Auto Financing Companies
Most auto financing companies require potential buyers to possess reasonably good credit before approving applications for car loans. The process for buying a new or used vehicle really begins long before a buyer reaches the car lot. Finance companies want to lend money to individuals who have a good credit history with a proven record of faithfully making payments on time. Car buyers who have a small amount of debt, long term employment, and collateral, such as home ownership, savings accounts, or retirement funds are considered the best credit risks. Creditworthiness will be reflected in a buyer’s credit score, which is based largely on a past history of paying bills on time. Even something as insignificant as making timely payments to a utility company can affect a consumer’s credit score and influence car dealers and auto financing companies to take a risk on lending tens of thousands of dollars for a new or pre-owned vehicle. Consumer credit reporting agencies consult one or all of three credit bureaus to determine borrowers’ scores. Excellent credit ratings are at a scale of 700 or more, while less than perfect credit is around 600. High-risk borrowers have credit scores of 550 or less, and the chances of getting auto financing without forking paying higher interest rates are slim to none.
Before taking a trek out to the car lot, savvy buyers will want to do some homework and count up the costs of owning an automobile. “For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it? Lest haply, after he hath laid the foundation, and is not able to finish it, all that behold it begin to mock him, Saying, This man began to build, and was not able to finish” (Luke 14:28-20). Auto financing companies will need an accurate assessment of a buyer’s current indebtedness to determine whether borrowers can handle financing a new or used vehicle. Consumers should take a good look at the family budget, weighing income and expenses to determine if buying a car is a wise choice. Outlining a budget is simple: just add up total monthly income, including salaries for the husband and wife and monies accrued on a regular basis, such as disability insurance or alimony. Savings and long term investments should not be included as income, since a buyer should be able to handle auto loan payments without dipping into a nest egg.
After income, add up monthly expenditures, such as mortgage or rental payments, food and utilities, clothing, insurance, education expenses, gas and vehicle maintenance, outstanding credit card or loan payments, and medical or dental expenses. Subtract the total expenses from the total gross income and the net amount is all that’s left for a car payment. If the net amount is less than $300, that’s cutting it mighty close. Used vehicles might need additional repairs and cut into the budget, while auto insurance, car tags, and the high cost of gas can easily make auto ownership an expensive undertaking. Borrowers should also leave room for contingencies and entertainment. Auto financing companies will want to be assured that borrowers can commit to a four- to five-year loan without discovering that there’s more month than money when it comes time to repay the loan.
Establishing a common sense budget and being realistic about an ability to repay will show auto financing companies that a borrower is both conscientious and committed to making timely payments. Once a reasonable payment is established, buyers should shop around for affordable cars. Check out the Blue Book value on used vehicles to make sure sales prices are in keeping with current markets. It’s a good idea to go car shopping after hours when car salesmen can’t haggle over the price or hassle budget-conscious buyers. Consumers can leisurely shop for vehicles and check out models, makes and car stickers to find the best deal. Classified ads, automotive magazines and tabloids, and online vehicle vendors are all great places to find bargains and compare prices without making an on-the-spot commitment. Consumers with cash or trade-ins are at an advantage when it comes to bargaining. A couple of thousand dollars cash or a good used vehicle offers great leverage for negotiating the best payments on new or pre-owned vehicles. Auto financing companies and dealers love dealing with cash, but a high quality, well maintained trade-in is like money in the bank. Used vehicles are the bread and butter for dealers who can resell models in good condition for a profit. Dealers usually offer to pay off remaining loan balances on trade-ins, giving buyers a fresh start with a newer vehicle and hopefully, a better loan package.
Many auto financing companies offer online applications to pre-qualify customers, which saves time and embarrassment if borrowers don’t meet qualifications. But when it comes to financing, auto loan companies can be flexible. Less than perfect credit, repossessions, and slow payment histories can be forgiven; and dealers can usually shop around for financial institutions that are willing to lend to high-risk borrowers. However, for the privilege of borrowing in spite of bad credit, high-risk borrowers may be required to either come up with hefty down payments or higher monthly notes to ride in style. Other creative financing may come from buy here pay here car dealerships, which specialize in selling to high-risk borrowers. As with major auto financing companies, the vehicle serves as collateral and lienholders always have option of repossessing autos if borrowers default. However, if buyers take time to count up the cost of owning a new or used vehicle and accurately assess their ability to pay, rebuilding credit for the future will be well within reach, without the worry of repossession.
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