Special Finance Car Loans give you a second chance.
Using a car loan to re-establish your credit.
You see the ads that promise anyone with bad credit, bankruptcy, repossessions or other finance sin, will be driving a new car in hours. Dial this 800# or fax your information to XYZ Company and wait for your pre-approval code. Well, not exactly.
Given that a bankruptcy discharge is a second chance to start over without the burden of debt, a car loan does provide one avenue for getting back on the road to better credit. However, that loan does not come without specific rules and responsibilities, including the need to pay the monthly bill without delay or late charges; not a day before the late charges hit. Alas, I digress. Let’s start at the beginning of this myriad of steps to getting a Second Chance loan.
The Scavenger Hunt. First, gather all your important truth-telling documents: proof of income, pay stub, W2, 1099, last year’s tax return, for every job. If you get paid in cash, get letters from the employers stating how much cash you received in the past 12 mos. You will need a bank statement or deposit slips to provide proof of the cash. Proof of residence: mail, lease agreement, current bills mailed to that address. Auto insurance card. Mortgage statement, or rent receipts, lease agreement in your name or listed as a sublet. Two recent bank statements. Social security card. Driver’s license. Current phone bill with all the pages. Cellular bills are a weak second to a home phone bill. Provide the home phone bill even if it isn’t in your name. Ten personal references: listing the name, address, phone and relationship to you. Letter from your employment, showing years of service and wage status. ADDITIONAL DOCUMENTATION when appropriate: Title to your trade-in. If the trade-in has an open loan, bring the loan account information and original contract. Registration and proof of insurance on the trade-in. If you had a car loan years ago, provide proof of that paid off agreement. Home foreclosure or auto repossession, provide proof of payoff where applicable. Divorce decree. Bankruptcy discharge. Proof of a totaled vehicle if the loan balance is still in dispute. Make several copies and combine as a set. Your will need a set for each dealership you visit.
Down payment. $1,000.00 minimum. Banks require 20% of the selling price of the vehicle, as down payment. A free and clear trade may make up a portion of this, but cannot be overstated to cover the entire amount. BEWARE of dealers advertising a Push, Pull or Drag trade-in allowance of $4,000. (Remember that old saying, if it’s too good to be true, it probably isn’t true. Figuring out where the $4000 for a $10.00 car came from, should not be too hard to figure out when you see the selling price of the car. The banks know it too!)
The Score. The conversation will turn to “What is your Score?” This is the FICO or Auto Fico credit rating on you. Every person has a history recorded by the three credit reporting agencies: TRW, Equifax and TransUnion. Your payment history factors into a score which determines the amount of risk associated with giving you a loan. (Remember, having a house loan doesn’t necessarily make you an honor student. You can’t take off with a house, but you can steal a car. Auto recovery rates are considered in the risk equation.) Pick one dealership location and allow them to run a credit inquiry. Ask to see all the reports and note the AUTO score of each one. Dealerships are NOT allowed to give you a copy of the credit report, but you should ask for a copy of the application. The dealership is required to give you a copy of the SIGNED application. Upon receipt, note the dealership name on the paper, and stow it away for safe keeping. Have your credit application run only once. When speaking to different dealership personnel, tell them what your score is on each bureau. Repeated credit inquiries will reduce your score and buying power, considerably. When the final deal is made, the dealership will make a credit inquiry for their use in getting the loan approved.
Visiting the dealership. The criteria for selecting a dealership should be:
