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7 Ways to Avoid Auto Repossession

Avoiding Repossesion

Everyone has experienced a financial difficulty at one time or another. Maybe you lost your job, had an unexpected medial issue or expensive repairs on your vehicle. Regardless of the situation, few people can say that they have never had a month where they had to choose between bills. If you have experienced financial difficulty and were forced to miss a car payment, it doesn’t have to mean that you lose your car. Contrary to popular belief, no one wins in repossession. Studies from agencies like American Financial Services Association and Experian Automotive have estimated an average $8,000 loss to dealerships per repossession. The loan customer loses their vehicle and the dealership ends up having to try to re-sell … frequently at a loss. Dealerships want you to make your payments, close your loan, and hopefully come back next time you need a vehicle. On average, an American will purchase twelve vehicles in their lifetime. Loan companies and dealerships would love for you to make all of those purchases with them, and repossessions only sever the customer relationship.  Your missed payment does not have to end in repossession. Auto lenders and dealerships are likely to work with you if you have a financial difficulty. Communication is paramount when dealing with your lender. Here are some tips to avoid losing your vehicle and defaulting on your loan.

1. Ask For A Payment Extension - If you have a situation that is going to impact your ability to pay, call your lender immediately.  Dealerships and financial lenders will be much more likely to work with you if you communicate your situation as soon as possible. Be honest. If this is not a situation where one-time payment forgiveness will get you back on track, let them know so you can utilize other long-term options that may be available. If it is a temporary situation, ask for a payment extension. This will give you a few extra days to make your payment and get back on track.

2. Make an Agreement for Partial Payment – A partial payment can be a sign of good faith to the lender or dealership. Pay what you can and make an agreement to pay the rest on a specific date. Your lender may even waive any late fee if they have partial payment and an agreement for the remaining amount.

3. Ask Your Lender to Change Your Due Date – Sometimes loan customers have changes in the way money flows in to the household. Maybe you got a new job and get paid on different days than you did when you started the loan. Maybe you have other bills that are near your car payment date and stretching the money isn’t working. Some lenders and dealerships will agree to change your payment date, disbursing payments more evenly throughout the month for you and making them easier to pay.

4. Ask about Deferred Payments - Are you always just one payment behind? Maybe you got behind a few months ago and haven’t been able to catch up. Some lenders will allow you to defer a payment, effectively allowing you to skip a payment and add it to the end of the loan.

5. Ask for Loan Modification – If your problem is serious or you are anticipating long-term financial trouble, your lender may agree to a modification of the terms. By extending your 24 month contract to a 36 month contract, you could lower your monthly installment payment significantly. You will likely pay additional interest by extending the loan, but it could prevent default and allow you to get back on track.

6. Refinance Your Loan – Depending on your contract and lender, you may be able to completely refinance.  Especially if you communicated with your lender prior to missing payments, you may be eligible for a lower interest rate and better terms. Ask your lender if they offer a refinancing program.

7. Trade-In or Sell the Vehicle – If all negotiation tactics fail with your lender or you simply can’t afford the vehicle anymore regardless of how significantly the loan is modified, trading in your vehicle could prevent costly damage to your credit or losing all equity you may have in the vehicle. Dealerships like ours will buy your car even if you have a current loan balance. You can either sell the vehicle outright or use the equity on your next, more affordable vehicle.

 

    Repossessions are negative for everyone involved. Communication with your lender can help you avoid disaster. Lenders like us want you to make your payments, close your loan and come back and buy another vehicle when the time comes.  The worst thing you can do is nothing, and the worst thing your lender can say is “no”. Most lenders will be willing to work with you to keep you in the contract. If you are in a situation where you can no longer afford your current vehicle, use our trade appraisal form to get an offer on your vehicle. We will buy your car, even if you’re not buying from us. If you’re looking to get a more affordable vehicle, check out our inventory. We have many cars,trucks and SUVs and will give you the highest trade value possible.

Rebuilding Your Credit With An Auto Loan

  

At our dealership we find that consumers are not only looking for a car loan.. they are looking for a second chance. Many consumers are unaware of the positive impact an installment loan, like a car loan can have on their credit rating.


How Can An Auto Loan Help My Credit?

Monthly Reporting

Lenders, like ours report to credit bureaus. Paying installment loans on time is one of the best ways to improve your score. Installment loans which are typically mortgage or auto loans have fixed payments that are commonly reported to bureaus each month. They are generally for an extended period of time. Reporting payments each month for an extended period of time can have a tremendous effect on your score.


Risk Level

Installment loans are very different from credit cards or “revolving” type debt. They are typically secured by collateral, in this case a vehicle, and bureaus consider these types of loans less of a risk.


Credit Utilization

They are usually for larger amounts. This will have a positive effect on your "credit utilization", which is an important part of your score. Having a large amount of credit extended to you similar to the amounts extended in an auto loan make lenders and bureaus assume you are worthy of credit. 


Credit Types

Credit types make up ten percent of your score. Having varying types of credit (installment, retail, revolving and open) helps your score.


    Paying installment loans on time and in full can be one of the best ways to improve your score. We are experts in bad credit car loans and are ready to help get you back on track. With our online credit applications, you can get an approval in minutes and be on your way to getting into your new car.

Fico Introduces New Scoring System FICO® Score 9

FICO Credit Score   

Fico recently introduced big changes to the way the credit agency calculates scores. Consumer advocates had been petitioning the agency for some time to implement rule changes, specifically pertaining to medical bills. Medical costs are mostly out of a consumer’s control and consumers reported being unaware that the account even existed or believed it was paid by their insurance. What’s worse is that experts don’t believe that lack of payment on medical bills is any indication of a consumer’s likelihood to pay, which is supposed to be the score's intent. According to the Consumer Finance Production Bureau’s report “Medical Debt and Credit Scores” released in May 2014, concluded that consumers with medical accounts in collection that had more paid than non-paid medical accounts were just as likely to pay a regular account as well as a consumer with a score that was 20 points higher.

    The predictive analytics software that Fico uses will now have the ability to distinguish between medical and non-medical collection accounts and adjust scores accordingly. Using the new system, a consumer whose negative collection accounts are purely medical could see their score jump 25 points. 25 points can mean the difference between an approval and denial for mortgages, auto loans and credit cards and offer consumer access to better interest rates over all.

    FICO Score 9 will also allow better scoring for “thin files” or consumers with limited credit history. Where the previous system allowed for scoring based off of a “pay” or “non-pay” or “yes” or “no” system, Score 9 will use a more nuanced calculation that can determine the likelihood of repayment even with a limited payment history.

    FICO Score 9 will also unburden lower scores that are a result of paid off collections or settlements. Prior to the changes, paid off or settled account remained on your credit report for 7 years after paying or settling. Under the new model, paid and settled accounts will be removed after confirmation of payment. Out of 107 million consumers with a collection account on their report, almost 10 million had a zero balance.

 

Here’s a summary of the changes:

  • Medical Collections: Medical collections will be weighted separately from regular collection account and no longer affect scoring as heavily as other types of collection accounts.
  • No Credit: Consumers with no credit history or limited credit history will be calculated based off of a calculation to determine likelihood of payments
  • Paid or Settled Accounts: Paid or settled account will no longer be considered when calculating your score.

The affect the new score calculation will have on consumers is expected to be far reaching. The median increase for consumers whose only negative credit items are medical is 25 points, and millions of Americans are expected to be affected by the changes.

What is a Sub-Prime Borrower?

Sub-prime Credit Score

According to Experian's State of the Automotive Finance Market Report for the first quarter of 2014, scores are divided into five categories of ranges. 740 and up puts your score in the "Super Prime" category. 730-680 is "Prime" and 679-620 is "Non-Prime".  That leaves all other consumers in the "Sub-Prime" category with 550 and under being described as "Deep Sub-Prime". According to their Open Loans by Risk report, over 21 percent of all open loans are below prime, with deep sub-prime lending being the highest growing category of open loans. The average credit score of an auto financing customer dropped 10 points from the first quarter of 2013 from 731 to 721. In summary, more lenders are willing to take chances with sub-prime borrowers as more and more consumers are falling into that category. According to Credit-Report-101, the national average FICO credit score as of 2014 in the US is 639, which would place the average national consumer in the "Non-Prime" category.

That's it. The only piece of information used to determine your lending category is your score. Your score represents the amount of risk a lender assumes by loaning you money or goods.

More and more sub-prime borrowers are being approved for auto loans. Reports suggest that sub-prime lending has been the single highest growth category in lending. Experian reports that over 45% of all auto loans went to sub-prime borrowers. Less stringent auto credit means that you may be approved for an auto loan that you would have been denied for a year ago. Sub-prime auto lenders don't worry market watchers as much as mortgage lenders because auto loans are less risky in general when compared to sub-prime mortgage lending. Car loan payments are smaller and more manageable, even for those less likely to pay. The loans are scheduled to be re-payed over a much shorter period of time. The value of the collateral is less susceptible to change and is much easier to repossess and re-sell in event of default. Buyers are much more likely to keep from having their transportation to work from being repossessed.

Where does this leave you? That depends. It's looking to continue to be a buyer's market. With more consumers being affected by low credit scores, lenders are opening up lending to those who would have not been able to get a car loan in the past. Buyers with better credit are dwindling and more in demand, resulting in competitive interest rates for those upper category borrowers.

If you find that you fall into the sub-prime category and are looking to finance a vehicle, your local dealer is the first place to start. While you will likely be denied financing by credit unions or private lenders, a dealership that specializes in bad credit auto loans or Buy Here Pay Here will be able to finance you with a down payment and few items of income and residency verification.

At Used Car World we work primarily with consumers struggling with credit challenges. We offer all kinds of borrowers access to quality, affordable vehicles. We offer guaranteed approvals. Apply online and get an answer in minutes!

What's In A Credit Score?

Helpful Tips to Pay Off your Auto Loan Early

Loan Payoff

Nearly 70% of consumers purchase their vehicle with financing. Next to a mortgage or rent, auto installments make up the second largest portion of a person’s budget. When your car payment is such a significant part of your budget each month, paying off early can seem impossible but it doesn't have to be. Here are some (hopefully painless) ideas on how to pay off your loan early. We hear from customers all the time who get their loan with the intention of paying off early. By having a lower payment amount, customers have the flexibility to pay their loan down early but still have the ability to pay the lower amount when the extra cash is needed elsewhere. Here are a few ideas on how to pay off your loan early.

 

Round Up Your Payment

Take an auto loan for $10,000.00 for 60 months at 12% interest for example. The monthly payment would be $222.44 per month. By simply rounding up the payment to $250.00 and paying an additional $27.56 each month, you can shorten your loan by 8 months and save $519.00. Setting up an auto payment through your bank can help with sticking to it, and even take some of the sting away from writing the check each month. Many consumers find it easier to have the money drafted from their bank, and banks are now offering discounts and benefits for consumers who agree to set up some form of auto payment.


Make Bi-Weekly Payments

This may not seem like it will have an effect, but think about it. There are 12 months in the year, and 52 weeks. If you make half the monthly payment every two weeks on that same $10,000 loan, you will actually make 13 full payments or one extra payment per year. Over the course of the loan you will not only save $438.32 in interest, but you will also drop almost 7 full payments off the loan.


End with a Lump Sum

By making a one time, lump sum payment at the end of the loan, you can cut 12 months off your loan and save over $1,000 in interest.


Make an Extra Payment

Find a time during the year where you will have extra money. Hello tax season! Making a single extra payment each year will save you over $400.00 in interest and have you paid off in 53 instead of 60 months.


Ching! Ching!

Everyone should have a change jar.  On average families that have a change jar can accumulate over $500.00 per year in change. Putting just one year’s worth of change toward your loan will save you $394.00 in interest and 4 months of payments.


Any additional money you can pay towards your loan will save you money. Trying to come up with extra money in an already tight budget can be difficult but if you can try to find ways of squeaking out a couple extra bucks here and there and putting it toward your loan you can end up saving a significant amount of money. If you can find a way, the benefits are great. If you have your own method and want to see how much you can save, Bankrate has a great early payoff calculator you can use. We can help you figure out the best loan for you! Our salesmen have been financing vehicles for all credit types for over twenty years and we will find you an auto loan to best fit your situation. Visit our website and fill out an online credit application. One of our salesmen will call you. We have a huge inventory of vehicles and can get anyone approved!