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A lending hand – News – Braintree Forum

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For the millions of Americans who struggle to afford an unexpected expense, high-interest payday and online loans may seem like acceptable options despite the inherent risk.

But guidance issued by federal regulators in the spring could bring a competitor to small-dollar lending: banks. The guidance omits a previous suggestion from the Federal Deposit Insurance Corp. that loans from banks should have annual percentage rates of 36% or lower.

While some consumer advocates say a rate cap is a necessary consumer protection, researchers say banks can check a borrower’s credit and offer affordable loans — something payday lenders whose APRs often reach above 300% typically don’t do.

If your only option is a high-interest loan, no matter the source, take control by understanding the rate and monthly payments and choosing a lender that checks your ability to repay.

 

UNDERSTAND YOUR RATE

There is no federal interest rate cap on small loans of a couple thousand dollars or less, and bank regulators can’t impose one. But 45 states cap APRs on $500 loans, while 42 states have caps on $2,000 loans. Check the National Consumer Law Center’s fact sheet to see the APR cap in your state.

The NCLC advocates for a federal 36% rate cap. Associate Director Lauren Saunders says without one, high rates could permeate other credit products. Many lenders that offer APRs of 36% or lower tie your rate to how risky it is to lend to you, based on your credit history. If you’ve had trouble making loan or credit card payments in the past, the lender may see you as a high-risk borrower and assign a rate close to 36%.

APRs are useful for comparing loan products, but seeing dollar amounts can help consumers evaluate whether they can make the required payments on an installment loan, says Alex Horowitz, senior research officer with The Pew Charitable Trusts.

If the only loan you can qualify for has a rate above 36%, calculating the monthly payments can help you understand what you can afford.

A bank would have to charge $50 to $60 on a $400 loan repaid over three months to make it profitable, Horowitz says. That’s an APR of about 75% to 90%. A 2017 study from Pew found that many consumers think that’s a fair rate.

Small-dollar lending is currently dominated by online lenders, says Leonard Chanin, deputy to the chairman at the FDIC.

But U.S. Bank’s “Simple Loan” offers a rare example. The loan usually has an APR of about 71%. Borrowers with autopay pay a $12 fee for every $100 borrowed and repay the loan over three months.

Chicago-based online lender OppLoans provides loans to borrowers with bad credit and has APRs as high as 160% in some states. CEO Jared Kaplan says it’s costlier for his company to acquire and underwrite customers, which leads to higher rates.

“Whether (your APR is) at 79, 99 or 160, you’re dealing with a risky customer base and the price should justify that risk,” he says.

 

CHOOSE A LENDER THAT CHECKS YOUR FINANCIAL DATA

Lenders that don’t determine your ability to repay using information like your income, existing debts and credit information tend to offer high-interest loans with short repayment periods, making them difficult to pay off and trapping you in a cycle of debt.

Banks and other lenders that can access your bank account information and payment history can determine whether you can afford the loan.

Applicants for the Simple Loan must have a checking account for six months and have direct deposits sent to the account for three months before they can apply, says Mike Shepard, U.S. Bank’s senior vice president in consumer lending.

That ability to underwrite an existing customer, rather than someone it doesn’t already know, helps make a bank loan affordable for consumers, Horowitz says.

 

OTHER WAYS TO EVALUATE A SMALL LOAN

Aside from low APRs and a review of your ability to repay, here are some things to look for if you need a high-interest loan.

— Full amortization. Monthly payments should pay down both principal and interest on a loan. Interest-only payments don’t reduce the loan’s principal, so interest continues to accrue at the same rate. Check the loan’s amortization schedule before you agree to borrow.

— Credit reporting. The lender should report your monthly payments to at least one — and ideally all three — of the major credit bureaus. If you make your payments on time, this reporting can improve your credit.

— No origination or prepayment fees. Origination fees, sometimes called administrative fees, and prepayment penalties help the lender make money, but they have little benefit for you.

 

 

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A Look Back At Housing 2020: Rental Housing Gets Riskier

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According to the American Housing Survey cited in a recent article, there are about 48 million rental housing units in the United States ranging from single-family homes to large multifamily apartment complexes. Of those 48 million units about 23 million are owned by individuals, according to a recent Rental Housing Finance Survey; that’s more than half of the occupied units in the country. Yet private rental housing providers have been under relentless attack in recent years increasing risks and costs. This has worsened in 2020 as I have pointed out. More risk means fewer housing units and higher prices, not a good outlook for the future.

Any business based on renting assets is based on risk. Think about the last time you went bowling. When you rent the shoes, the person behind the counter often will hold a driver’s license? Why? It’s a way of offsetting the risk that you’ll go home with the shoes either on purpose or accidentally. Nobody wants to deal with a lost driver’s license. Offsetting this risk has absolutely nothing to do with you or your trustworthiness; it is uniformly applied and routine.

Housing providers have to similarly offset the risk of allowing a stranger occupy their private property. There are several ways of doing this, including using credit checks. But lately, politicians are beginning to eliminate the credit check from the tools that housing providers can use to offset risk. Minneapolis for example has eliminated credit checks arguing that they are a “barrier” to housing.

Is race a factor in bad credit and thus a barrier to people of color to get housing? The fact is, yes, African American people have more credit issues. But would eliminating credit checks help them? The answer is, “No.”

An article in the Washington Post, “Credit scores are supposed to be race-neutral. That’s impossible,” is emblematic of how this issue plays among the public and policy makers. The author says two contradictory things. First,

“This would lead one to think that credit-score calculations can’t be biased. But factors that are included or excluded in the algorithms used to create a credit score can have the same effect as lending decisions made by prejudiced White loan officers.”

Then she writes,

“One quick way to impact your credit history is a court-ordered judgment. And Black borrowers are more likely to fare badly when taken to court by their creditors. Debt-collection lawsuits that end in default judgments also disproportionately go against Blacks, according to a 2020 Pew Charitable Trusts report.”

Logically, the right way to state this is that credit measures are biased against people who have default judgments against them, and African Americans have higher rates of defaults. Then the next question would be, “Why?” The most obvious answer is the right one, poverty is disproportionately concentrated among people of color.

But eliminating credit checks for housing won’t help that problem. If a housing provider is unable to evaluate risk based on past financial performance her only option will be to raise rents and deposit amounts in case there is a problem; that extra cash would provide a buffer if a resident stops paying rent. This won’t help anyone with less money. What’s the response to that? Ban rent increases by imposing rent control! That’s a bad idea too and won’t help either.

The answer is to figure out how people who have less money and therefore have more issues making ends meet can solve that problem and improve their credit scores. The author of the Washington Post article makes a sensible suggestion: include steady rent payments in credit scores. Some housing providers do, and it’s a great idea. But it is a positive one that actually helps the family; banning quantitative measures of past financial performance doesn’t.

The danger that unfolded in 2020 is that justifiable outrage about racism could lead to interventions that don’t address poverty and it’s negative consequences like default judgments but elimination of accepted measures of those consequences. Eliminating the evidence of poverty – struggling to pay bills – doesn’t help pay the bills! At best, these kinds of measures sweep the problem under the rug ensuring higher rents and making housing a risky business only big corporations will be able to do.

The answer is to address the broader underlying issues of poverty and increasing housing production. When there is more supply of housing providers compete with providers for residents and will be forced to bargain with potential residents, even those with dings or dents or completely destroyed credit. Housing abundance solves a housing problem while eliminating measure of risk only makes that risk higher and actually creates a housing problem.

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Can My Cosigner Take My Car?

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Cosigners don’t get any rights to the vehicle they signed the loan for. However, if the cosigner is trying to take your car, it may be time to take some action.

Cosigners and Ownership

Can My Cosigner Take My Car?Cosigners can’t take the vehicle they cosigned for because their name isn’t listed on the title. A cosigner isn’t responsible for making the monthly payments, maintaining car insurance, or really anything else. Cosigners simply lend you their good credit score to help you get approved for the auto loan, and if you can’t make payments, the lender can require them to pick up the slack.

Since you’re the primary borrower on the vehicle and your name is listed on the car’s title, you have ownership rights. Your cosigner can’t come to your residence and take possession of the vehicle – even if they’re the one making the car payments right now.

If you do default on the loan and the vehicle is repossessed, the cosigner still can’t take the car.

But My Cosigner Did Take My Car!

If your cosigner did somehow take your keys and your vehicle without permission, it’s considered theft. If you want to take action, you can report the car as stolen.

However, a better first step is probably contacting the cosigner and letting them know that they don’t have any ownership rights (if you want to maintain a relationship with them). You can ask them to return the vehicle and explain that their name isn’t on the title.

Removing a Cosigner From a Car Loan

If things are dicey with your cosigner, then it may be time to consider removing them from the auto loan. The easiest way to remove a cosigner is by refinancing.

Refinancing is when you replace your current loan with another one. You can work with your current lender or another one, but most borrowers look for another lender to refinance with.

You don’t need a perfect credit score to refinance your car loan – it just has to be good or better than it was when you first got the loan. Another common requirement of refinancing is that you’ve had the loan for at least one year.

Other common requirements for refinancing are:

  • You’ve stayed current on payments throughout the loan
  • You have equity or your loan balance is equal to the vehicle’s value
  • Your car has less than 100,000 miles and is less than 10 years old

Most borrowers usually refinance to lower their loan payments. Since you’re replacing your current auto loan with another one, many borrowers try to qualify for lower interest rates or extend their loan to lower their payments. If your credit score has improved, you may even be able to get a better interest rate and remove your cosigner!

Can’t Refinance to Remove the Cosigner?

Refinancing isn’t in the cards for everyone. However, another efficient way to remove a cosigner is by selling the car. Cosigners don’t have to be present at the sale of the vehicle, since they don’t have to sign the title to transfer ownership.

If you sell the car and get an offer large enough to cover the entire balance of your loan, you and the cosigner can walk away from the auto loan scot-free.

However, many borrowers need cosigners because their credit score isn’t the best. If you want to sell your vehicle to remove your cosigner, but you’re worried you can’t get a car loan by yourself, consider a subprime auto loan for your next vehicle.

Bad Credit Auto Loans

Since many traditional car lenders don’t work with borrowers who have poor credit histories or lower credit scores, they often ask them to bring a cosigner. But what if you don’t want a cosigner (or can’t get one) on your next auto loan? Enter subprime car loans.

Subprime lenders are teamed up with special finance dealerships, and they operate remotely. When you apply for financing with a special finance dealer, you work with the special finance manager who acts as the middleman between you and the lender.

You need documents to prove you’re ready to take on an auto loan – typical things like check stubs, proof of residency, valid driver’s license, a down payment, and other assorted items depending on your credit situation. If you qualify, the lender determines what your maximum car payment can be, and you choose a vehicle you qualify for from there.

What sets subprime auto loans apart from traditional car loans is that they assist borrowers in tough credit situations and offer the opportunity for credit repair. Some in-house financing dealerships that don’t check credit reports don’t report their auto loans, which means your timely payments don’t improve your credit score.

Finding a Car Dealership Near You

The best way to improve your credit score is by paying all your bills on time. Payment history is the most influential piece of the credit score pie. There are many lenders willing to work with bad credit borrowers, you just have to know where to look!

Here at Auto Credit Express, we’ve already done the searching, and we’ve created a nationwide network of dealers that are signed up with subprime lenders. Get matched to a dealership in your area, with no cost and no obligation, by filling out our car loan request form.

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United Way hoping to raise thousands of dollars on Giving Tuesday –

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“We have partnered with Carter Meyers Associates in the community and developed what we call Driving Lives Forward, an automobile loan program to help families that maybe have no credit or bad credit to access resources to have an affordable loan to purchase a reliable used car,” said Barbara Hutchinson, the Vice President of Community Impact for the United Way of Greater Charlottesville.

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