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Can Bad Credit Stop Me From Getting an Auto Loan?

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Depending on what lender you apply with, yes, bad credit can stop you from getting a car loan. However, if you apply with lenders that specialize in assisting borrowers with challenged credit, your credit score is only one part of the larger equation.

Why Bad Credit Can Be a Roadblock

Can Bad Credit Stop Me From Getting a Car Loan?Your credit reports and scores are often a cornerstone of getting approved for new credit, such as an auto loan. Your credit score serves as a snapshot summary of your credit reports, so a higher credit score usually means you have good creditworthiness.

Creditworthiness translates to roughly how much a lender is willing to trust that you can pay back the car loan. Credit scores are typically a large part of your creditworthiness, and the other major players tend to include your income and down payment size.

In some cases, even if you have enough income to prove you can afford the auto loan, a poor credit score could be enough to be handed a denial. However, there are subprime car lenders that assist bad credit borrowers, and they use many other things to determine your creditworthiness.

How Subprime Lenders Determine Creditworthiness

Subprime lenders are third-party lenders that are signed up with special finance dealerships. To determine your eligibility for auto financing, they look at the many moving factors of your financial stability.

To a subprime lender, the biggest factor in your creditworthiness is your overall stability. This means having a stable income, employment, living situation, and being able to provide a down payment. Down payments increase your chances of finishing the car loan, and they show the lender that you’re able to save up for large purchases – which bodes well for your creditworthiness.

Subprime auto loans can actually boost your creditworthiness too, because they’re reported to the credit bureaus. If you manage the loan well, your on-time payments improve your credit score, which, coupled with a completed car loan, gives you more credit opportunities in the future.

Requirements of Bad Credit Auto Loans

We’ve gathered a list of common subprime auto lender requirements to prepare for when you’re ready to apply for financing. Keep in mind that every lender varies in their specific requirements, but this is a good place to start!

Common subprime financing requirements include:

  • Income and work history – Since you need income to repay the car loan, subprime lenders typically require around $1,500 to $2,500 of minimum monthly income (pre-tax). They also generally require a consistent work history. Most of the time, you need at least one year at your current employer and around three years of work history without gaps between jobs longer than 30 days.
  • Living and residency stability – Many subprime lenders require that you’ve lived at the same address for around one year. The longer you’ve lived at the same residence, the better your odds typically are at qualifying for an auto loan.
  • Debt to income (DTI) and payment to income (PTI) ratios – Your DTI ratio has to do with how much income you have leftover after paying your bills and the anticipated car loan and insurance payments. Your PTI ratio is your income compared to the monthly payment and auto insurance. Lenders use these ratios to make sure you’re not going to stretch your finances too thin with the car loan by making sure that you’re not currently overextended.
  • Your credit score – Your credit score is the biggest factor in determining your interest rate if you qualify for financing.
  • Down payment – Subprime lenders generally require a down payment of at least $1,000 or 10% of the vehicle’s selling price. Supplying a down payment is a requirement for nearly every bad credit auto loan.
  • Personal references – If you qualify for financing, expect the subprime lender to ask for a list of around five to eight references with complete contact information. The only stipulation with this requirement is that your references can’t live with you.
  • Working phone – Your lender may need to contact you, so they require proof that you have a working landline or contract cell phone. Proven with a recent phone bill in your name; prepaid phones don’t meet this requirement.
  • Valid driver’s license – Used to verify your identity, and allow you to drive the car off the lot. The license can’t be revoked, suspended, or expired, and it must list your current address.

Knowing what a subprime lender is likely to expect of you can be one of the trickiest parts of financing, and requirements are still likely to vary depending on where you apply. The stipulations that we list are often the benchmarks for subprime auto loans. So, you can walk into a special finance dealer with some information behind you to avoid being blindsided by the requirements.

Locating a Special Finance Car Dealership

Now you know that bad credit doesn’t have to be the reason you can’t get a car loan because there are lenders willing to help, but where are these subprime lenders? Well, we can help with that too.

Here at Auto Credit Express, we’ve cultivated a network of dealerships that assist bad credit borrowers and we want to look for one in your local area. To get in touch with a dealer that has bad credit lending options, fill out our auto loan request form. It’s secure, carries no obligation, and it’s completely free – so get started now!

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Loans Bad Credit Online – Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom | Fintech Zoom

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Loans Bad Credit Online – Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom

Loans Bad Credit Online – Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom



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Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom

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The government’s incentive to step in and bail out depositors when banks fail is clear from past experience.

By Anusha Chari & Amiyatosh Purnanandam

The failure of the Punjab and Maharashtra Co-operative Bank (PMC) in September 2019 shone a light on the limitations of India’s deposit insurance system. With over Rs 11,000 crore in deposits, PMC bank was one of the largest co-op banks. That the Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance covered depositors, provided little solace when the realisation hit that the insurance amounted to a mere Rs 1 lakh per deposit.

The predicament of PMC depositors is, unfortunately, not an anomaly. Several bank failures over the years have severely strained RBI and central government resources. While co-operative banks account for a predominant share of failures, other prime examples include the Global Trust Bank and Yes Bank failures. These failures entail a direct cost to the taxpayer—the DICGC payment or a government bailout. More importantly, bank failures impose long-term indirect costs. They erode depositor confidence and threaten financial stability, presenting an urgent need for deposit insurance reform in the country.

A sound deposit insurance system requires balancing two opposing forces: maintaining depositor confidence while minimising deposit insurance’s direct and indirect costs. At one extreme, the regulator can insure all the deposits, which will undoubtedly strengthen depositor confidence. But such a system would be very expensive.

A bank with full deposit insurance has minimal incentive to be prudent while making loans. Taxpayers bear the losses in the eventuality that risky loans go bad. Depositors also have little incentive to be careful. They can simply make deposits in the banks offering high interest rates regardless of the risks these banks take on the lending side.

Boosting depositor confidence and reducing direct and indirect costs require careful structuring of both the quantity and pricing of deposit insurance. Some relatively quick and straightforward fixes could help alleviate the public’s mistrust while improving the deposit insurance framework’s efficiency.

India has made some progress on this front over the last couple of years. First, the insurance limit increased to `5 lakh in 2020. Second, the 2021 Union Budget amended the DICGC Act of 1961, allowing the immediate withdrawal of insured deposits without waiting for complete resolution. These are very welcome moves. Several additional steps could bring India’s deposit insurance system in line with best practices around the world. Even with the increased coverage limit, India remains an outlier, as the accompanying graphic shows.

The government’s incentive to step in and bail out depositors when banks fail is clear from past experience. However, these ex-post bailouts are costly. The bailout process also tends to be long, complicated, and uncertain, further eroding depositor confidence in the banking system. A better alternative would be to increase the deposit insurance limit substantially and, at the same time, charge the insured banks a risk-based premium for this insurance. Under the current flat-fee based system, the SBI pays144 the same premium to the DICGC—12 paise per 100 rupees of insured deposits—as does any other bank!

A risk-based approach will achieve two objectives. First, it will ensure that the deposit insurance fund of the DICGC has sufficient funds to make quick and timely repayments to depositors. Second, the risk-based premia will curb excessive risk-taking by banks, given that they will be required to pay a higher cost for taking on risk.

India is not alone in trying to address the issue of improving the efficiency of deposit insurance. The Federal Deposit Insurance Corporation (FDIC) recognizes that the regulatory framework governing deposit insurance is far from perfect and the United States is moving towards risk-based premia. The concept is similar to pricing car insurance premia according to the risk profile of the driver. The FDIC computes deposit insurance premia based on factors such as the bank’s capital position, asset quality, earnings, liquidity positions, and the types of deposits.

In India, too, banks can be placed into buckets or tiers along these different dimensions. The deposit premium can depend on these factors. It is easy to see that a bank with a worsening capital position and a high NPA ratio should pay a higher deposit insurance premium than a well-capitalized bank with a healthy lending portfolio. The idea is not dissimilar to a risky driver paying more for car insurance than a safe driver.

Risk-sensitive pricing can go hand-in-hand with the increase in the insured deposit coverage limits bringing India in line with its emerging market peers. In a credit-hungry country like India, these moves would build depositor confidence, possibly increasing the volume of deposits and achieving the happy result of the banking system channeling more savings to productive use.

Chari is professor of economics and finance, and director of the Modern Indian Studies Initiative, University of North Carolina at Chapel Hill and Purnanandam is the Michael Stark Professor of Finance at the Ross School of Business, University of Michigan

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5 Signs You’re Not Ready to Own a Home, According to a CFP

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The housing market has boomed over the last year, despite a global pandemic and millions of Americans struggling to make ends meet. 

Many people are spending less on entertainment, clothing, travel, and other discretionary purchases during COVID. Federal student loan borrowers have seen temporary relief from their loan payments. These expenses will most likely rise again after the pandemic, and many people who committed to a new home with a large mortgage will struggle to keep up. 

I often speak with clients and prospective clients who want to buy a home before they have a strong financial foundation. Buying a home is not only one of the largest purchases you’ll make in your lifetime, but it’s also a huge commitment that’s extremely hard to undo if you have buyer’s remorse

It’s important to make a thoughtful, informed decision when it comes to a home purchase. Before you take the plunge into homeownership, check for these signs that you’re not quite ready to buy. 

1. You have credit card debt

Credit card debt can be a drain on your monthly budget, and when combined with student loans and a car loan, it can lead to high levels of stress. 

Generally, more debt means higher fixed expenses and little opportunity to save for long-term financial goals. Your financial situation will only get worse with the addition of a mortgage. I always recommend that clients be free of credit card or other high-interest debt before they consider buying a home. 

To rid yourself of credit card debt, take some time to get a good handle on your cash flow. Take an inventory of your spending over the last six to 12 months and see where you can cut back. From there, develop a realistic budget that includes aggressive payments to your credit cards. 

There are several strategies to help you knock out credit card debt fast. Regardless of the method you choose, stick with the plan and track your progress along the way. Once you pay off your credit cards, you can allocate your debt payments to savings, which can help you avoid this situation in the future.  

2. You have bad credit

Bad credit is not only a sign that you may not be ready to take on a mortgage, it can also signal a high risk to

mortgage lenders
. A high-risk status results in higher interest rates and more strict requirements to qualify for a loan. A mortgage is one of the largest loans you’ll take out in your lifetime, and if you get behind on payments, you could lose your home. 

Just as with credit card debt, bad credit could be a result of past financial mistakes. Dedicating the time to repair bad credit and improve your credit score will help you beyond purchasing your dream home. 

Start by pulling a recent credit report from each of the three credit bureaus so you can review it for errors. Dispute any errors, address past-due accounts, and bring your overall debt balances down. It’s helpful to learn what has a negative effect on your credit score so you can avoid these mistakes in the future. 

3. You don’t have an emergency fund (or an inadequate one)

If you’re unable to save for a rainy day, you probably don’t have enough money to buy a house. Owning a home is a big responsibility, and unexpected expenses pop up all the time. In addition, you could lose your job, have a medical emergency, or another unexpected expense unrelated to the home. Maintaining an emergency fund is a good sign that you have discipline and are prepared for the responsibility of homeownership.

Many financial experts recommend saving at least six months of living expenses in an emergency fund. If you have variable income, own a business, or own a house, you should save more. To build an emergency fund, set money aside from each paycheck and automate transfers to make the process easier. Give your emergency fund a boost when you receive lump sums such as bonuses or tax refunds. Start by saving one month of living expenses and build from there. 

4. You don’t have separate savings for your home

I always advise clients to set aside savings for a home in addition to an emergency fund. It’s a bad idea to start homeownership with no savings. Whether you have unexpected expenses related or unrelated to the home, having no emergency fund after a home purchase will lead to unnecessary stress — and possibly more debt. 

When purchasing a home, you’re responsible for a down payment and closing costs. While a 20% down payment is ideal to avoid private mortgage insurance, a down payment of at least 3.5% is typically required. Closing costs can range from 2 to 5% of the home’s value. 

Also, you will have moving costs, costs to spruce up your new place (like new furniture or light cosmetic updates), and any initial maintenance and repairs. Be sure to budget for these items to know how much to save on top of your emergency fund. It doesn’t hurt to boost your emergency fund, too, in preparation for homeownership. 

5. You have a low savings rate

It’s much easier to develop good savings habits before you have a lot of responsibilities. To get on track for financial independence, several studies show that you should save at least 15% of your income. The longer you wait, the more you’ll need to save. 

If your savings rate is low before you purchase a home, it will most likely worsen after becoming a homeowner. Even if your mortgage is similar to your rent, ongoing maintenance and repairs, higher utilities, and homeowners association fees can wreak havoc on your budget. 

Take a look at your current savings rate and see if you’re on track for financial independence. If you’re saving less than 15 to 20% of your income, work to improve your savings rate before you consider buying a home. A strong savings habit can help you build your home savings fund faster and ensure that a home purchase doesn’t impede your long-term financial goals. Finally, understand how much house you can afford so you can avoid being house poor. 

Buying a home can be rewarding, and when done the right way, it’s a way to build wealth. Before you decide to buy a home, it’s important to understand your numbers and ensure that you’re ready for the commitment. Without preparation, your dream home could be detrimental to your long-term financial goals.

Chloe A. Moore, CFP, is the founder of Financial Staples, a virtual, fee-only financial planning firm based in Atlanta, Georgia and serving clients nationwide.

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