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Differences Between BHPH Dealerships and Subprime Lenders

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When you’re looking for a bad credit auto loan, you may find buy here pay here (BHPH) dealers and subprime lenders in the same light. Though both can help borrowers with bad credit, there are some key differences in how they do things.

Buy Here Pay Here Dealerships

If you need a car and your credit score is very low, or even nonexistent, you may feel like you have no choice but to go to a BHPH lot. Also known as in-house financing dealerships, these places have a reputation for quick auto loans and no credit check financing. This can be a quick option if you need a bad credit car loan.

BHPH dealerships typically work with borrowers who have a credit score of around 660 or below. However, there tends to be fewer requirements with most BHPH dealers than subprime lenders.

Here are seven things you can expect of a BHPH dealership:

  1. What's the Difference Between a BHPH Dealer and a Subprime Lender?BHPH dealers only finance used vehicles.
  2. No waiting for outside (third-party) lender approval – the dealership is the lender.
  3. You’re likely to see a higher than average interest rate. Many BHPH dealers charge higher interest rates in lieu of checking your credit.
  4. Since BHPH dealerships may not check your credit, they may not report loan activity either. In some cases, they report your on-time payments, but many only report negative activity, like late or missed payments.
  5. You may be asked to make payments more than once a month. Some BHPH dealers also make you pay them in person. This falling out of practice, though, as the popularity of online payments and the need to do more things virtually increases.
  6. You may only need a qualifying income and a down payment to be approved for an auto loan.
  7. You may be asked to pay a larger down payment than with a subprime lender, sometimes around 20% of the car’s selling price.

Subprime Lenders

Subprime lenders also finance borrowers who have less than perfect credit. They’re third-party lenders that work with special finance dealerships. Subprime lenders check your credit, but they know that you’re more than just a credit score and use many other factors to offer auto loan approvals.

Here are seven differences between BHPH dealers and subprime lending:

  1. Subprime lenders may finance new, used, or certified pre-owned vehicles, depending on your situation and dealership inventory.
  2. Subprime lenders are indirect lenders. You sit down with the special finance manager at a dealer, and don’t actually apply directly with the lender.
  3. You’re likely to see a higher than average interest rate since they’re somewhat based on credit score. The lower your credit score, the higher the rate usually is. However, the rates with subprime lenders tend to be lower than at a BHPH dealership.
  4. You need to bring in several documents for a car loan approval with a subprime lender. These typically include proof of income and proof of residence, among other things.
  5. Generally, subprime lenders require you to make a down payment of at least $1,000 or 10% of the vehicle’s selling price.
  6. Subprime lenders do check your credit reports and scores.
  7. All loan activity is reported to the major credit bureaus: TransUnion, Experian, and/or Equifax.

Borrowers With Bad Credit

When you have bad credit, both a BHPH dealer and a subprime lender could work for you. Usually, bad credit is considered a credit score of around 660 or below. Some bad credit lenders have cutoffs, or a certain range of bad credit scores that they provide financing for. Others take a broader approach and finance a wide range of borrowers, even those with little to no credit or with a bankruptcy on their credit reports.

In order to know which of these is the right path for you, start by knowing your credit situation. This means getting both your credit score and credit reports. You can’t truly know which option to choose if you let the lender look at your credit but don’t know yourself what they’re looking at. When you know your credit, you have the power to negotiate the best car loan deal you can get.

To request a free copy of your credit reports from each of the three major credit bureaus, visit www.annualcreditreport.com. This free government website allows you to request your credit report for free once a week. As of April 2021, the site is slated to return to only allowing a copy of your credit reports from each bureau only once every 12 months, so it’s a good idea to start checking yours ASAP.

Some issues that come up on your credit reports may make it difficult to be approved with a subprime lender, but may not be as big of an issue for some BHPH dealerships. These could include such things as repossession less than one year old.

Ready for a Bad Credit Auto Loan?

Now that you know the key differences between a BHPH dealer and a subprime lender, you can choose the path that’s best for your unique situation. If you’re not sure where to start, we can point the way.

Here at Auto Credit Express, we’ve been matching credit-challenged consumers to dealerships that have bad credit lending options for over 20 years. Let us get you started toward your next auto loan by filling out our free car loan request form 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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