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Bad Credit

How To Finance A Car With Bad Credit –

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Your credit score that relies on your credit history is the only benchmark for your potential lender to determine if you qualify for a car loan and on what terms. If the score is terrible, you are less likely to be extended the credit.  Even if you are able to avail the facility, it will be on terms that can sometimes cost you a fortune. It would be prudent for you to know your credit score before approaching a bank or any lender seeking car finance. It is no good for your prospects if you have a bad credit score. Here is what you should do in that case. You also have to take a look that how often financial market will look in this year.

  • You are most likely to be aware of your credit history. Still, you can ask your bank for your credit score check and report to know your position before applying for a loan. This will help you in understanding the amount you can get and rate to be charged on the facility.
  • Once you have become aware that you have a bad credit score, you ask your bank advisor about the loan options, including APR (annual percentage rate), to know whether you qualify for a loan and what would be terms. Your bank might be willing to finance your car, but terms could be almost unaffordable.
  • After talking to your bank advisor, you would probably know by then where you stand financially. You can further do research online to know more about the market rates of car finance with a bad or less excellent credit history. Do a short analysis of the finance and payment options, especially if it comes with hefty terms.
  • You should also explore the market further by visiting more than one lender. By starting with your bank, make inquiries with other lenders. The market has very stiff competition on car loan options, and there could be some lenders willing to negotiate better terms with you. Again, it will depend on your credit history. With a history of regular defaults in payments on credit, you stand no or less chance to get a loan facility on your terms.
  • Once and if you have failed to attract banks to fund your car purchase, seek help at credit unions. The unions are non-profit organizations, generally run by their members, and they can help you out of the bad credit score situation and extend you a car loan facility. You can also use the loan to do start up. People even learning to get business start up these days.
  • When you have exhausted all other options and failed to secure a loan, subprime lenders are the only choice left for you. These lenders specifically cater to the financing need of people with a bad or less favorable credit score. You should consider this option very carefully. You can quickly get a car loan from a subprime lender, but their interest rates are very high over their competitors, i.e., banks.
  • Read and understand all terms thoroughly before committing yourself to the signing of the agreement. You must be sure that you can honor the payment commitment. Otherwise, it will further damage your credit history.




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Bad Credit

The case of the ugly-credit customer

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Thea Dudley

Dear Thea,

I recently had a customer apply for credit, and their commercial credit report was UGLY. They owe everyone, and they’re past due 90+ days. They have a few big orders pending with us and I feel they have been shut off everywhere else, which is why they are pushing so hard to get our orders shipped. I called the president of the company and told him we were opening his account COD so the orders pending would need to be paid prior to shipping them out. He blew up. He said he didn’t care about the information on the DNB report and it did not relate to them. Then he screamed at me, asking if we were going to send the materials. I am not interested in acquiring another slow paying account, so I need your thoughts.

Signed, Miffed in Michigan

Dear Miffed,

Control freaks, abusers of credit, and manipulators of people don’t ever question themselves. They never ask themselves if the problem is actually them, and they always say the problem is someone else. Such is the life of the slow-paying/no-paying account.

Yes, Mr. Crappy Credit Report, it is completely everyone else’s fault that your credit payment history looks like a piece of Swiss cheese: full of holes and slightly smelly. In fact, the Secret Society of Credit Managers got together last week and selected your company as THE ONE we were going to target for the month to make your professional life a nightmare. It has nothing to do with your inability to pay your invoices in a timely fashion. You, as always, are an innocent my dear customer.

Let’s be real here: customers with negative or poor credit history ALWAYS know they have bad credit, but they always posture like it is brand new information, heard for the very first time. What? My credit is bad? No, who is reporting me that way? I want names, numbers, I dispute it. This is total BS! The list of objections goes on and on. One thing they do know, it is wrong, and you need to give them credit RIGHT NOW or they will take their business elsewhere (oh, the horror.)

Blowhards and bullies shout over the top of you and push their agenda because that’s what worked for them in the past. Their theory is “if you say it loud enough and angry enough with enough threats and forcefulness, it becomes true and others back down.”

Well, I like to throw caution to the wind and pet that kitty backwards. If you are going to come at me bro, don’t come empty-handed. You’re not the first guy to lose his stuffing at me. So, your credit report is junk. Ok, no problem. I will email you a copy and you can address it directly with the commercial credit bureau I pulled it from. Once you two have kissed and made up, I will pull a new one and if it is good, then welcome to the family!

In absence of that, let’s take a look at the trade references you listed on your credit application. I will personally call each and every one of them. Once I have made contact and have the information back, we can reevaluate. Just so we are on the same page, trade references are who you currently purchase like materials from. I do not want anyone you hire (so no sub-contractors, no contractors, no homeowners), no big box, no gas and sip, no personal testimonials.

How about some financials? I will take those. Show me what you have under the hood. Since this is a family publication, I cannot print what some of the reactions to those requests have been but most of you have pretty good imaginations and can fill in those blanks.

If someone truly believes their credit report is inaccurate, they have a normal conversation about it, in a normal tone. In this case the old adage, “the louder they are, the harder they fall” applies, so take heed.

With more than 30 years of credit management experience in the LBM industry, Thea Dudley consults with companies on a wide range of credit and financial management issues. Contact Thea at theadudley@charter.net.

 

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Bad Credit

Credit mistakes to avoid – It’s Your Money

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Small credit mistakes, like paying off your credit card a few days late, aren’t a big deal.

You pay a small penalty or a bit of interest and carry on as before. A slip up like that won’t come back to haunt you the next time you apply for a mortgage.

Other mistakes though can have a significant impact, even if they seem relatively minor at the time. They can stay on your credit record for years and potentially cause you to not qualify for a mortgage or loan or have to pay a higher interest rate.

Here’s a list of five credit mistakes that you definitely want to avoid:

Ignoring your financial details.

Not being aware of what interest rates you are paying or when a temporary or “teaser” rate ends can be very costly. Carrying debt on certain accounts harms your credit score far more (credit cards) than others (lines of credit).

You need to have a clear picture of all debts that you owe, how much they are costing you and review regularly to make improvements if necessary. 

Draining retirement funds to avoid bankruptcy.

While nobody wants to claim bankruptcy, sometimes it’s the right choice. RRSPs are generally exempt from bankruptcy proceedings (except for amounts deposited in the last 12 months in some provinces) and can be left there to help you rebuild on the other side of the bankruptcy proceedings.  

Not checking your credit.

You can check your credit report easily and for free in Canada through Equifax and TransUnion. Checking regularly (at least once per year if not twice) will allow you to become aware of any credit issues or fraud sooner so that they can be dealt with.

Having something unexpected appear on a credit report is common for Canadians and it’s up to you to watch for them.

Co-Signing a loan.

While this might make sense on a rare occasion, it should be avoided most of the time and only be considered with extreme caution.

I realize that it can be hard for young people to buy their first home these days but if they can’t qualify on their own, they likely shouldn’t be going ahead. Not only will your co-signing reduce your own borrowing capacity, if the loan isn’t repaid it can be disastrous to your own finances.  

Not carrying any credit at all.

With all the pitfalls of having access to credit, it is still a necessary evil for most people. If you elect to go without a credit card or any other credit vehicle, you won’t build up a credit score which means you won’t be able to qualify for a loan when you need one.

And don’t cancel your first credit card either. Longevity in your credit history is equally important! 

Having bad credit isn’t permanent and your score can be improved over time. But like many things in life, doing so takes a little bit of time and effort. But it’s not that hard.

Just put a semi-annual reminder in your calendar to sit down and review your credit and request a report.

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Bad Credit

UAE businesses do have options other than banks

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BU-C&A-Seek-New-Ways-Web-use-abustamante-1603684656103
Alternative financing is trying to catch wider attention… and this time the providers stand a good chance of doing so.
Image Credit: Ador T. Bustamante/Gulf News

Ask most people where they would go for a loan, and the answer is usually their bank. But what about when the banks can’t – or won’t – lend?

The commercial disruption and consequent financial ramifications, first of the financial crisis and now more dramatically COVID-19, have challenged the banks’ primacy in the lending arena. As a direct result of the financial crisis in 2008, regulators sought to build up bank liquidity and limit leverage.

Basel III was introduced which required banks to maintain appropriate leverage ratios, sufficient levels of reserve capital and introduce countercyclical measures. These requirements are assessed on an annual basis and revised to minimise the risk of system-wide shocks and prevent future economic collapses.

What did this mean for borrowers? Loans were more difficult to secure, requirements on collateral became stricter and other terms and conditions became more restrictive.

Hit from all sides

In 2020, Basel III ratios for banks were revised upwards again (meaning more capital was required against risk-weighted assets), COVID-19 was announced a pandemic by the WHO and global financial markets crashed. Consequently, banks have been driven into preservation mode as they wrestle with lower profits due to the introduction of interest rate cuts and higher cost of risk with a deterioration in asset quality.

In addition, most commercial banks across the Gulf have rationalized their balance-sheets to focus on assets deemed safer based on the sector, business model and the maturity stage. As such, there has been an increase in lending to government/government-related entities and large-cap corporates, thus reinforcing the challenge of accessing finance from banks for many small, medium and mid-cap businesses.

Developers left with little

The real estate sector is a prime example of where we are seeing a significant liquidity issue, as banks shy away from financing any except government-backed assets. Developers are unable to unlock funds as usual from their existing projects to recycle into new ones.

The bond way

The second port of call is usually debt capital markets, i.e. issuance of bonds or sukuks which can be listed and/or traded over the counter. There are many advantages for companies to raise a bond, including more flexible terms and non-amortising structures. That said, it is a long process, with an operating history of three years preferred. Ratings are required and financial information about the company must be disclosed publicly.

Specialist advisors and investment banks assist companies in issuing bonds, but it is a long process and is subject to investor demand at the time of issuance.

Alternate ways

So where do businesses turn now? Step forward alternative finance. Simply put, it enables businesses to access quick, efficient, and flexible private debt from a source outside the traditional banking and capital market structures.

What is stopping businesses from taking advantage of such attractions? Misperceptions remain, with many business owners mistakenly viewing it as more expensive. And many view it as riskier and only for ‘bad credit’.

In fact, alternative finance providers are typically well-established financial institutions with the ability to quickly assess an opportunity, consider individual requirements of borrowers, and provide a bespoke solution that gives borrowers the flexibility they need while still protecting the interests of the lender.

These advantages enable businesses to access capital often far more quickly than via traditional methods and without some of the restrictive requirements, including tailored covenants and non-amortizing structures.

A deal which Shuaa completed in Dubai’s hospitality sector is a case in point. With a project already 85 per cent complete, the developer needed further funding – which the senior lender was unwilling to provide.

Getting a project to ready status

Due to leverage covenants, the developer was unable to raise debt from other sources, and because the asset was under construction the developer was unable to raise equity at an acceptable valuation. Shuaa was able to fulfil the complex requirements of the transaction through a preferred equity instrument, with a minimum return payable at maturity, thus allowing the project to complete without any impact on their existing bank facilities and no dilution for shareholders.

The hotel commenced operations shortly after our investment, and the owners were able to refinance the entire capital structure, repaid the existing debt, redeemed the preferred equity and released some cash to the shareholders.

So, businesses can find that alternative finance in fact represents an ideal funding instrument: quick and more flexible than bank debt without the complications of issuing a bond. Meanwhile, for investors, it offers the potential to participate in interesting business opportunities at a lower point on the risk curve than equity with attractive returns.

All of which makes the “alternative” a viable and appealing option. As the youngest and now third largest asset class in the private capital universe, global private debt assets under management (AUM) have consistently grown and expected to reach 41 trillion by 2021. The alternative is playing an increasingly important role on the global stage to cater to an ever changing environment.

The expectation is that the trend will continue, particularly in markets such as the GCC.

– Natasha Hannoun is Head of Investment Solutions at Shuaa Capital.

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