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Is Leasing a Car a Good Idea for You?

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When it comes to leasing over buying, whether or not it’s a good idea depends on your credit, your financial situation, and what you value in a car.

Thinking About Leasing Your Next Car?

Is Leasing a Car a Good Idea for You?Your credit history dictates your purchasing and leasing power. This is because your credit history generates your credit score, which gives lenders and leasing companies an idea of your creditworthiness.

If you’ve got your eyes on a brand new leasing deal, but you’re not sure if you should go through with it, the first thing you need to do is check your credit. New car leasing is almost always reserved for borrowers with good to great credit scores.

If your credit score has seen better days, you’re probably more likely to get approved for auto financing rather than a lease. The vast majority of new vehicles are leased to borrowers with credit scores above 670.

Additionally, the better your credit score, the better money factor you’re likely to qualify for. The money factor in leasing is comparable to an interest rate on a car loan, both of which are largely influenced by your credit score. If you do get approved for a lease with a lower credit score, your monthly payment is probably going to be more expensive.

Can You Afford a Lease?

Answering the question of whether or not you can afford a lease can be tricky, since lease payments are usually cheaper than loan payments. How expensive leasing might be can depend on the money factor, how you treat your vehicles, how much you drive, and the length of the lease.

With leasing, you have mileage limits, which vary depending on the program. But if you tend to drive more than 10,000 to 15,000 miles a year and don’t buy extra miles up front, you’ll likely end up paying extra when you return the car.

Additionally, you’re expected to maintain the vehicle and return it in good condition. Off-lease cars are usually sold once they’re returned, so the leasing company wants the vehicle returned in good shape. If you return a car with excess wear and tear, or you neglect some needed repairs, expect to pay to cover any needed repairs or fees.

If you take good care of your vehicles, and you have enough income to cover non-warranty repairs, leasing could be a great deal for you if you want to drive a new car every few years. Which brings us to another point: are you OK with always having a car payment?

When you lease, you’re only paying for the time you have the vehicle – you aren’t paying for the entire car. If you’re thinking of leasing for the foreseeable future, you’re always going to have a car payment until you decide to finance or stop driving.

Another aspect to consider is the cost of auto insurance. When you finance or lease a vehicle, you’re required to have full coverage car insurance. Since leased vehicles are typically new, you’re likely to pay more for auto insurance than you would if you financed a less expensive used car.

Advantages of Buying a Car Instead

If your credit score isn’t up to snuff, driving a brand new car isn’t something you value, or you simply drive too much for a lease, financing a vehicle could be for you.

There are quite a few advantages to financing. One of the biggest is that you earn equity. Equity is useful when you want to upgrade your ride, since if you have it, you can trade in your current car and put that equity toward your next vehicle.

With buying, you can also knock around your car as much as you like (within reason). Once you pay off the vehicle, you’re also not obligated to maintain full coverage auto insurance – you can switch to the bare minimum amount mandated by your state, which is usually much cheaper than full coverage.

If your credit score needs some work, you’re also more likely to get approved for car financing with a bad credit lender, compared to a traditional lender and leasing company for a lease. You can also work to improve your credit score with an auto loan, with the aim of getting approved for a new vehicle lease in the future by keeping up with car loan payments.

Get in Touch With a Bad Credit Auto Lender

Looking to start your car buying journey? Begin with us at Auto Credit Express. We connect bad credit borrowers to dealerships with bad credit lending options. Our network spans the country, and we’ll work to find a dealer that can work with your unique credit situation.

To begin, fill out our free auto loan request form and we’ll get to work right away!

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Fall River Man Charged With Stealing Unemployment Benefits

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BOSTON – Six Massachusetts residents have been charged in federal court with using stolen identities to obtain official IDs and governments benefits, including a Fall River man.

Antonio De Carvalho Vicente, 59, a Brazilian national illegally residing in Fall River, allegedly submitted an application for Pandemic Unemployment Assistance benefits using another person’s name and Social Security number, according to a media release from the office of U.S. Attorney Andrew E. Lelling.

De Carvalho Vicente allegedly received weekly payments of $600 under the PUA program, although the Massachusetts Department of Unemployment Assistance later ceased payments after flagging a suspected identity issue, Lelling’s office said. The release did not say how much money the man allegedly collected.

Last week in Boston, De Carvalho Vicente was charged with theft of government funds. The charge provides for up to 10 years in prison, three years of supervised release, and a fine of $250,000.

Five other defendants, including people from Lawrence, Roxbury, and Roslindale, allegedly used Social Security numbers and other identifiers to obtain, for example, Massachusetts driver’s licenses, Mass Health benefits, and unemployment assistance under the Coronavirus Aid, Relief, and Economic Security Act, Lelling’s office said.

“Identity fraud takes a tremendous toll on its victims,” Lelling said in a statement. “Individuals whose identities have been misused can face difficulties obtaining health care benefits, Social Security benefits or unemployment benefits, and are often left dealing with collateral consequences such as tax liability, bad credit and outstanding arrest warrants in their names. We will continue to hold accountable those engaged in identity fraud.”

Michael Shea, Acting Special Agent in Charge of Homeland Security Investigations in Boston, issued his own statement:

“These arrests mark an important landmark in the fight to ensure that benefits owed to American citizens go to whom they belong and not to those illegally present in our country,” said Shea.  “This is an important enforcement metric reached in the fight against benefit theft crimes, which are especially egregious during today’s these times of serious economic and public health concerns.”

Shea extolled the “tireless, dedicated team work of those partners who make up the Document and Benefit Fraud Task Force” and praised Lelling, the U.S. Attorney for Massachusetts, “whose unprecedented commitment to prosecuting these crimes has never wavered.”

Phillip M. Coyne, Special Agent in Charge at the Office of the Inspector General of the Department of Health and Human Services regional office in Boston, took the opportunity to chime in:

“The Medicaid program is a partnership between the federal government and the states to provide healthcare to some of the most vulnerable members of society,” said Coyne. “Medical identity theft jeopardizes the safety of its victims while disregarding the taxpayers who ultimately bear the cost. We will continue to root out imposters whose actions threaten the integrity of our healthcare system.”

Since July 2018, 50 people have been charged in connection with document, identity and benefit fraud through investigations by Homeland Security’s document and benefit fraud task force, a “specialized investigative group comprising personnel from various state, local and federal agencies with expertise in detecting, deterring and disrupting organizations and individuals involved in various types of document, identity and benefit fraud schemes.”

The task force investigates people who allegedly obtained stolen identities of U.S. citizens living in Puerto Rico to fraudulently obtain documents and public benefits, Lelling’s office said.

Lelling acknowledged a host of partners in the investigations, including police departments in Fall River and Dartmouth.



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Self-Employment, Freelancing, and Auto Loans

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With unemployment hitting record highs this year, we’ve also seen an increase in people becoming self-employed by starting to freelance or picking up a side hustle in an attempt to make extra cash. What does this mean in terms of your ability to take on a car loan, though?

Proving Your Income While Self-Employed or Freelancing

Self-Employment, Freelancing, and Auto LoansOne of the cornerstones of getting approved for an auto loan is proving you have enough income to pay for the vehicle. With a W-2 income (when you work for someone else), this simply means having a recent check stub that proves a monthly income that meets the lender’s minimum requirement, and shows your year-to-date income.

For people who are self-employed or freelancers, this means you have 1099 income (when you work for yourself or you’re a contractor). Some lenders may not accept borrowers that are self-employed, and whether or not they do can depend on your credit score.

Borrowers who are self-employed may need to provide copies of their tax returns to prove their income. However, if you have good credit, a traditional car lender may not ask for these. They may only ask for bank statements or deposit slips as proof of income.

However, expect to need more if your credit is poor.

Proof of Self-Employment Income and Subprime Lenders

For borrowers who are applying with a subprime auto lender for their next car loan due to a lower credit score, proof of income is a big factor. Subprime lenders look for stability in their borrowers outside of their credit score, and this means they typically verify work history and income to determine your ability to take on an auto loan.

If you’re self-employed or a freelancer with bad credit, then expect a subprime lender to ask for two or three years of your tax returns for proof that you can meet the income requirements. Your tax returns also prove that your income is taxed and reported.

Many people wonder if you can use bank statements to prove your income with a subprime lender. Unfortunately, bank statements don’t show that your income is reported, just that it’s deposited in your account, so subprime lenders almost always don’t accept them as proof of income.

Your tax returns can also prove your work history, since it can show a consistent source of income. Many subprime lenders look at your work history going back three years, and they usually require that you’ve been at your current job for at least six months to one year.

While subprime lenders have some stringent requirements for their car loans, it’s all in an effort to make sure that you have the ability, stability, and willingness to handle the loan. Their auto loans are also reported to the credit bureaus, which means there’s a chance for credit repair with timely payments.

If you can’t prove your income or work history with tax returns, then you may have to look into other car lending options.

Self-Employment and BHPH Dealerships

If your credit score is low, you’re self-employed, and your tax returns don’t prove your income, then you’re likely to need a buy here pay here (BHPH) dealership to get into an auto loan.

BHPH dealers have double roles, since they’re also your lender. All the car shopping and financing is done at the same location, so it’s a one-stop-shop experience. The biggest plus to these dealerships is that they usually aren’t concerned with what’s on your credit reports, so a lower credit score wouldn’t come in between you and a vehicle.

These dealers often aren’t as concerned about where your income is coming from, as long as you have enough to prove you can pay for the car. Since BHPH dealerships don’t have to rely on a third-party lender to approve you for financing, they tend to have their own means of verifying income.

Some requirements of a BHPH dealer usually include a down payment and some form of proof of income. On average, BHPH dealerships tend to assign higher than average interest rates on their auto loans, so it’s something to be mindful of. BHPH dealers may not report your car loan to the credit bureaus, so ask about their reporting practices if you’re concerned about credit repair.

Ready to Find a Dealership?

Finding the right lender for your income situation can be a struggle, especially if you’re dealing with credit issues. However, locating the right lender doesn’t have to be a hassle, and we want to help.

Here at Auto Credit Express, we’ve produced a network of dealerships that spans across the country. We match bad credit borrowers to dealers that are signed up lenders that work with unique credit situations. Get started right now by completing our free auto loan request form, and we’ll look for a dealership in your area without any obligation.

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What Is a Line of Credit vs. Credit Card

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Borrowing money is par for the course when you run a small business – emergencies arise and opportunities pop up, and both require quick access to cash. For many small business owners, it’s a toss-up between taking out a line of credit or putting expenses on a credit card. Deciding which funding method makes sense for you depends on your credit score, funding needs and the type of business you’re running.

 

Editor’s note: Looking for the right loan for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

What is a line of credit?

A line of credit is a revolving loan that allows business owners to draw down money as they need it. The money can be used to address business expenses or to bankroll growth. There is no lump sum disbursement with a revolving line of credit, it works like a credit card. You only pay interest on the money you use.

How does a revolving line of credit work?

A revolving line of credit is a business loan that you can continually drawdown and repay. The credit limit on lines of credit typically range from $1,000 to $250,000, although some lenders will go even higher.

A small business line of credit is renewed annually, with interest accruing once you draw down money. Most have a variable interest rate, which means it changes with the prevailing interest rate in the market.

To obtain a line of credit, you and your business undergo a credit review in which your credit history is picked apart. That will determine the interest rate and credit line. In some cases, a personal guarantee is required to win approval for a revolving credit line.

 “Lines of credit are harder to get than a business credit card,” said Ted Rossman an industry analyst at CreditCards.com. “You have to be in business for at least three years and have at least $250,000 in annual revenue. Some online lenders lower the threshold.”

What are the types of lines of credit to consider?

There are two main types of business lines of credit: secured and unsecured.

  • Secured lines of credit require the business owner to offer collateral. If the debt goes unpaid the lender gets the piece of equipment or real estate. Secured lines of credit tend to have higher limits and lower interest rates because you have skin in the game. Secured lines of credit are required for funding of more than $100,000.
  • Unsecured lines of credit don’t require you to pledge collateral, but you may have to sign a personal guarantee. That means if your business doesn’t pay back the money, the bank or lender can come after your personal assets. Unsecured lines of credit tend to have lower limits and higher interest rates. Many unsecured credit lines have a credit limit from $10,000 to $100,000.

“A personal guarantee can be required if your business doesn’t have paperwork or you’re a sole proprietor,” said Michael Levin, a professor at Otterbein University. “They want proof you can pay the loan back.”

When should you choose a line of credit?

There are several reasons why a business owner would want to use a line of credit, including these four scenarios.

  1. Fund growth: Business owners in growth mode can benefit from a business line of credit. It can be used to purchase new equipment, launch a marketing campaign, or otherwise grow your enterprise. “If you are expanding your business or entering a new market a business line of credit makes sense,” said Levin.
  2. Fill cash-flow gaps: Many small businesses don’t get paid on the spot for their services. Sometimes it can take sixty to ninety days. That can negatively impact cash flow. A line of credit can be used to fill any gaps while you await payment.
  3. Peace of mind: Unexpected emergencies and expenses is part of running a business. If you aren’t prepared, it could spell your business’s demise. A line of credit is insurance against that, acting as a cushion when you need cash.
  4. Builds your business credit rating: If you maintain your line of credit, it will be reflected in your business credit score. The higher that is, the lower the cost of future borrowing.

How do I get a line of credit?

Business owners have options when applying for a line of credit. Banks and credit unions offer business lines of credit, as do credit card issuers and online lenders. It’s important to shop around since the interest rate will vary from one lender to the next. Levin said to start with your existing financial institution and take it from there. They already have a relationship with you and may offer deals if you have a business banking account.

Online lenders are another option. They tend to be more lenient than banks in approving borrowers, but the interest rate may be higher.

“A general rule of thumb: for banks, you have to be in business for three years and have $250,000 in annual revenue; for online players, it’s one year and $100,000,” said Rossman.

What is a business credit card?

A business credit card is also a revolving line of credit that can be used to make purchases. Credit cardholders pay annual interest and fees, otherwise known as the annual percentage rate (APR). Many business credit cards have rewards and loyalty programs that give you cash back and/or points on purchases.

How does a business credit card work?

Business credit cards act the same way that personal credit cards do. You use them for purchases online and in stores and are required to pay a monthly balance. If you don’t pay the entire amount, it carries over to the next pay period and interest is tacked on. Credit card debt can get expensive, particularly if the APR is high. Also, some credit card issuers charge an annual fee.

Business credit card issuers look at your personal and business credit scores when approving you for credit. If you have a high credit score, you’ll get a lower interest rate on your card than someone with a poor credit score. If you default on your credit card it will have a negative impact on your personal credit score and standing.

Business credit cards have a lot of perks if you use them responsibly. To get your business, credit card companies will lure you with generous rewards and bonuses. They know businesses tend to spend a lot of money each month and they will go to great lengths to win your business. Most offer 0% introductory APR, sign-up bonus, and generous cashback or point on purchases.

When should you choose a business credit card?

Business credit cards can be very useful for business owners, granted they are paying off the balance each month and avoid racking up credit card debt. Here’s a look at three of the big reasons why you may want to use a business credit card.

  1. Rewards you for purchases: A big perk of using a business credit card for purchases is the rewards. From cashback to free flights, business owners can rack up serious cash and rewards with a credit card.
  2. Prevents comingling of accounts: Having a business credit card helps you keep business and personal expenses separate. Whether you’re just starting out or have been in business for years, best practice is to have a separate business and personal checking account. This applies to credit cards too. Having a business credit card helps you keep your expenses separate and also makes it easier to track them.
  3. Builds your business credit score: Just like a line of credit a business credit card can help you establish or build your credit score. If you use the card responsibly, your rating with the credit rating bureaus will increase over time. That will make it easier and cheaper to borrow money the next time around. A lower monthly payment on future credit card debt is welcome news to business owners.

Line of credit vs credit card: which should you choose?

There are several differences between lines of credit and business credit cards. Which one makes sense for you depends on your credit standing, funding needs and business type. Consider the following four questions.

  • Which can you qualify for? Business credit lines are harder to get than business credit cards, requiring you to have an established operation. According to Rossman, the interest rate on both products are in similar ranges, although you may pay more with a credit card depending on your credit score. If you and/or your business don’t have stellar credit, you have a better chance of getting approved for a business credit card than credit line. [Read related article: How to Apply for a Business Credit Card if You Have Bad Credit]
  • How established is your business? If you are a sole proprietor or a new business owner who doesn’t yet have any financial documentation for your business, a credit card is the better choice. Typically, with a business line of credit, lenders require you to have one to three years in business and $100,000 to $250,000 in annual sales.
  • How do you plan to use it? If you need money to make a large one-time purchase or for small expenses like office supplies, a business credit card makes more sense. If it’s for large recurring expenses like inventory purchases, emergencies or to fund growth, a credit line is a better option.
  • Do you travel or make a lot of small purchases for your business? If you travel a lot for business or have a lot of small, regular purchases, a business credit card may be the better option because you can rack up a lot of miles and/or cashback rewards, granted you pay your balance each month.

“It depends on the type of business you have. If you do a lot of traveling as part of your business than a business credit card makes sense,” said Levin. “If you are trying to structurally increase your business, a business line of credit makes more sense.”

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