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Should I Refinance or Buy a Car After a Bankruptcy?



Once your bankruptcy has been discharged, not only is it a big relief, but you’ve got a fresh start in the world of credit. However, you may have come out of the whole ordeal with some battle scars on your credit reports, so here’s what you can expect when you choose between refinancing or taking on another car loan.

Refinance or Finance Again?

Should I Refinance or Buy a Car After Bankruptcy?If you got to keep your vehicle during bankruptcy, you may be considering refinancing since you’re no longer under the umbrella of courts and trustees. However, refinancing may be more difficult because your credit score has likely seen some damage. Getting into an auto loan may be slightly easier if you work with the right lenders.

Refinancing involves replacing your current car loan with another one, while keeping the same vehicle. Usually, the main goal is to get a lower monthly payment. Auto financing is simply taking out another loan for a different car, and you can usually use your current vehicle as a down payment if you shop with a dealership.

If you’re debating trading in your current car for another, or keeping your vehicle and lowering the payment, let’s get into the details so you can make an informed decision.

Refinancing Broken Down

Most borrowers refinance to lower their monthly loan payment. This is done by either lowering their interest rate or lengthening their loan term (sometimes both). Having more disposable income each month is usually the biggest motivation for borrowers looking to refinance.

To lower your car payment, the best money-saving option is to qualify for a lower interest rate. Since auto loans use simple interest, you’re charged interest daily based on the balance of your loan. The longer you have the loan with a higher interest rate, the more you end up paying overall. If you just extend your loan, you’re going to be charged more interest, which doesn’t save you any cash. Your payment may be less each month, but you’re paying more long term.

A large benefit of refinancing over buying another vehicle is that refinancing doesn’t usually require a down payment. You also get to keep your current car, since refinancing is just replacing your loan with another – not replacing the whole vehicle.

Common Auto Loan Refinancing Requirements

Refinancing doesn’t usually require the best credit score to qualify, but it usually needs to be good, or at least better than it was when you first started the loan.

For many borrowers fresh out of bankruptcy, your credit score may be worse than it was when you first got the auto loan. If this is the case for you, refinancing may not be in the cards right now. You probably need to give your credit reports some time to heal before you can qualify for refinancing.

Other requirements of refinancing typically include:

  • Vehicle must be less than 10 years old and have fewer than 100,000 miles
  • Car’s value must be equal to or greater than the loan amount
  • Loan must be at least one year old
  • Loan amount can’t be too large or too small per the lender’s thresholds

If you can meet these requirements, you may be able to qualify for refinancing after bankruptcy.

Car Loans Broken Down

Taking on an auto loan after your bankruptcy is discharged may be easier than you think. Many bad credit lenders are willing to finance borrowers with a bankruptcy on their credit reports. While your credit score may have taken some hits, you’re likely in a better financial position than you were before you entered bankruptcy.

Car loans can be a great way to heal your credit reports after bankruptcy. While bad credit lenders almost always require a down payment to qualify, if you have a trade-in with equity, it can help you meet that requirement.

If you’re debating on refinancing or buying another vehicle, you’ve got a current auto loan. As a good rule of thumb, dealers can take a trade-in if it runs. The better shape it’s in, the higher offer you’re likely to get. Just know that you must get an offer high enough to cover your loan balance to sell the car.

While most dealerships can take trade-ins, not every auto lender can assist bankruptcy borrowers, but ones that can are called subprime lenders. They’re signed up with special finance dealers. These lenders look at more than your credit reports and scores to determine your creditworthiness – and part of that is having a down payment.

If you don’t meet the refinancing requirements with your current car loan, working with a subprime lender could be the way to go. You can possibly use your current vehicle as a down payment to help you meet the requirements, and get back on the road to better credit after bankruptcy.

Bankruptcy Auto Loan Requirements

While all auto lenders vary in their specific requirements, subprime lenders tend to carry similar guidelines and standards that borrowers need to meet.

Subprime lenders typically require a down payment of at least $1,000 or 10% of the vehicle’s selling price (sometimes whichever is less). If your trade-in can cover this requirement, then any other cash you have on hand is just gravy.

Other common requirements of subprime lenders include:

  • A minimum monthly gross income of around $1,500 to $2,500
  • A valid and up-to-date driver’s license
  • A recent utility bill or bank statement proving your residency
  • A working landline or contract cell phone
  • A list of five to eight personal references

If you just completed your bankruptcy, and the discharge hasn’t appeared on your credit reports yet, then expect to need your discharge paper to prove you’re in the clear for a car loan.

Ready to Make a Move?

Whether you’re ready for refinancing or auto financing, we want to help. To begin the process of finding a refinancing lender, start right here.

If you’ve decided to get a car loan, we can assist with that too. Here at Auto Credit Express, we’ve created an extensive network of dealerships that are signed up with subprime lenders. To get matched to a dealer in your area that can assist bankruptcy borrowers, fill out our free auto loan request form.

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



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



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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