- Written by Super User
- Category: Auto Financing
- Hits: 5
You can try to refinance your auto loan while you have damaged credit, but the results may not be what you hope.
Refinancing is a great way of reducing the amount you owe in interest on a loan, and it can also be used to reduce your current monthly payments if you need some financial relief immediately.
However, that second option can cost you - especially if you have a tarnished credit history.Lowering Your Interest Rate
At Auto Credit Express, weve worked tirelessly for years helping hundreds of thousands throughout the nation find affordable auto financing. We understand the need for financial relief, and we want to give you more insight about how refinancing an auto loan or waiting may help you.
Lets get this out of the way first; if you have bad credit and you are trying to find ways of refinancing your current loan in order to lower your interest rate, you really should wait until you have taken more time to rebuild your credit history.
If your score hasnt increased enough, obtaining a better rate will be difficult; its likely that if you got your current rate back while your credit was good it would only get higher. Or in the best case scenario, it may stay the same.
In fact, the only way to make it worthwhile is if you were able to show the lender that you have cash in the bank or other types of liquid assets such as stocks or bonds that could be used to repay the loan if needed. If you dont have those, you could also try having a cosigner with a better credit score. These two things might help you, but the actual results may vary.Making the Day to Day Easier
If you are thinking about refinancing to reduce your monthly payments in order to lighten your financial load, see if there are ways to reduce your financial burdens in other areas of your budget first.
I only say this because while getting a reduction on your monthly payment will give you some relief from month to month, it will cost you heavily in the long run for two reasons:
- You will pay on your loan for a longer period of time
- When youre finished paying on the longer term, you will have paid far more than your car was worth due to the additional interest on the loan.
Trying to take different avenues to reduce your day to day expenses and focusing on getting your credit in order is the best way to get back in financial shape.
Once youve done that, we can find the right people to help you. All you need to do is fill out our easy and secure online application. Dont wait a moment longer, get started now!
- Written by Super User
- Category: Protect Your Credit
- Hits: 12
Talking about money with a partner can be difficult. Partly because if things are going great and everyones in harmony, theres no urgency about it. And when youre dreaming about what youd do if you win the lottery, nobody is seriously worried about what will happen if you dont.
But when decisions need to be made, or when youre concerned about your finances, theres no getting around the need for a conversation. Youre probably already worried that what you hope will be a money discussion will turn into a money fight (more about that later).
And so you summon your courage and say, We need to talk. Personal finance expert and mediator Paula Langguth Ryan calls those four words the worst way to begin a difficult money talk, no matter how well-intentioned. Though the statement is simple and to the point, those words are so often used as a preface to bad news that your mate will almost certainly have a Pavlovian fight or flight response says Ryan.
But figuring out what to say to open a conversation isnt easy either. And money fights, Ryan notes, arent really about money. They are much more about fear, she says. So, how do you begin the conversation? We got some general advice and some specific examples.
First the general advice:
Something that ties the two parties together AND lets the other party know that the first person is sharing something that makes them feel vulnerable is a better way to open the conversation, Ryan said in an email.
Anytime you can bring the money talk around to the feelings and the fears hellip; its a good thing, she said. Avoid getting stuck on the positions people are taking and the stories we are telling about what our fears mean about us (youre stingy, you never want to have fun, youre breaking an agreement, you have put us in the position of losing the house).
Delivering Scary News
Heres how that might look in practice. Lets say your very unreasonable boss got the better of you and you quit (or were fired). How do you explain that to a spouse?
Ryan says family circumstances would make a lot of difference. If this were a second income that allowed for vacations or extra retirement savings or went for some other goal other than simply keeping the household afloat, its an easier conversation, because your mate is likely less afraid. Its crucially important that the money problem be presented as a problem to be faced as a team. Heres how Ryan might introduce the topic:
My boss and I came to a mutual decision that it was best for me to leave my position. I know this is going to create some big financial changes for us, and I wanted to talk with you about what fears might be coming up for each of us so we can come up with a plan that works and makes both of us feel financially secure still. . .
You acknowledge your own vulnerability, ask about your partners feelings, and then tie the two of you together against the problem. Its still not a pleasant discussion but its a lot less likely to turn into mutual accusations. The goal is to create something you both wanthellip; in this case, a survival plan.
Youll have to go into specifics, like a tighter budget, perhaps, or how youll manage debt with less income. Talking about how to protect your credit will likely be necessary, too, but it can be done with partners fighting the problem rather than each other, Ryan says.
But money talks or disagreements arent just for when theres not enough of it. They can happen when theres an unexpected bonus or inheritance and one person wants to take a monthlong trip of a lifetime and the other wants to finish paying off the mortgage before retirement. Ryan says the formula is the same. The feelings may be that one spouse sees money as a route to security and the other grew up unable to afford much and really, really wants to splurge. Creativity can help solve the problem, Ryan says thinking way outside the box. And still, the goal is to create something that you both want.
Once More With Feelings
Its a good idea to explore where the feelings are coming from and where any fears or insecurities lie. Or where someone picked up a particular pattern. (Is it really important to have a latte every day? It might be hellip; although if you recognize that its getting in the way of creating something both partners want, it may be easier to cut back.) You have to recognize theyre not doing something to irritate you its just a habit, says Ryan.
Another thing couples should do together is check their free credit reports, which they can do once a year. They can also check their credit scores, which are free every month on Credit.com. First, its important to be sure credit reports are correct, because credit scores are derived from information in credit reports. Second, understanding where you are can help you decide where you want to go and make a plan to get there.
Whats most important is working together despite differences. And if by we need to talk, youre really thinking I need to talk, and you need to listen, its important to figure out how you yes, financially responsible, careful-with-credit you might be contributing to the problem.
Consider a newly married couple who open a joint checking account together. She doesnt always pay full balances on credit cards and makes liberal use of ATMs. He pays bills in full the day they arrive and rarely carries much cash. You can imagine how quickly they will need to talk. But the talk isnt, You have got to stop using ATMs without telling me! It is: I just realized you are taking money out, and I pay the bills as soon as they arrive now we have a problem. And then asking for your spouses help in solving it.
He just might find out why it feels so important for her to carry cash, and she might gain a new understanding of how determined he is to avoid debt and late fees because he came from a home where finances were chaotic and he craves stability now. But if one of them starts the conversation with we need to talk, it could take a whole lot longer to find out.
More from Credit.com
What Happens to Your Credit When You Get Married?
How Credit Impacts Your Day-to-Day Life
Credit Card Options for Couples
- Written by Super User
- Category: Credit Card Debt
- Hits: 8
One asset class that has become increasingly popular -- and more accessible to everyday investors -- is consumer credit. Ive spent my entire career in consumer banking, and I find the democratization of credit fascinating, game-changing and mostly a good thing. While I certainly do not recommend panicking over the stock markets recent moves, I do think this emerging asset class should be considered by ordinary investors -- and people in credit card debt.
Why Consumer Credit?
Americans like to borrow. And when we do, most of us pay high interest rates and pay on time. There is currently $880 billion of revolving credit in this country (credit card, store card and revolving lines of credit). The average interest rate on this debt is well above 15 percent.
And loss rates are low. At JPMorgan Chase (JPM), the loss rate on the credit card business is 2.52 percent in its latest earnings announcement.
To oversimplify the equation: If you charge 18 percent in interest, and only write off 2.5 percent in credit losses, than youve made a tidy profit. During my career, credit card businesses regularly had higher returns than investment banks.
A Very Lucrative Business -- for Banks
To lend money, you need money. And banks are uniquely positioned to borrow a lot of money at very cheap rates. Wells Fargo (WFC) has $1.1 trillion of deposits, and it pays only 0.1 percent for those deposits, held in a variety of accounts.
Most banks pay close to nothing on savings accounts. The Big 4 -- Citi (C), Wells Fargo, Bank of America (BAC) and Chase -- pay 0.01 percent on consumer savings accounts. So, they borrow from us at 0.01 percent, and then lend it back to us at double-digit interest rates.
No wonder credit card lending generates such outsized returns.
Some very smart people thought the equation did not make sense. Why were borrowers paying such high interest rates on their credit cards? And why were savers receiving such low interest rates on their deposits? The difference between the interest rate charged on cards and the interest rate paid on deposits went to the bankers. The banks primary purpose is to serve as an intermediary between borrowers and savers. But they seemed to be receiving too much money for this role.
Businesses like Prosper.com and Lendingclub.com are looking to change the game completely. Borrowers can apply for a loan on their platforms. The interest rates they will receive will be much lower than from traditional credit cards.
Everyday investors can fund these loans, building up a diversified portfolio. The lending platform will take 1 percent, and the rest goes to the investor.
So, the bet being made by LendingClub and Prosper is that they can do the job of a bank at a much lower cost. And the early results are promising. LendingClub alone has helped to originate more than $5 billion of loans, and it is heading towards an initial public offering.
A Guide for Borrowers
If you have credit card debt, you should consider refinancing with a personal loan from one of these new lenders. A personal loan can offer a fixed amount of money, at a fixed interest rate over a fixed period. It is a relatively straightforward contract, making it difficult to hide tricks, fees and traps in the fine print. The simplicity of a personal loan is a stark contrast to the complexity of a credit card.
And the best part of online personal loans: you can see if you are approved (including the amount you can borrow and the interest rate) without having a hard credit inquiry hit your credit score. Most personal loan companies use a soft credit pull. At MagnifyMoney (my website), we have put together a list of online personal loan companies to help you compare and see how much you could save. Reducing your interest rate can take years off your debt repayment.
For Investors, Its a Bit More Complicated
Investing in a personal loan on one of these marketplaces is very different from putting your money into a savings account. Here are some of the most important differences:
- Your money is not insured by the Federal Deposit Insurance Corp. In fact, you can lose it all. This is a speculative investment, not a safe place to park cash.
- It is not liquid. When you lend the money to another individual, your money has literally been transferred from your wallet to the borrowers wallet. Banks keep liquidity to fund early withdrawals; no such liquidity exists here. There are opportunities to sell the debt in a secondary market, but this is new and there is no guarantee on the price you can receive.
- If you cant invest in at least 100 notes (at a minimum ticket size of $25, that is $2,500), then you really shouldnt invest. Personally, I prefer to have at least 250 notes to further reduce potential risk clustering.
- Beware loans that run longer than 36 months. During my lifetime of consumer lending, I have observed the performance of many personal loan portfolios. And the longer the duration, the more likely that the consumer stops paying. Five years is a long time, and there is limited data for any loan originated on the platform over a five-year horizon.
- If you dont want to spend a lot of time, consider signing up for automated investing, which builds a diversified portfolio for you (and you can specify the maximum tenor of those loans).
- Dont invest more than you are willing to lose entirely. The asset class (personal loans) is not new. But the companies originating the loans (LendingClub, Prosper and others) are new. The true risk profile of customers attracted to these websites is not yet clear and can have a material impact on the returns. And, with aggressive growth planned going forward, it is not clear how the targeting and risk underwriting will evolve. (Even small things -- like the marketing message used to attract a consumer -- can have a huge impact on the credit risk of the borrower, regardless of score. As an investor, you have no control over the marketing and scoring).
For investors, this is still relatively new territory. It is worth exploring, but with caution. I have my own humble portfolio with LendingClub, and it is generating a 6 percent risk-adjusted return. But I am still going to wait a few more years before I meaningfully increase my exposure.
Nick Clements is a consumer advocate and the co-founder of MagnifyMoney.com, a website that makes it easy to understand the true cost of financial products. He spent nearly 15 years in consumer banking, and most recently he ran the largest credit card business in the UK
- Written by Super User
- Category: Credit Card Debt
- Hits: 2
The world of credit and finances can be daunting when youre in your 20s and just setting out on your own. Many of us tend to avoid those areas of our lives that are a bit scary, but keep in mind that your credit and finances are two of the most dangerous areas to ignore. So lets agree to face these fears, and avoid making the mistakes that could haunt you for many years to come.
In my experience, I see mainly two kinds of 20-somethings, those who steer away from having any kind of credit and thus have yet to build a credit score and history; and those who take any and every credit offer available to them, rack up huge debts and will wake up sometime in their 30s deep in financial trouble and even deeper in regret.
Whats wrong with both of these scenarios? Perhaps the worst mistake of all: a lack of planning for the future. Whether youre ready for it or not, your future will come and when it does (usually quicker than expected), you will likely want to buy a home, maybe a new car, perhaps even help your future kids through school and maybe even leave a financial legacy that will outlast your time here. If you want any or all of these things you need to have a plan now.
Establish a good credit history
If you dont have credit or a credit score, you can start small by getting a store credit card or a secured credit card. Pay one of your regular monthly bills - like your cellphone bill - with it. Pay off or pay down the balance each month making sure to keep the balance below 20% of the total available credit line. This is a good way to optimize the Amount of Debt factor of your credit score, which accounts for about 30% of your score. Make all your payments on time, because your payment history makes up 35% of your credit score. Over time, this will lead to a good, strong credit history.
If you have a lot of credit card debt and are having trouble making your payments, try to focus on paying down all of your balances to 20% or less of your available credit. It may help to focus on paying down one account at a time while maintaining on-time, minimum payments on all the others. If you have trouble with spending too much, stop carrying your credit cards while you pay down balances.
Maintain healthy credit and finances
Once you have begun to establish a healthy credit history, you just need to continue doing the right things. To keep improving your credit score and building a credit history worthy of a home mortgage you will need an established, long-running reputation of conservative borrowing and on-time payments.
So how do you know if your efforts are leading to good credit? You can find out by pulling your credit reports regularly and make sure theyre accurate - you can get them for free every year from the major credit reporting agencies. You can also track your credit scores to follow your progress. Credit.com offers two of your credit scores for free, along with an overview of how your credit file is affecting your scores, and a plan to help you work your way toward better credit.
Yes, your 20s is the best time to get in the habit of managing your credit, finances and life responsibly. Good luck! And if you have any questions, please let me know. Im here to help you every step of the way.
More from Credit.com
How to improve your credit score
Does checking my credit score hurt my credit?
Whats a good credit score?
Credit.com is a USA TODAY content partner offering financial news and commentary. Its content is produced independently of USA TODAY.
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