Hazards of Car Title Loans

Bad credit risks are often coated with great deals and generous terms by lenders. This type of loans would require you to secure yourself through realigning some of your assets. These loans are good for those who have properties but are not liquid enough to start a business. However, there is a huge risk for your part because if you fail to pay the loan, banks can take your personal assets and your own home.

The crisis in the housing market has led to the search in alternative courses for these loans. The main alternative currently being pushed is the car-title loan; where instead of signing up your land, you can mortgage your car instead.

The interest rates for these loans are high mainly since collection is very troublesome and those who apply for these loans are desperate for money. Furthermore, this market’s competition is not very intense. DC and Maryland has recently passed laws which capped the interest rates of these car title loans which is strictly irreversible for lenders.

These loans have been enlightening for legislators because it clearly shows that anti-usury laws might always have the desired bearing that they intended. The role of the Consumer Financial Protection Bureau is also highlighted in this scenarios, it shows how crucial their existence is in the market.People are often not very skilled with math and the people in the market sometimes tend to have relatively low math skills. That is why the lenders must be enforced to present a clear presentation of their loans’ terms and offers to customers so that they will better understand what they are getting themselves into and prevent risks of financial delinquencies and car possessions. A world that has a good market for loans where competition among different companies is fair is the ideal and essential.

TransUnion Reports Low Number of Credit Auto Loan Delinquencies

The latest report released by record agency TransUnion show that the number of 2012 auto delinquencies continues to be low which is spectacular news for people who have less than average credit.

Subprime auto lenders continue to have no problems in their financing for credit challenged customers.The second quarter report of TransUnion on automobile lending is based on 27 million records of customers. These records are randomly selected each quarter interim and recorded by the agency.

TransUnion says that those who have gotten a loan and missed payments for over 60 days past the due date have dropped and it is currently in its lowest rate to date since 1999. The decrease that was recorded is 25 percent from the 0.44 percent of the rate on the same period last year. The current rate is 0.33 percent.

There is also news that would make auto buyers with problems in their credit happy. The percentage of none-prime borrowers with credit scores less than 700 has risen only by 9% for new auto loans. In the past years the increases that were recorded have been over 20%.

Peter Turek, the vice president of TransUnion’s financial services business unit comments that it is very good that the number of auto loan delinquencies are still low even if the number of non-prime consumers have gotten higher.

It is advisable for consumers to always remember these things if they want to apply for high-risk loans.First, always know your FICO score and your credit reports. Second, consider contributing at least 10 percent of your money to the loan or trade equity. Third, keep the terms of the loans you will have short and finally, buy a car that is compact or medium sized and do not consider changing it unless you have fixed your credit status.

How to Reduce Credit Auto Loans

According to recording agency, Experian subprime auto buyers are almost twofold as likely to have cars they purchase repossessed by banks and credit unions they should be able to prevent this from happening by knowing the following.

Those with poor credit who buy cars are limited to shopping and comparing interest rates from different companies who are high risk lenders. But interest rates could be reduced regardless of the number if you decrease the loan’s period and pre-payment of the loan.

Why do you reduce the term of a loan? If you decrease this it will increase the monthly payments you will have to pay and it will reduce the interest of the loan intensely.

For instance, you buy a $15,000 car with a 7% interest for tax and $120 fee that are non-taxable with a down payment of $2,000 the amount that you will pay will be $15,240. If you go on paying for this amount at a 60 month period at a 17% interest then the monthly payment will be $379 every month. This means the amount that you will be paying for the term will be around $7,485.

However, if you lessen the period to only 48 months with the monthly payment of $439 your total interest will only be $5,868 that is $1,600 off the price. Not only that, you will be paying the whole amount before the payoff so you could trade off earlier and this would have a positive effect in your credit score for it would not only increase it but allow you to be qualified for other loans with lower interest rates in the future.

Pre payment works because even if you pay more in the beginning of the loan you will be able to reduce the time interval of your car payments and lessen interest rates. You can even split the high loan into two parts and pay for the high interest in an earlier time and pay off the whole amount during the maturity date. The results will be the same only cheaper. You will have big savings.

Car Loan Standards Loosening

In recent times, banks and investors are lending more money to people to buy cars. According to the automotive division of Experian, the value of auto loans outstanding was $725 billion at the end of quarter two this year and this is 5.7 percent more than that of the previous year and also a record high ever since quarter one of 2009.

There is an increase in the number of banks telling the Federal Reserve that they are loosening the standards for making new car loans, and that the market for securities backed by auto loans has recovered.

The rise in car financing is supporting one of the few parts of the consumer economy that is prospering. Lenders are keen to increase interest income since earnings on alternatives such as U.S. Treasurys are very poor. Moreover, they perceive auto loans as mostly attractive and secure.

Auto loans are more appealing to lenders than long-term mortgages because they are relatively small and span three to six years only. Based on the most recent survey conducted by Experian in the previous year, there was an increase in auto loans, even subprime auto loans, by roughly 1 percent.

According to Jim Lentz, U.S. chief executive at Toyota Motor Corp., more banks are getting into auto loans and it is good that there are more subprime auto loans.

Meanwhile, Wall Street reported that the market for securities backed by auto loans has recovered. Approximately $50 billion in bonds backed by auto loans have been issued this year, more or less the $53 billion raised in all of 2011. The loans are initiated by finance units of auto makers and banks, packaged into securities, and then sold to investors.

So far this 2012, the quantity of securities backed by auto loans is roughly 33 percent greater than the 2006 pre-crisis levels. However, the quantity of securities backed by mortgages is about 70 percent lower than 2006 levels.

The Perks of Credit Inquiries

Credit inquiries are part of the statement that determines your FICO score and car shoppers need to be aware of the benefits of inquiries to their scores.

If your credit is not very good or spotless then it is wise to know the impact of credit inquiries on your score. Buyers of cars try to inquire about their credit however what they do not know is that if they are not careful, this could do more harm in their FICO score than good.

FICO employees have been blogging about the effects of inquiries to FICO scores when customers inquire for credit.

According to recent news about car loan inquiries: asking for your credit status in a 30 day interval before the scoring will have no significant effect in improving your FICO score, furthermore all inquiries made within a 45 day period are only counted as one but they must be all for auto loan.

According to FICO you should have only short reasonable periods for shopping and it would also be smart to research about the different companies and their auto deals first. If you have bad credit then you should be responsible enough to get a copy of your credit report from the three reporting agencies and your bill for payment in one of your credit.

Here are some inquiries that have no effect in your credit scores:

a) Inquiries for consumer disclosure – this is when a costumer asks for their credit report copy.

b) Inquiries for promotional purposes – this is when lenders would ask for review in credit offers that were previously approved.

c) Inquiries for account review – this is when lenders would ask for review for the accounts that they currently are handling.

d) Inquiries for employment – this is when potential employers requests for employment.

e) Inquiries for insurance – these are requests from insurance companies regarding a client.