Auto bad credit loan refinance
Everybody needs a vehicle, and vehicles cost quite a bit. Obvious route is automobile loans. But borrowers with FICO score of 620 or less are not welcomed by most of the lenders. So what is this FICO score that plays so important a role. FICO score is the most common method used for assessing credit worthiness of a borrower. The scores range from 300 to 850. Fair, Isaac & Co., developed this scoring system, hence the name FICO. Basically, the scoring is based on person?s loan repayment record, quantum of loans outstanding as on date, different types of credit that the person has availed, duration of these loans, and details of the latest loan availed.
Each of these factors is assigned some weight under the system, based on which FICO score of the person is finally derived. FICO scores indicate to lender the probability of borrower defaulting on the loan. Formerly, this information was accessible only to lenders. Now, however, borrowers too can access this information, courtesy the intervention by Congress, state legislations, and financial institutions. By knowing his or her FICO score, a borrower can focus on improving it, and there will be no surprises in store when he or she applies for any loan. United States has three credit bureaus, namely, Experian, Equifax, and Trans Union that let a borrower know where he or she stands as far as creditworthiness is concerned.
A credit score of 620 or less pushes the borrower into sub prime lending category. What it means is that the borrowers credit is bad. Therefore, all lenders are not open to lending to such borrowers. A major implication of this is that borrower will have to pay considerably higher rate of interest when compared to other borrowers whose FICO score is higher than 620. But this should not drive borrower back into shell. If payment record is good, but other factors like different types of credit availed, and outstanding loans, are bad, borrower can try to do something about it like consolidating the loans through refinance.
There are some lenders who will come forward to lend to borrowers even with this low score. However, the interest rates offered by these lenders vary substantially, and borrower must do a thorough investigation before availing the loan. Different lenders may again have different levels of acceptability of FICO scores.
Therefore, they may offer competitive rates. Borrower should
a. not resort to taking services of some agent or dealer who promises to get him or the auto loan. These dealers and agents take a hefty commission for getting borrower a loan that is easily available in the market.
b. ensure that the credit report on the credit bureaus mentioned above is accurate. Sometimes, a loan is repaid in its entirety, but the credit report continues to show it as outstanding loan. This can adversely affect the FICO score of the borrower.
c. take pains to get the best deal. It should not be a ?first come first served? sort of loan. The borrower must go through the credit bureau reports to get a realistic view of where he stands when compared to other borrowers. This will give him an indication about what should be reasonable rate of interest applicable to people with his FICO score.
d. try to improve on the credit score by being prompt in paying installments, or lower higher interest rate loans through refinance, etc.
It is also possible to obtain refinance for auto bad credit loans. By availing such refinance, the borrower can
- extend the term of repayment, thereby lowering the regular installments or
- get loan at lower rate of interest, if the interest rates have been dropping or
- consolidate all the auto loans into one that is the cheapest, thereby ensuring faster repayment of the auto loans.
The borrower must, however, watch for pre-closure charges, and transaction charges at both ends, otherwise, he could simply be making a bad deal.
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