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Car Loans Requiring Higher Scores Now


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Just some info that I thought I would pass on.

I don't have a lot of detail, but just purchased a new car this past week. While I did get a very good rate, it was not as low as I had expected based on my scores (all 700+). While talking to the finance guy, he mentioned that things were getting much tighter in the auto lending industry now, and that many of the lenders had increased their score criteria by at least 50 points or more.

In other words, if you needed a 680 FICO last year to get 3%, then you now need a 730 to get that same deal. He said that he was not getting any approvals for any scores below 600 unless there was a significant down payment involved.

Could be he was just saying that to close the deal, but thought it was worth mentioning.

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He may have been exaggerating the numbers a bit, but overall, I believe it. Thanks for sharing, bmackay!

The good news about all of this belt-tightening that's going on in the industry is that it will force us all to look at our finances more closely and carefully - and respond accordingly with our spending/borrowing habits. It's probably in a lot of people's best interest to have a 10K card cut back to 5K CL or to be "offered" a high rate on an expensive car. It all forces us to think and act a little more cautiously.

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Car loans, home equity loans, mortgages, etc are all packaged and sold as bonds to investors. The bond income is used by retirees, pension plans, and others as stream of income.

The price of these bonds has tanked (some BBB bonds are trading at 0.05 on the dollar) because default rates have spiked. To account for the increased risk of default, investors want higher returns in order to buy the debt. Higher returns (aka higher bond yields) mean higher rates for borrowers. And so here we are.

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Unfortunately the dealers will be hurt too (and the automakers). The lenders are covering their asses. Will be interesting to see what happens to the relationship between the automakers and their own finance groups (e.g., GMAC, FMAC, etc.)

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I have something interesting to add to this:

Bought a car in December, paying out the a$$ for it (24.5% interest). Thats when i started my credit repair journey. Fast forward today, everything is on the right track:

down to 4 derogs, 3 of which are paid in full. 4th one in legal dispute.

Inqs for 2 out of 3 CRAs down in the single digits, they were close to 0. Not now (see below). Several new GOOD accounts opened in my name, with more coming. Several authorized user accounts as well.

So i happened to stop at the honda place to see what i can do about trading in my pontiac for a civic (yeah i'm nuts, but i don't like the car, and I HATE the payments), guy is reasonable and talks to the finance guy. Finance guy thinks he can get me out of the $460 payment and down to a $350 payment via reduced interest rate on top of getting me into a new civic. This honda place isn't known for BS, so i tell him to go ahead. They run my credit, honda doesn't just not give me a cheaper interest rate, they say no altogether. My scores are just shy of 600. Main thing holding my scores down are 2 paid charge offs from C1 with a bunch of lates, (anyone have any luck with a GW letter?) a paid charge off from vz, and a lot of new open accounts. As some of my accounts are reaching the 6 month mark, i hope to see an increase in score.

Anyways, they ran my credit through several banks, hosing my already hosed EX with even more inqs. Eventually my EX file is gonna split from inqs (at 65 now). All of them said no, so I'm back to square one.

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With the right credit, credit isn't tight. Wife bought a new car financed at 4.64% last week via Honda dealership. She has 811 fico. That wasn't any sort of promotional rate. So there is certainly money out there to fund these loans but investors are leery right now about so-so credit after getting their heads handed to them over the past 2 years. Some people are stuck in investments that have lost 95% of face value. Look at BBB home equity bonds. AAA are trading at 50 cents on the dollar. Pools of car loans are trading somewhere roughly at that level. Imagine if you are a retiree and you planned on living on these investments- this is where these loans ultimately are held. Its understandable that they are a bit skiddish about anything but the best credit.

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I'm so glad that I'm in a car I can afford and own my home - and am having no problems with payments. Because these days seem to be sucking for people with mid- to high-600 FICOs and past credit problems who need loans for major purchases. I plan to sit tight with the credit I have, enjoy my car and home, and avoid any type of credit or loan as LONG AS POSSIBLE until this mess is cleaned up a bit. With all this news about card issuers lowering CLs, I guess I'll be lucky to keep what I've got -- even though I pay (and on time!)

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BTW I do week long event sales at dealerships all across the US where we have 1000+ customers through the doors a week, so I'm used to seeing more deals in a week than most dealers see in a month..there are still "bogue" banks buying low credit scores, but the bank fee and high interest rates make it almost as bad as a turn down..lol

Honestly, the banks HAVE to eventually start loosening up again, this is a cycle, it's happened before and it will happen again...

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BTW I do week long event sales at dealerships all across the US where we have 1000+ customers through the doors a week, so I'm used to seeing more deals in a week than most dealers see in a month..there are still "bogue" banks buying low credit scores, but the bank fee and high interest rates make it almost as bad as a turn down..lol

Honestly, the banks HAVE to eventually start loosening up again, this is a cycle, it's happened before and it will happen again...

So Robbie If I have low 700 to high 600 scores and a great track record with all my last 3 cars ( never had any lates in 15 yrs on all car notes) do you think I'd get a pretty decent interest rate on a new truck ?

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Just some info that I thought I would pass on.

I don't have a lot of detail, but just purchased a new car this past week. While I did get a very good rate, it was not as low as I had expected based on my scores (all 700+). While talking to the finance guy, he mentioned that things were getting much tighter in the auto lending industry now, and that many of the lenders had increased their score criteria by at least 50 points or more.

In other words, if you needed a 680 FICO last year to get 3%, then you now need a 730 to get that same deal. He said that he was not getting any approvals for any scores below 600 unless there was a significant down payment involved.

Could be he was just saying that to close the deal, but thought it was worth mentioning.

given the current credit crunch, it should be expected that things like this would happen. on the other hand, car sales are down, so sooner or later they'll lower those requirements if they want to sell!

________________

loans for people with bad credit

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