Credit Crunch: Refinancing A Car Loan

You always see these TV commercials where they clatter on about refinancing your home mortgage in order to save big bucks. But hey, what about refinancing auto loans? The reasons to refinance a car loan, are the same as those for a home- lower interest rates, and reduced payments. When interest rates drops, and the conditions are right, refinancing your auto loan can save a good chunk of cash. And in this crazy economy, we all can use a little more dough.
According to Ask Dr. Don, a good place to start shopping for refinancing rates in on Bankrate; a site that will give you an idea of which financial lender are competitive in your market. Bankrate even has an auto loan calculator to compare a new refinancing payment to your current payment.

When you’re going driving down the refinancing parkway, first, use common sense and evaluate your situation. If you bought your car on a promotional loan with 0 or 1.9 percent, obviously you’d have to be dumber than a greasy engine to want to refinance for 7 percent or higher. But if the reverse is true, let the refinancing adventure begin!

Another thing to remember, refinancing might not lower your payment but you could find yourself in a situation of saving $500-$1000 on the loans interest rates. If your credit is piss- poor, refinancing can save you even more money if you are approved, since those who have bad credit might be paying car loan interest rates as high 20 percent or more. If that’s the case, and your credit improves (perhaps by a good job or bills paid on time), then it’s a fine-and-dandy time to look into refinancing options.

A few other tips to keep in mind when refinancing your car:

• Check local credit unions and banks: Finance arms at corporations like General Motors Acceptance Corp. and Ford Motor Credit do not offer refinancing. Bah!
• Know your terms: Make sure your existing car loan doesn’t have a large prepayment penalty. A great deal depends on the length of the loan term. Another thing to consider, there are also a couple of low fees that vary by lender and state, including the lien holder transfer (under $15), and state re-registration fees (under $80).
• Search Online: It’s just a mouse click away to compare financial institutions. LendingTree.com and E-Loan.com. are good places to start, while Capital One Auto Finance gives props to people with bad credit who are showing signs of improvement.
• Extending the term length: This is a good option for those not in a credit crunch, but would rather smaller monthly bills by extending the refinancing terms beyond the old loan’s date. If interest rates are low, this might be a good option.
  

So what are you waiting for? Look into it today and save some dough. Treat yourself to a nice hot fudge sundae when you do, and most importantly, good luck my friend on your quest for car refinancing!

Harmon Leon is the author of the new book, The American Dream: Walking in the Shoes of Carnies, Arms Dealers, Immigrant Dreamers, Pot Farmers, and Christian Believers!

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Teenagers & Building Their Financial Future & Credit

The importance of managing money
Many teens have no idea on how to manage money. Mention the importance of saving it and how it doesn't grow on trees and their eyes glaze over. Even more important is the complete lack of understanding of credit and how it works. What are its advantages and disadvantages? Is a low balance credit card good for teenagers in helping them understand credit's pitfalls? Understanding how credit works is crucial for young people, especially as they look at buying their first car or home.

Here's a few tips to help your teen understand the importance of their finances from Brady Smith at TrueCredit:

• Understand finances - Students need to understand exactly where their finances stand. Regularly reviewing financial statements along with their credit reports from all three credit reporting companies is a good way to understand where they stand at any given time.



• Watch for danger signs - Negative records such as late payments and collection accounts can remain on credit reports for 7 years. Students can keep their future finances healthy by avoiding these problems from the beginning. Library, cell phone and video store late fees can sometimes be turned over to collection agencies who may then report them to the credit reporting companies. So graduates should keep an eye out for these as well.



• Create a spending plan - Developing a monthly spending plan can help students understand how much they need to pay toward their debts and how much they can afford to splurge. Generally, low interest rates make it possible for graduates to spread their student loan payments over the life of the loan, but they should focus on paying off high interest credit card debts as soon as possible.



• Prepare for emergencies - A few preparations for the worst-case scenario can help students and recent graduates avoid financial problems in an emergency. To start, they should build up enough savings to cover their expenses for two to three months. If they find themselves out of a job or unable to pay back their debts, graduates should immediately call their creditors and lenders to explain the situation. Many federal loan programs have deferment and forbearance programs that allow borrowers to put their debts on hold temporarily.

Save, save, save
Anytime you educate someone about credit you should start by teaching them how to save money. With teens, teach them the importance of setting money aside, such as a savings in case of an emergency.

"I recommend educating teens about the basic priorities in life – paying for housing, basic food, and basic utilities first, not DVDs, concert tickets, ring tones on your cell phone, or the hottest fashion unless you have money to spare," explains Kathy Jo Pollack, a certified life coach and trainer.

Teach them "...how to read and understand bank and credit card statements, and balance a check book. These are things that parents or another adult can do."

She suggests starting teens with a checking account and a debit card before making the leap into credit.

"Have the teen make deposits and withdrawals, while making sure they document each transaction and balance their monthly statement immediately. This will be a good foundation. Many banks offer a student type checking account with a debit card. Let them get experience with their own money first before they learn the hard way with someone else's," Pollack said. A low balance credit card is a good start, but make it mandatory that the balance be paid off each month.

Credit: Taking the good and the bad
To the everyday man or woman, credit becomes a part of life. But it doesn't need to become a problem. Good credit means you have the upper hand during negotiations. Bad credit leads to high interest rates and becomes a hindrance to paying off debt.

If you're responsible with your credit card, the card company will report you in good standing to the credit agencies that track credit reports. This helps build a good credit score. It's one of the fastest and easiest ways to build credit.

Consequently, there are monthly payments that don't do anything to build credit. Paying rent, medical and utility bills on time don't do anything for your credit. Only if you pay late. Then, instead of helping your credit, their reports of late payment can damage your credit for years.

So your teen wants to buy a car...
As I've explained, good credit is the basis to any positive experience when borrowing money. Making payments on time and keeping credit card balances low are two ways to excellent credit. You've probably heard someone tell you to pay in cash and stay away from credit cards and loans. Unfortunately, not many of us can pay cash for a car, at least not something reliable. Not many parents are comfortable with their teen driving a beater to school or work.

With all of this in mind, buying a car is a big step. Is your teen responsible? Do they understand the importance of making the payment, as I've discussed here? And maybe the most important question, can they make the payment? Only you and your teenager can make these decisions. Many teens only work part-time, especially if they are in school. Are you prepared, as the parent, to make the car payment for them if they can't?

If everyone is happy waiting six months or a year, your teen can get a low balance credit card and work on building their credit. Monitor their purchases and check that the balance is paid off every month. With several months of on-time payments under their belt, you and your teen can start checking into car loans. With credit established from the credit card, your teen should be able to get a good interest rate. But don't buy more car than they need. As I mentioned above, something reliable for school and work is the goal without going overboard.

Keeping your teen's feet planted and everything in perspective will help keep them out of credit trouble. As a parent, take the time to explain the in's and out's. It will only benefit your kids now and in the future.

Andy Mrozinski

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Cosigning Issues in the Current Economy: Testimonial About the Dangers

One of the most popular things that I have written and gets read a ton has been because so many people search online for cosigning on car loans and the potential pitfalls. I want to explain that when I write about issues like these my expertise comes from personal experience. Some of my expertise is really just opinion but on this topic, I have the inside scoop because it has happened to me. Twice.

A few years ago I decided that I wanted to buy a house. A little nest for my golden canary, Little Miss Mota Mouth, and I. Single mom (ex-husband lives a joyful life between France and the Amazon) with no income except what I make on my own, my parents were encouraging me to get something "of my own" rather than rent. The market was low, interest rates low and it was a good idea. So I fell in love online with a house in an area that was up and coming. The object of my obsession was this 1916 Sear's Catalog House in a historic district that was like walking into the farmhouse from Field of Dreams. All sun and light and in the middle of an urban area. If you build it....

So here I was making decent money, owned my car, had no debt (no credit cards)...okay? Can we talk about credit scores? Guess what- It isn't like the major credit reporting agencies think about Life Optimistic like I do which is everyone gets to start with 100 points and any lowering of the score is because they have done something wrong! They actually score you on what you owe! Start with zero and the more you owe the better your score is with some weird algorithms thrown in just to keep you confused. Weird. My broker tells me that my score is *okay* but "Hey! If you have a friend or family member that will cosign, you will get a better rate!". Hrm. Family is out of state which means that they will not qualify me for a good rate because out of state financing means "vacation home" and that is a higher rate. Broker says, "Don't you have a boyfriend?". Well yeh and not that he was at marriage level yet but he has better credit than me (read: more debt) so I put him on the loan. I pay a significant down payment and closing costs and he contributes nothing. Woo hoo- great rate so everyone lives happily ever after, right?

NO.

So boyfriend doesn't last which is okay but a few months after he isn't around he calls and tells me that I have to sell the house (which has now doubled in value) because he is on the title so drats. Legal hell. I feel like I bought a green card because I have to pay this loser to get off title. (I am skipping over years of legal bills here because I am still in denial) but more about that cosign hell in a second.

Meanwhile my best friend needs a car. A car. I help him shop and after taking him by a dealership I used to work with we find his car. He doesn't have any credit history because he is a musician but has a gotten a great job so when the sales guy says, "If you will cosign for him he will get a better deal". Now who wouldn't try to help their best friend? So I cosign. Sweet 2005 Mustang in yellow. He was one happy guy! They TOLD us that this would help him build credit.

Now after of the *helping a friend get a car* mode, my legal battles start getting resolved but the conditions are that I have to refinance my house alone which all lawyers and brokers agree shouldn't be a problem. But it was.

Turns out that even though I owned my cars (2 at this point) and had no debt and was making a good income, those crazy reporting agencies saw my debt to income ratio as being too high because actually the cosigned car that my friend is paying for and insuring is reporting as me being the primary on the loan! So getting a refi on the house was nearly impossible. Especially in the current lending market- getting a loan is hard.

What I learned is this: The real estate broker was no different than the car dealership. When they tell you that you will get a better rate it is because *they* will get a better rate and can mark up the points to you which makes them more money. They essentially get quotes that they then mark up- put more interest on- and that is how they all make money. That real estate broker was making a living and some would call it greedy. I didn't understand to know differently and with the car I didn't understand how they worked either.

Moral of the story is do not cosign because you will never know when you will need access to your own credit. I am lucky that my friend would never bilk on his payments on that car but if he did, my life would be difficult. Many a story has come past my desk of cosigning nightmares where friends and family have renegged on paying on co-signed cars.

Knowing that this has caused me hardship, my friend has volunteered to give me back the car so I can sell it but unlike these sales people, I made a commitment to my friend and would never try to screw anyone.

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Building Credit To Buy A Car

Dear Miss Mota Mouth,

I would really like to buy a car now but I don’t have any credit yet even though I have a job. At least I don’t have bad credit but what should I do? My current car is a real clunker and I am 25 and want a nice car!
Whitney in Costa Mesa

Dear Whitney,

The first step is to really start shopping around banks, credit unions and even insurance companies like State Farm who will finance you. Get a good idea of what their rates would be with your credit currently undeveloped. Interest rates can legally be as high as 29.9% but you shouldn’t accept anything more than 10% or you will be a slave to the lender.

Consider keeping the clunker for a while and starting a program to improve your credit:
1. Take out a credit card or two that you pay off in FULL every month
2. Ask your parents to add you as a responsible party to a credit card of theirs (but do not use it yourself- just gain the credit history)
3. Make sure that you have no outstanding debts to any bills like utilities from past rentals, medical bills, etc and if you have those- pay them off and ask the collection agency to take them off your credit. (if they say they will then they have 5 business days to notify you that they have done so)
4. Don’t repeatedly pull your credit report because that will knock points off automatically.

After even 6 months you will start to gain a solid credit history that lenders will like.

Patience is indeed a virtue and jumping ahead will bite you where it hurts so take the correct steps to do this the right way.

Good luck!

M

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