If you're suffering with bad credit, poor credit, blemished or damaged credit, or have recently declared bankruptcy, you know it can be hard to get creditors to extend credit. It's a myth however that you won't qualify for credit after bankruptcy, or with a bad credit history. You can find secured loan products, and secured credit is the easiest route to rebuilding your credit history and improving your credit score.
What is secured debt? Secured debt is any form of credit that is backed by an asset, called "collateral", the security for your loan. One example is a mortgage, which is secured by your home. The mortgage lender puts a lien on your home, and can foreclose if you do not pay the mortgage. The lender therefore is protected if you repeat your credit mistakes of the past and fail to pay.
Another example of a secured loan is a secured credit card. A secured credit card requires you to deposit a certain amount with the issuing bank, for example $300, and the issuing bank then gives you a credit card with a $300 credit limit. The bank has security if you don't pay - they will simply keep your $300 deposit. There is no risk, and so they are willing to extend the credit.
Auto loans are also secured. You'll find many lenders willing to offer you a bad credit auto loan, because they have the car as collateral: security in case you do not pay. If you fail to pay according to your bad credit auto loan terms, the lender will simply repossess the car.
If you've ever filed bankruptcy, you'll see that you are swamped with offers for new credit cards and bad credit auto loans. This is because the lender is fairly secure in getting their car back. However, before accepting one of these offers, you should do some serious comparison of the terms and conditions that each lender offers. Be sure to find out:
- What is the interest rate on the loan, and what is the APR (annual percentage rate), which can be higher than the interest rate? The APR includes fees and costs and is the true interest rate you will be paying.
- What are the purchase terms of the loan? Are you required to use a certain auto dealership? Can you purchase out of state and save money, for example? How long do you have to use the funds (usually 30-60 days)?
- What is the total amount you will repay if you pay through the end of the loan term? This can alert you to other costs if it looks very high.
- Are there any prepayment penalties? Often banks charge a prepayment penalty to bad credit auto loan customers. This is a fee you will pay if you try to pay off your loan before the end of the loan term, or within a year or two of taking out the loan. The bank expects to make a certain amount of money on your loan, and the prepayment fees ensure that the bank is getting its money. These should be avoided no matter what; prepayment penalties just hurt customers that are already in financial trouble. (For example, if you want to sell the car, it shouldn't cost you money to pay off your loan!)
- Can you afford the monthly payment? If you have bad credit, it's likely that you are already having trouble making your monthly debt payments. Some banks will extend you much more credit than you need. Don't get farther in over your head. You don't have to use the full amount of the loan extended to you by the bank.
- Can you get credit for a trade-in? Sell or trade in an existing car before buying a new one. Save money by selling your existing car before buying a new one, and use the proceeds as a down payment. Don' keep more cars than you need, and save on the costs of repair, maintenance, inspections and more.
- What are the late fees that you will be charged? These can be buried in fine print.
- What other hidden fees are included? Sometimes there can be a large up-front application fee, fees to run your credit, or other fees. Be sure to compare all other fees.
- Who is the lender offering you the loan? There are plenty of fly-by-night loan brokers who will send you offers in the mail, hide the fees, and insist they are "helping" you because you have bad credit. The fact is that reliable national lenders also have loan programs for bad credit auto loans that are much easier on your pocketbook. Also, don't go for the loan offered by the dealership. They almost always contain less favorable terms, because the dealership is making some cash on the loan as well as the lender. Comparing loan terms and using the best lender can save you hundreds of dollars a month.
Today there is so much competition for auto loans among lenders, you can find good deals even if you have bad credit or have a bankruptcy on your record. Taking out a car loan, if you find the right loan, is an excellent way to rebuild your credit.
While shopping for auto insurance, an individual always aims for lower cost of insurance. In that case a good credit score may help to lower the cost. Credit score is a statistical method of evaluating an applicant's credit worthiness. Companies are always trying to pool that part of the consumers which will provide the maximum profit with minimum loss. So they try to judge the rate of an insurance policy against the actual amount of claim. It has been found that almost all auto insurers use the credit information to decide whether to issue a policy. They even set the premium level on the basis of the credit score.
The companies generally do not look at the actual credit report. They just look out for the credit score. In fact they receive the credit score from any of the three major national credit depositories - Equifax, Experian and TransUnion. Credit scoring is a method to determine the likelihood that credit users will pay their bills.
Credit scores are prepared by analyzing a borrower's credit history. The factors considered while calculating a credit score are:
The duration for which credit is used.
The amount of credit used versus the amount of credit available.
Record of whether payments are made in time.
Employment history.
Length of time at present residence.
Negative credit information such as bankruptcies, charge-offs, collections, etc.
Now the insurance score is based on the FICO score. It is a credit score developed by Fair Isaac and Co.
Raise the FICO score: One can raise the FICO score over a period of time through the following ways:
Pay your bills in time. Late payments can have a serious impact on your score.
Reduce your credit-card balances. If you are "maxed" out on your credit cards, this will affect your credit score negatively.
If you have limited credit, obtain additional credit. Not having sufficient credit can negatively impact your score.
Do not apply for credit frequently. Having a large number of inquiries on your credit report can worsen your score.
Insurance score: There is another concept called insurance score which also plays an important role in determining the cost of insurance. An insurance score predicts whether a person is likely to file a claim in the future. This helps the insurance companies to determine the amount of premium to be charged. An insurance score is a numerical ranking based on a person's credit history. It predicts the average claim behavior of a group of people with essentially the same credit history. Typically a good score is assumed to be above 760 and a bad score is below 600. People with low insurance scores tend to file more claims. But there are exceptions. For example, It has been found that teenagers as a group have more accidents than people of other age groups. But there are some teenager drivers who never had an accident.
Insurance scores do not include data on race or income because companies do not collect this information for insurance. Insurance score is not much concerned with the tendency to take a new credit. Instead it focuses on the issue of stability.
Studies have shown that how a person constructs his financial planning is a good predictor of insurance claims. It is accepted that people who manage their finances well can also manage other important aspects of their lives, such as driving a car. The factors such as geographical area, previous crashes, age and gender, insurance scores collectively enable auto insurers to price more accurately, so that people less likely to file a claim pay less for their insurance than people who are more likely to file a claim. Insurance scores are useful to the insurer to differentiate between lower and higher insurance risks people and thus to charge a respective premium.
There exists a kind of debate regarding the use of insurance credit scoring. Insurance companies claim that the use of these scores helps them to issue new and renewal insurance policies based on objective, accurate, and consistent information, better anticipate claims and better control risk. This enables them to offer more insurance coverage to more consumers at a fairer cost.
Opponents of insurance credit score argue that companies can use insurance credit scores to non-renew coverage regardless of whether a claim has been filed or premiums have been paid in time and that credit scoring focuses on a consumer's economic status. People with poor credit scores sometimes pay 4 to 5 times as much as the other consumer.
One aspect of insurance score is very important. While it is easy to obtain the credit score, it is difficult to get the insurance score. There is no hard and fast rule on the part of companies to hand it over and most companies don't.
Both John Caskey & Evan Smith are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
John Caskey has sinced written about articles on various topics from Debts Loans, Bad Credit Loans and Credit Cards. John Caskey, Esq. writes for FixItYourselfCredit.com. Find a bad credit auto loan lender, along with other secured loan info and ways to repair your credit yourself at. John Caskey's top article generates over 27100 views. to your Favourites.
Evan Smith has sinced written about articles on various topics from Bad Credit Loans, Auto Insurance. This article may be freely republished in any electronic media provided author biobox and the links are kept as it is.Evan T. Smith is a contributing author to the