The New World of Auto Financing

The change in the credit environment and the economy has hit the auto financing world just as hard as the mortgage and investment worlds. Bid farewell to deals where low interest rates and no money down were options. While auto financing is tougher than it was a few months ago, it's still possible to finance a new or gently used vehicle.

So what does the new world of auto financing look like?

For good credit borrowers, the auto financing world looks like it always has. There are good deals and favorable terms. Some interest rates are as low as 0 percent. Bad credit borrowers, however, are being charged rates as high as 16 percent. And what is considered a a good credit score, national average of 720, is paying an average of 6.68 percent.

Down payments have made a come back unless you have a credit score above 700. Last year you could finance a car with no money down with a score of 650, so requirements are up about 50 points in this economy. Average credit borrowers are being asked for anywhere from 5 to 20 percent as a cash down payment. And one more thing, say goodbye to the 5-year financing option. It seems to be fading away like the no money down loans.

If you have good credit, the auto financing world has the same horizon. If you're a bad credit borrower, however, the sun is setting and the night is dark.

What's in a Credit Score?

There is a lot of talk of having a good credit score, but few Americans know what makes up their credit score. There are obvious factors that affect your score such as making payments on time, but what factors are the most important? How does Fair Isaac Corp. (recently changed its name to FICO) determine what our credit score is?

Payment history (35%)

The highest percentage of your FICO score is your payment history. While it isn't the only contributing factor, it is the most important one. It's imperative that you make all of your payments on time. With the amount of technology available to us, it's easy and convenient to remember to pay your bills by their due dates. Put it in your cell phone calendar and set a reminder. Pay the bill as soon as it comes in the mail or hits your email. Use your bank's online bill pay option to schedule your bill payments. Since this is the biggest part of your credit score calculation, it's the one you need to pay the most attention to.

Balances (30%)


Second in line of importance is the amount you owe on your debt, or the balances. Manageable debt amounts help to keep your credit score high, while huge amounts of debt can cause your score to plummet. It comes down to being able to manage your debt.


Credit history (15%)

The longer your credit history, the better. People have a misconception that they should close out old accounts that they don't use or don't use very often. Closing these accounts may harm your credit score if it's accounts that have a history. This is why it's important to establish credit when you become an adult and learn how to manage it properly right away. Having credit accounts, loans, and other types of debt instruments your whole life pays off by bumping up your credit score. It goes without saying that you also have to have a good payment history, so it's not just about the longevity.

Types of credit (10%)

It's also important to have a variety of debt and credit. FICO scores increase when you have a smorgasbord that includes credit cards, students loans, personal loans, a mortgage, etc. Again, it's about being able to manage your credit--a variety of credit.

New credit (10%)

A long history of credit is important, but establishing and managing new credit also adds to your credit score calculation.

Now you know what goes into calculating your credit score. Managing all aspects of the calculation is important, but managing the areas with higher percentages is even more of a priority. You can learn more about these percentages and what goes into calculating your credit score at www.myfico.com.

4 Ways the New Credit Environment Differs from the Old

It's probably not necessary to point out that the tumultuous economy has thrown a wrench in the credit standards. Long gone are the flexible lending standards of a few years ago when zero down payment mortgages and bad credit borrowers were still the norm.

Credit score requirements

In the good old days, a good credit score of 680 or higher got you better interest rates and more beneficial terms and conditions. In today's market, lenders are requiring credit scores of 720 or higher to be considered a good credit borrower.

House down payments

The 90s and even the recent 2000s saw more lenient down payment requirements. Some lenders allowed home buyers to finance 100% or more of the purchase price of homes. Gone are the good old days. Now most lenders are requiring most borrowers to put at least 10 to 20 percent of the purchase price down on the home they're buying.

Documentation

No-doc and low-doc loans were a dream--especially for self-employed individuals or those who couldn't show enough income on paper to qualify for a loan. Full documentation loans are back in style, making it harder and harder to obtain a loan.


Debt-to-income ratio

Lenders used to allow you to have up to 50 to 60 percent of your income as debt. Now lenders want your amount of debt below 41 percent of your income.

The lending and mortgage world is no longer like the one we enjoyed a few short years ago. It's tighter, stricter, and harder than it's been in decades. There is still an opportunity for good borrowers to emerge as long as you know what you're up against.

Turn Your Layoff into a Positive Life Experience

There is a ton of gloom and doom flying around these days. Let's face it, our economy is in the toilet, the unemployment rate has hit an all time high, and people are struggling to pay their bills. It's time to take a optimistic view of the situation because there is a silver lining to everything that happens to you in life. You have to figure out what it is.

3 ways to turn your layoff into a positive

1. Start your own business. You've always dreamed of being an entrepreneur, being your own boss, and utilizing your talent and something you enjoy to make money. Now is the time. Whether you are a website designer or a wood crafter, create a business and marketing plan (or have a professional create one for you) and run with it. The creator of Amway started in his garage. If he can do it, so can you.

2. Educate yourself. It's tough times to look for a new job, so you have to make yourself as marketable as possible. You and your resume have to stand out from the crowd. It's a simple case of supply and demand. There are fewer jobs and a lot more people going after them. If you don't have your degree, now is the time to go back to school and earn it. Financial aid is available, and special grant money is too to help you accomplish this goal. If it means borrowing money and working a part-time job to make ends meet, keep the big picture in mind and you'll get through it.

3. Make a career change. There are businesses that are struggling in this economy, but there are businesses that are thriving. There are certain industries that are always going to be around or aren't as heavily affected by the economy. Health care is one of these fields. People are always going to need health care. Admission rates at universities and colleges around the country are up. More students means more of a demand for teachers. At this point, maybe you should consider switching fields. Earn your certification in something health-related or use your experience, knowledge and expertise to teach others. These are but two industry examples. The point is maybe now is the time to make a change.

Gloom and doom hangs in the air if you let it. You can turn it around to something positive if you look at it in the right light. You probably would have never left your job to start your dream business or went back to school if you hadn't been laid off. So take this as your opportunity to do something new--something you've always wanted to do.

Fair Isaac Changes Name to FICO

Read the whole story

U.S. Sets Big Incentives to Head Off Foreclosure

Read the article on the Obama administration's effort to stop foreclosures

Do Your Taxes for Free

Cutting costs somewhere can be helpful. If you're thinking about doing your taxes on your own this year, consider using a free online software such as www.taxact.com. Come back and share your experience with other readers. Let them know if the money you saved was worth your time. You can even save on postage, save paper, save time--opt for electronic filing and electronic deposit for your refund!