How your credit rating affects your risk

We are all aware of the importance of maintaining good credit to be able to survive in our modern day. Whether it is for your mortgage, car loan or credit card, a credit rating influences much of the interest rates offered as well as the loan amounts available.

If you want to qualify for the most competitive loan, then it is crucial to have a good credit score, and to keep it that way! Since the single biggest element in determining your auto loan rate will be your credit score, you should always be prepared by understanding your current status. A poor credit score can lead to higher interest rate charges, smaller credit limits or even a blunt refusal from the start.

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It is also important to note that your credit score is not the only aspect being verified when you request a car loan. History of repossessions, maxed out cards, written off accounts, collections, and late or missed payments are also taken into account when you apply. Customers are also regularly reviewed and applied “rate-for-risk” policies that categorizes you into a group based on your credit rating. By default, those in a specific group that have a higher risk than previously can also get charged with higher interest rates.

Though it may be quite clear that your credit rating does highly affect your risk at attaining a competitive loan, you can still try to apply for online auto loans that can be more lenient in their policies and loan programs, as an alternative to dealing with banks and dealerships. Another option is to try to improve your credit profile and reapply once your credit has been restored.

What is a Co-signer?

Lenders ask for a co-signer when they do not want to take on the full risk of loaning money to that particular borrower. That is why co-signers are contemporary lifesavers for those in need of a loan, and play an exceptionally vital role for those having trouble attaining car loans.

Co-signers usually have a good credit score, and agree to pay a borrower’s debt if the loan has been defaulted. A lender cannot oblige you to have a co-signer if you can qualify on your own. However if you are told that you need a co-signer for a loan, it means that the lender will not offer you the loan based solely on your own income and credit record.

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Do you have a co-signer?

A co-signer could be your spouse, a parent, or a friend. It is important to be sure your co-signer can afford to pay off the debt if you default. If your co-signer has to assume the payments for this loan, and it would hurt them financially, you should probably find someone who can easily manage your loan.

How does a co-signer affect your application?

When applying for a car loan with a poor credit score or inconsistent credit history, adding a co-signer to the application will act as a more reliable addition, and will improve your credibility. A co-signer can also help you build credit. Your co-signer on a loan can give you the opportunity to establish a better credit score or contribute to build a more consistent credit history.

Financial obligation of a co-signer?

There has always been a subtle misconception about the financial obligation of a co-signer. To clarify: if you co-sign a loan, you are legally obliged to repay the loan in full. If payments by the applicant are delayed, you may also have to pay late fees or collection costs, which increase this amount.

Though some may presume that co-signing a loan acts as a background reference point for the applicant, the agreement is primarily on the basis of a strict financial obligation to repay the loan amount and any extra costs, even though you do not have any right to the vehicle. Since you are obligated for the debt, a co-signed loan will show up on your credit report as if the loan was strictly your own.

That is why it is crucial to understand how this may affect your credit score in the long run. If the borrower defaults on the loan, the creditor can use the same collection methods against you that can be used against the borrower. It is also important to note that if you plan to take out a loan yourself in the near future, you may not want to co-sign now as it will increase your apparent debt load, and could potentially hurt your ability to be approved.

How banks determine your credit risk

As complex as attaining a loan can be to understand; understanding the basis on which banks determine your financial standing can seem just as intricate. To keep things simple, here are the main aspects that banks inspect in order to determine your credit risk.

Debt-To-Income Ratio: Your income plays a vital role in determining your credit risk because it directly relates to your credit limit. The higher your personal income, the higher your credit limit, and the more likely you are to have the necessary revenue to pay off the loans.

Though personal income is one aspect of the puzzle, the consistencies of your payments are what ensure the banks that you can manage to pay off any debts. You may have a high income, but if you are also in a lot of debt, it would be very unlikely that you can pay off any other loans. As a result, your credit risk will increase, and will reduce your chances of having a loan approved.

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Your credit score: Your credit score is what can guarantee the banks that the above mentioned consistency with payments is met, despite having a high personal income or not. By default, the lower your credit card utilization rate, the higher your credit score is because there is less risk involved.

The period of your credit history also plays an important role in determining your risk, since the longer you’ve been building good credit, the more reliable your credit history is and the lower your risks are.

Your payment history is also another key element in your credit score. On-time payments reassure the banks that you are regimented in paying off the loan without any delay or complications, and thus decrease your credit risk.

Can I get student financing?

If you are a student and want to purchase a car, we understand that it comes with its fair share of challenges. That is why student financing is the most ideal way to solve those issues, and is a great alternative to placing yourself in an indebted situation.

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Student financing comes with plentiful of advantages such as flexible terms, lower interest rates, lower annual fees and easier payment methods. It is important to research your options before applying so that you can acquire the most favourable loan terms suited to your situation.

Nowadays for students, there are many hassle-free ways to get a car loan that does not directly involve having an impeccable credit score, a large income or a long credit history. The key steps to be eligible to receive student financing is to work on building credit by paying your bills on time, trying to stay away from your credit limit, and only applying for the credit you need.

It is also helpful to budget and keep your loans to a minimum in order to be assured to have the means to easily pay them on time. If you are not completely confident that you can take on the loan on your own, having a co-signer with a good credit rating to help your credibility when applying for auto financing is also a great alternative.

Another method to have simpler payments on your car is to make a down payment.  The more money you initially put down, the less you need to borrow, and the easier your monthly payments will be in the long run. Essentially, it is important to do your research and to understand the terms of your loan, so that you can be completely prepared to upkeep your payments.

How much can I afford?

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Prior to purchasing or leasing a car, knowing how much you can afford along with the financial capacity of your down payment and your monthly payments is essential. Your down payment is the amount of money you can pay up front or how much your trade-in is worth, and your monthly payments will be based on the maximum amount you can pay every month.

In order to properly evaluate your payment capacity and understand these two key aspects, you must calculate the value of your trade-in and/or amount you currently have up front, your personal monthly income and your credit limit. Once you have a clear understanding of your overall income, you can move on to evaluate your overall budget by assessing your monthly auto payments. Unless you are paying cash up front, it is important to ensure that your monthly payment calculations also include the interest rates.

Other factors that must be included are auto-related expenses such as insurance fees, gas mileage and extra payments for general maintenance and repairs. A universal rule of thumb to choosing a vehicle within your budget is to ensure that it is no more than 20% of your personal income. In the case of a change in circumstance such as a salary decrease, or sudden unemployment, you should also factor in an emergency fund as a back-up plan.

Many factors contribute to understanding how much you can afford, but if done properly, affording your next vehicle will be simple and stress-free.

What is secured and unsecured?

When you take out a secured loan, you have to use something of value that you own, like your car, home, or other valuable personal property as collateral. Common examples of secured loans are mortgages or auto loans for both used and new cars.

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Secured loans are usually the best way to obtain large amounts of money since they are protected by those assets. The finance company or bank will hold the deed until the loan, and all its fees have been completely paid off. As the term implies, a secured loan means you are providing “security” that your loan will be repaid according to the agreed terms and conditions, and putting these assets on the line will guarantee that you will comply with the agreement.

Secured loans usually offer lower rates that can be fixed or variable, and can last for a set or variable amount of time. They also have higher borrowing limits, and longer repayment terms than unsecured loans because the lender holds your collateral, and faces less risk if you don’t pay back the loan.

The process of getting approval for a secured loan may take longer and require more paperwork than unsecured loans. It’s important to remember, if you are unable to repay a secured loan, the lender has the option to sell the collateral you initially used to take out the loan.

As presumed, an unsecured loan is the opposite of the above, and is a loan that does not have something of value as collateral, such as student loans and credit cards. Since lenders of unsecured loans take more risk by making such a loan without any assets to recover in case of default, they usually have fixed terms and fixed interest rates that are generally a lot higher than those for a secured loan. When you apply for a loan that is unsecured, the lender believes that you can repay the loan on the basis of your financial resources, and will be evaluated based on your income, credit score and credibility.

What are typical rates for high risk borrowers?

A high-risk loan is a financing or credit product that is considered more likely to default. High-risk borrowers and low-income borrowers face more obstacles in getting loans, and can be attributed to one or more factors when evaluating a loan request.

A high-risk loan issued by a lender to a borrower may result in higher interest rates and changes to the loan term, so as to compensate for the additional risk taken. Even though they are charged higher interest rates, they are also not eligible to borrow as much money either. Although there is no set interest rate for high risk borrowers, rates may go up as high as 15%-25%.
What happens upon default?
Anyone who finds themselves unable to make payments will need to know what happens if they decide to default on their loan. Each contract stipulates the exact terms of default – whether it is a certain number of missed payments or failure to pay off the loan on time.

Prior to defaulting, car dealers will be willing to help you in order to prevent you from defaulting on your loan, since they receive a percentage of interest from the lender. If that is not the case, it is still a smart decision to contact your dealership to see if they can help you refinance your loan with easier payment methods and terms. If default is your only option, it is important to understand the lasting consequences and impacts it will have on your credit, as well as any repossessions or seizures.

If you default on a loan, it will be recorded on your credit for up to the next 7 years. This will drastically lower your score and give future potential lenders an excellent reason to deny you loans.

Ultimately, if you can’t refinance to avoid defaulting, your car will have to be repossessed by the lender, and you will have a short period of time to try and reclaim the asset. You can do this only by paying off the loan balance plus repossession fees. The lender will then be forced to sell your car if you do not pay off the loan, and you will have lost any payments you’ve already made, including the down payment, which will not be refunded.

Is there a grace period?

A grace period is a time period that is granted on a loan where the borrower does not have to make a payment towards the loan, and can generally get away with it without any penalties. Grace periods can go up to 15 days for defaulted loans, during which interest may or may not accumulate depending on the terms of the loan. A late payment during a grace period does not result in the borrower defaulting on, or having a loan cancelled, but can result in slightly higher loan amounts due to compounding interest.

Can I refinance?

Refinancing a car is essentially replacing your current car loan with a new one consisting of different terms. The reasons many people refinance are due to an improvement in their financial status.

When you first take out a loan with a bad credit, your interest rates are usually higher. If you stabilize your credit situation and now have higher ratings, you can request to refinance. As a result, you may benefit from lower monthly payments, lower interest rates, and an increased period of payment on your term.

Although refinancing your car loan is a great opportunity to save money, there are conditions that need to be met in order to be eligible, and a few things that you should keep in mind before you decide to ask for refinancing. You must first assess whether your credit score or situation has improved.

It is also a good idea to review the terms of your loan, and understand the details involved with your financing agreement, what you were paying each month, where you can negotiate, and what you might be eligible for if your credit score has improved.

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By educating yourself, you will know what to ask for during your refinancing process, and will ensure that your new terms are most suited to your current situation. Once you have read the terms of your loan, you have to verify the legitimacy of its qualification for refinancing. Every lender has their own requirements for refinancing, so be sure to understand whether they are applicable to your situation.

In most cases, refinancing your auto loan to get a shorter term can reduce the amount of interest you pay your lender and save you money in the long run, but it may not be ideal if you are looking for a long term agreement.

Essentially, it is necessary for you to have a grasp of your financial status, your capabilities, the offers and terms available to you and how you can take advantage of your refinancing before you apply for it.

Can I deduct interest from my taxes?

If you are considering purchasing or leasing a vehicle for work, and wonder if you can use automobile expenses as a tax deduction, there are a few important things to keep in mind.

If you are self-employed, it is important to check with your accountant to understand specific obligations for your situation, such as eligibility pertaining to your ownership status, or other company requirements. If that is your case, or if you are working for an employer, your vehicle use must be an essential part of your profession or job responsibility.

This entails two things: you must need to work in another location other than your office or business premises, and you must have full responsibility to pay all the costs related to your vehicle. In other words, the cost associated with travelling to visit your clients may be an allowable vehicle expense, whereas commuting from your home to your workplace is not.

As well, if your employer grants non-taxable allowances that offsets the cost of operating your vehicle, you cannot then claim employment expenses for that vehicle. Allowable automobile expenses for the deduction are the costs of running and operating your car, such as repairs, maintenance, fuel, insurance, as well as license and registration fees.

If you haven’t purchased the car, this also accounts for leasing costs, interest on the loans you have taken out to buy the vehicle, and the capital cost allowance.

Finally, it is very common that many people do not use their vehicles solely for employment-related reasons. If you are using the automobile for both work and personal transportation, you are required to track your total kilometres and the percentage that you have driven it for personal use, to calculate the allocation of your operating expenses.

How our credit works

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At LibertéAuto, our goal is simple- and it’s to keep things simple. Credit scores, auto loans, and financing all sound extremely intimidating, and we want to change that for you.

We work with internationally renowned financial institutions, which give us a massive advantage when looking for the best interest rates. Regardless of your situation, we are here to help you get pre-approved for financing, in just a few minutes. By using our confidential and secured online application form, you can apply for free, right in the comfort of your own home.

In addition, our credit experts are available seven days per week to answer any questions you may have regarding your credit loan. Most importantly, we accept working on any credit file, despite how complicated it may seem. We are always looking for a solution for your situation, whether you are self-employment, recently declared bankruptcy, are a low-income retiree, have little or no credit history and even if you have a low annual income.

If ever your file is rejected, you can take advantage of our second chance credit services that will give you to opportunity to restore your credit and reapply for a loan. Or step by step application process will keep things simple for you, while we work on finding you prime interest rates, and establish the best financing plan according to your situation.

Why our terms are different?

Our terms are different primarily due to the fact that we have the opportunity to work with multiple financial institutions. This allows us to benefit from the best interest rates available, and also gives us the flexibility to offer you a customized plan based on your financial situation.

Our team is meticulous in their work to ensure that your credit application has everything necessary to apply, and get accepted for a car loan. Even complex credit applications get a break with our team due to our second chance credit services.

If ever your file is rejected, with second chance credit, we set you up with an efficient plan to give you the opportunity to restore your credit, and reapply for a loan. Our experts will set you up with a plan to help adjust your financing on a longer term.

This will give you the flexibility of small and easy monthly payments; so that once you have completed two years of payment, you will be able to refinance your loan at a lower interest rate. We even offer flexible payment terms that can go up to 96 months! For every problem, we’ve got a solution- that is why we accept to work on any file sent to us!

Credit recovery is a big job- and a serious one. That is why it is crucial to trust professionals with this highly specialized and complex service.

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Car Financing Related References:

https://www.nbc.ca/en/personal/financing/personal-loans-lines-of-credit/car-loans.html

https://www.wellsfargo.com/auto-loans/refinance/auto-refinancing-101/

http://www.wikihow.com/Get-a-Student-Car-Loan

http://www.gm.ca/gm/english/corporate/offers/student-bonus-program/overview

https://www.credit.com/loans/loan-articles/cosigner-what-you-need-to-know/

http://www.forbes.com/sites/moneybuilder/2014/05/02/11-ways-to-raise-your-credit-score-fast/

https://creditcanada.com/how-to-improve-your-credit-score

https://www.transunion.ca/

https://www.cibc.com/en/personal-banking/loans-and-lines-of-credit/articles-resources/unsecured-secured-loans.html

https://www.cibc.com/ca/loans/calculators/car-loan-calculator.html

https://www.bmo.com/home/personal/banking/financial-planning/major-purchase/buying-a-vehicle