Refinance a Car Loan with Bad Credit

OK, your credit stinks.

However, you want a new car. So you go to the local car dealership and believe the salesman when he says…

“Buy this car today at this high interest rate and we’ll refinance you in 12 months at the lowest interest rate possible.”

Everyday car dealers repeat the “refinance in 12 months” lie to people with bad credit to push them to buy new automobiles at ridiculously high interest rates.

You may have financed an automobile through a high-interest subprime lender knowing that it’s a bad idea. But you might have thought it was your only option at the time and you justified it by telling yourself you could refinance to a lower interest rate down the road.

Unfortunately, when you try to refinance the car later on, you find out the salesman lied to you.

Best Way for People with Bad Credit to Refinance

The first thing you need to find out is whether or not you even qualify to refinance, or if you should just sell or trade-in your car. Begin with how much your car is worth.

The biggest error most people make when establishing the actual value of their car is they base their research on the private party value. You need the trade-in or dealer retail value instead.

Here’s how to get the value of your car…

• Step #1: Go to www.edmunds.com. In my opinion Edmunds the best automobile site on the web.
• Step #2: When you get on the front page, click on “What’s your car worth?” It’s written in small type and kind of hard to find, but it’ll be somewhere on the main page. Or you can go straight to the Used Car Appraiser.
• Step #3: Follow the steps and click on the make, model and year of your car.
• Step #4: Fill in the vehicle details and any optional equipment your car has.

You’ll see three distinct values for your car: Trade-In, Private Party and Dealer Retail. The two values you need to focus on are Trade-In and Dealer Retail.

Some lenders base their refinancing on the trade-in value and others on the retail value. Try to find a lender that uses the retail value, as it’s always higher.

Get Your Loan Payoff from the Finance Company

Loan payoff is what you still owe on your automobile.

Find out what the remaining balance on your car is. If you’re leasing the car, make sure to include the total remaining payments, residual amount and any early termination fees the bank requires so you get the true payoff amount.

Now subtract the value of your car from the payoff amount.

Do you owe less than the car is worth? If so, you have more selections and alternatives. If you owe more on your automobile than it’s worth (known as being “upside down”) you need to be a little more flexible.

Let’s Start Calling Finance Companies

Credit unions and banks are the premier options for refinancing your car. Auto manufacturers rarely refinance-possibly for luxury cars. Remember to check if the lender you use reports to all three credit bureaus.

The four big questions to ask each lender are:

1. “Do you refinance based on the trade-in or dealer retail value of the car?”
2. “What percent over the trade-in/retail value will you lend?”
3. “Which credit bureau do you use?”
4. “What FICO score is needed to be approved for refinancing?”

Remember that lenders who refinance usually will put up no more than 125% of the trade-in or retail value. The average amount is only 110%. So, if you are upside down on more than 10% of the value of your car, you have to pony up the difference prior to the lender giving you a loan.

If you need to calculate how much is needed to borrow to refinance, download the free Auto Refinance Worksheet and it will walk you through the steps to find out.

If you happen to not be in a position to refinance currently, there is another alternative-trade in your current automobile for another one with a manufacturer’s rebate.

Make Use of Manufacturer Rebates

A lot of auto manufacturers offer massive rebates to sell automobiles fast. There are gigantic incentives for a dealer to sell a new car.

You have to locate the highest rebate offer you can find and work toward trading-in your car to eradicate any upside down condition.

Prior to going to a new car dealer, check out www.edmunds.com and look up the rebate and interest rate on every new car and truck a manufacturer offers. This way, if the car salesman isn’t being honest with you (in relation to rebates and interest rate) you will know it.

Just go to www.edmunds.com, then click on “New Cars,” then on “Incentives & Rebates.” You will have all the information you need.

It’s a bad situation when you’re upside down on a high-interest car loan that you want to refinance. However, you can get around it by purchasing a new car with a large rebate. You just use the rebate to offset the amount you owe on your old car.

If you come across a car with a higher rebate (highly recommended), you’re in an even better situation. If the rebate is high enough, it can wipe out the negative equity and you can use any remaining amount as the down payment.

The Secret Question to Ask the Salesperson

If you want to get a really amazing deal, try asking the salesperson this question:

“What car or truck on your lot do you need to sell immediately?”

If you’re upside down, you need every advantage possible. Ask the dealership to sell you the oldest car in their inventory.

Some dealerships are willing to take a loss on cars they’re having difficulty selling because it costs more to keep them on the lot, as compared to selling them faster and taking a loss.

This could add up to an additional $500 to $3,000 in savings!

Credit Score Needed to Be Eligible for Refinancing

Just like all other major purchases made on credit, we have to meet a minimum FICO score to be eligible for a loan. This is especially true if the lender is a bank or credit union.

For example, on new cars one manufacturer requires a FICO score of:

• 680 and above to get a 125% loan
• 650 to 679 to get a 115% loan
• 620 to 649 to get a 110% loan
• 620 or less only gets you a 100% loan

Any loan over 100% will go toward paying off the balance of your existing car loan.

End result: the better your FICO scores-the more alternatives you have and better terms you will receive. This is the reason to increase your credit scores (to improve your lifestyle!).

Not all three of your FICO scores need to be high…just the one the lender uses.

Each lender will have a minimum FICO score requirement. Ask them what it is and from which credit reporting agency you need it.

Now here’s where it can get confusing. Some finance companies will use a traditional FICO credit score to make a lending decision…and other lenders may use the FICO Auto Industry Option score.

It’s your task to find out which score they use. If they don’t give you an answer your comfortable with…find one that does.

When you know what FICO score they look at, you’re putting yourself in the best situation to be approved for refinancing.

If you’ve paid past auto loans on time, your FICO Auto Industry Option scores should be much higher than the standard FICO scores. In that case, you should use a lender that uses your Auto Industry scores. In the best situation, the finance company you choose will have access to both sets of scores and will use the higher one.

Many (not every) finance companies will require minimum score of 650 from the credit bureau they use to make a loan decision to refinance. But the only way to know each individual lender’s policy is to ask.

About Author:
Dana Facemyer is an attorney for the law firm Facemyer & Associates. Dana specializes in disputing the accuracy of your credit reports which can result in improved credit scores.

How and Why Increasing Your Credit Limits Rebuilds Bad Credit

I hate credit cards with small credit limits.

Not because I’m a hater, but because a small credit limit can wreak havoc on your credit scores.

I know you have at least one of these small limit credit cards lurking in your wallet or purse. After all, it’s difficult to resist the offer…especially if you have bad credit and don’t get many offers.

Let’s say you’re giddy with your Visa card with a $500 limit. Your son’s birthday is on Friday, so you have to buy gifts and plan a party for the little dude. Then, as luck would have it, your car breaks down on Saturday and you have to get new brakes. Between the gifts, party and getting the car fixed you’ve charged $450 to your credit card….and that’s just one weekend.

Here’s the problem-you’re nearly maxing out your credit limit. In this example you’ve used 90% of the available credit limit. That’s not exactly ideal. In a perfect world your utilization (the percentage of your credit limit that you owe) should be 5% or less.

That’s right, if you want to get the maximum amount of brownie points on your credit reports, you should keep all your revolving credit balances (such as your credit cards) around 5% or less of your credit limit.

Your revolving balances weigh heavily in the composition of your FICO credit scores. And if your lender reports that you’re using 90% of your available credit, (as in the example above) your credit scores will suffer more than a hardcore sports fan spending a night at the opera.

Even if you FedEx a check to the credit card company to pay your balance tomorrow-your payment can take up to 60 days to be reported to the credit reporting agencies and for the new balance to show up on your credit reports. This is called “lag time”.

So even if you don’t think you need a higher credit limit…your credit scores do.

This applies to Visa, MasterCard, department store cards, and any other type of revolving credit.

And just to be clear…revolving credit is the type of credit where the amount you owe fluctuates with your balance. On the other hand, installment loans (car loans, mortgage payments, etc.) are types of loans where the monthly payment is always the same over a long period of time.

The Best Strategy to Maximize Your Credit Scores

The best strategy to maximize your credit scores is to pay off your revolving credit cards each month and not use them for 45 to 60 days. Then switch to using your debit card or (if you have one) a business credit card during this time.

This strategy makes a lot of sense when you’re 60 days away from making a large purchase using credit…like a new home, refinance, credit limit increase, or new car.

It works like this…

Let’s say you’re going to fill out a mortgage application sometime in the next two months. What you want to do is get all your credit card balances to $0. The only way to do this is to pay off all your credit cards at least 60 days before you fill out the mortgage application. And then stop using your cards until after you close on the mortgage.

If you pay off all your credit cards only 30 days before you fill out the mortgage application, it may not give the credit reporting agencies enough time to report everything, and your credit reports will continue to show a balance remaining on your cards.

Once your credit reports show less than 5% utilization on your credit card balances, your credit scores should skyrocket. Your higher credit scores should then get you a much lower mortgage rate.

This is called lowering your revolving utilization percentage. There are three ways to lower your revolving utilization:

1) Increase your credit limits on your credit cards
2) Charge less on your credit cards
3) Or both

They are equally important to do.

Increasing your existing credit limits is one of the fastest ways to increase your credit scores. But it’s important your spending habits stay the same or are lower. To rush out and quickly use the new available credit would defeat the purpose.

Increase Your Credit Limits – Even if You Don’t Think You Need to

Another reason to increase your credit limits is something I call “comparative limits.”

Here’s an example of how comparative limits are used:

Let’s say the highest credit limit you’ve managed for years is $1,000. You feel you don’t need anything more than that, but your car suddenly breaks down.

Since taking the bus to work isn’t an option for you, fixing your car becomes a priority.

The mechanic gives you an estimate of $3,000. So, you begin looking for a loan. The hurdle you’ll need to overcome is that you have no experience managing anything higher than a $1,000 limit. So, when you go to a bank for a loan, you’ll have a hard time being approved for more than $1,000. Banks try to minimize risk. Not create it. To them you’re a high risk.

The best time to increase your credit limits is when you don’t need to. That way, when an emergency arises, you’ll be able to get the credit you need without going into desperation mode.

So increase your credit limits every chance you get.

You’ll be able to plainly see how your new limits are affecting your credit just by comparing your credit scores.

Strategies for Increasing Your Credit Limits

Now that you understand the importance of increasing your credit limits, let me explain how to go about doing it.

If you have a secured credit card…simply add more money to your credit limit. Easy enough…especially if you plan it around tax refund time. Just take your tax refund, deposit it into your account, and make a note on the check to add the amount to increase your credit limit.

You should call your bank and make sure it’s routed to the right department so they don’t mistake it for a payment. Trust me, you won’t miss the money. After all, you lived all year without it.

If you have unsecured credit cards you should increase your credit limits on a regular basis. Just call and request a limit increase. Assuming you’ve been paying off your cards on time every month, you should be able to raise your limits periodically.

Just recently, I did this myself. I’ve been spending more money on clothes than I usually do (because of all the weight I’ve lost), and my credit scores were suffering because-even though we pay off the balance each month-thanks to credit reporting lag time, there was a balance reporting to my credit reports.

I called the credit card company and asked for a limit increase. They promptly raised my credit limit. My scores went back up once the new limit posted to each credit reporting agency.

Just make sure you deserve the increase. You don’t want to waste a credit inquiry if you’re not sure you’ll get approved. To put yourself in the best position to get the higher credit limit, ask yourself a few questions before you call…

• Have you paid your most recent credit card bill?
• Do you have a history of making your payments on time?
• Have all of your checks cleared?
• Have you ever gone over your limit?
• Have you used the account regularly?

Increasing your credit limits can offer a quick boost to your credit scores when you need it. But remember, increasing your limits does not mean you should increase your spending.

About Author:
Loren McCray is an attorney for the law firm Bradley Ross Law. Loren specializes in disputing the accuracy of your credit reports which can result in improved credit scores.

Data Point To A Microcap Resurgence

Those who follow small-cap stocks like to say that if the Dow sneezes, small companies catch the flu. This little adage is actually quite accurate. Since the Dow failed to hold onto its new highs in summer 2007, the panic that proceeded reverberated down to the tiniest stocks on the market.

Indeed, microcap securities caught a horrible bug. The Russell 2000, a closely followed small-cap benchmark, fell from a high of 855 in July 2007 to the low 690s in January 2008. It wasn’t until the index tested support in the 650s in March that it began to recover…

For the small-cap investor, the best returns across the board come during rapid periods of recovery out of a falling market. Traditionally, small caps lead market comebacks in a big way. And judging by the recent strong performance of the NASDAQ and the Russell 2000, we could be witnessing a return of the bulls — at least in the short term.

According to one research firm, the stars have aligned to form the perfect conditions for microcaps to surge.

When analyzing the performance of his microcap index over the past 60 years, Alpha Plus Advisors President Marvin Bolt found three main factors that contributed to its performance: inflation, growth in U.S. gross domestic product and changes in the dollar exchange rate.

The Alpha Plus data shows that the strongest microcap returns have actually been during periods of higher inflation, which it quantifies at between 3-5%. This bit of data goes against Wall Street’s common knowledge, since large caps have suffered during similar periods of higher inflation.

Bolt’s data also show real GDP growth produces superior performance among smaller stocks. In contrast, the worst environment for the microcap stock index was when the U.S. dollar’s value was falling.

The conclusion one can draw from this information is compelling. It appears inflation is actually good for microcaps, while a rapidly falling dollar tends to benefit larger companies that are competitive in overseas markets.

Anecdotally, we can see how these factors have influenced smaller securities during the recent bear market. The value of the U.S. dollar fell precipitously and GDP growth had been weak.

More recently, we’re seeing a perfect storm brewing – one that could lead to significantly better returns for microcap investors. Just look at the indicators: Inflation is higher due to price pressures on food and fuel, first-quarter GDP growth numbers were higher than expected and the value of the dollar is beginning to stabilize.

All of this points to one thing: a small-cap rally. In fact, we’re already seeing the beginnings of the resurgence. The NASDAQ and the Russell 2000 started their respective turnarounds in March and haven’t looked back. It’s still early, but all signs point to a stronger performance for both of these indexes – and bigger gains for loyal microcap investors.

About Author:
Greg Guenthner is the editor of Penny Sleuth and Penny Stock Fortunes. The Penny Sleuth offers unbiased commentary from expert analysts and authors on Small Cap Stocks, Penny Stocks, OTCBB and Micro Cap Stocks.

Buying Penny Stocks…Is It Worth It?

Small-cap investing can be difficult sometimes. Wall Street shuns it, mainstream media ignore it, and most investors are scared of it. Why is this?

First of all, everyone has heard the stories about someone losing of all his or her money through those “risky penny stocks.” But everyone has also read the stories about someone striking it rich with just one tiny investment in those “lucrative penny stocks.” Frankly, both stories are true. But one is actually truer than the other…

The Risks and Rewards of Penny Stocks

To simply shun penny stocks – as many on Wall Street do – is a mistake. I can give you one simple stat to prove it.

In a famous Tweedy, Browne report back in 1983, every publicly traded U.S. stock was grouped by size. As you can see below, the smallest groups fared the best…

Tiny Stocks Beat up on Their Large Counterparts

source: Tweedy, Browne’s What Has Worked in Investing

As the size of the companies in each group gets larger, the returns are smaller. Obviously, those who invested in small companies over the period of 1963-1980 did quite well. You could say small caps offer a higher reward than their larger counterparts. But that doesn’t say anything about the risk.

You see, without understanding the risks, blindly investing in penny stocks is dangerous. You can’t expect every 10 cent stock to jump to $10. Occasionally, companies run out of money or the patent becomes obsolete. There are a billion reasons for penny stocks to fall apart, but for every one of those, there are 10 reasons for buying.

Sure, if you buy three, you might have one go bankrupt and one that doesn’t move in price, but one could shoot up a few thousand percent. That’s the real risk-to-reward we look for when dealing with penny stocks. We’ve seen tons of our picks shoot from just a few cents into the $10-20 range. Believe me – it’s worth it when that happens…

Sincerely,

Jim Nelson

About Author:
Jim Nelson is the managing editor of daily e-letter The Penny Sleuth. The Penny Sleuth offers unbiased commentary from expert analysts and authors on Small Cap Stocks, Pink Sheet Companies, OTCBB and Penny Stocks
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Capitalizing With Penny Stocks

Back in the 1940s, it would have been nearly impossible to find a true penny stock. That all changed in 1971, with the creation of the National Association of Securities Dealers Automated Quotation system (NASDAQ). This is now the home of thousands of penny stocks.

You see, the idea of entrepreneurialism has been around since the start of human history. But until 1971, it was nearly impossible to invest in startup companies.

The NASDAQ was created to do two things: First, it gives public companies an alternative to the New York Stock Exchange, or the “Big Board.” But it also gives small companies a chance to build capital, which is how they can eventually grow into “Big Board” stocks. Let me explain…

Why do companies let investors decide their values? In other words, why do companies go public in the first place?

The answer is, of course, money…Public companies have the unique ability – and advantage over private companies – to raise capital by simply selling more shares. This is very common in the penny stock world. That’s the real reason any company initially goes public.

Building capital is fundamental in early growth projects. For instance, say you run a small software development company. You realize that you need to expand your manufacturing facilities, but you have no more money in the bank. You have to do one of two things: Try to secure a loan or just sell more shares. Loans, of course, need to be paid back. But selling more shares has its own problems…

There are two ways to go about selling shares:

Many companies sell shares in a private placement. That means just that a large bank or investment house wants to invest in the company, but doesn’t want to deal with the fluctuations that occur on the open market. So it pays a lump sum and receives shares of the company. It’s that simple.

The other way a company can sell shares is by putting them out on the open market. So whatever price investors are trading the company’s shares for currently is the price for which the new shares are sold.

Of course, both ways dilute the value of the shares. But that’s all part of the game. Smart investors invest only in companies capable of growth. So to grow, these small companies have to raise capital.

Most of the time that this happens, the share price doesn’t even move. Shareholders expect that from time to time.

So the question remains…why would anyone invest in penny stocks if they knew the company would probably dilute the shares’ value?

Whether or not a company is diluting its shares, the only thing that matters is share price appreciation. It’s very difficult for a $50 stock to become a $100 one. But to go from $2 to $4 is relatively easy.

That’s why the NASDAQ has been so successful. Companies can create capital easily, and investors can double their money with just a small jump in share price. It’s a win-win situation.

Sincerely,

Jim Nelson

About Author:
Jim Nelson is the managing editor of daily e-letter The Penny Sleuth. The Penny Sleuth offers unbiased commentary from expert analysts and authors on Small Cap Stocks, Pink Sheet Companies, OTCBB and Penny Stocks.

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