Did you recently take on (or consider) a loan of 84 months or longer on a car purchase?
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Is that how it works?
Plus does this loan work like a typical car loan in that the bank holds the title until you pay it off? Can I not treat the loan as spending cash and buy the car with it and have full ownership to the car while i'm paying off the loan?
As you can tell, I don't take loans on a regular basis.
I'm very curious. Does anyone care to share the manner in which reserves are computed at your dealership? There are a variety of methods that are used.
I understand that reserves reflect the compensation paid by the fund provider to dealers as a reward (incentive- form of dealer participation) for charging the customer a contract rate that exceeds the buy rate. The rate sheet often reflects a tiered rate stucture that pairs rates with their associated reserve level. A few methods used to compute reserves, applicable whether one buys or leases, are illustrated as follows...
Total Finance Charge Differential
1st. Compute the total finance or lease charge, based on the actuarial rate, using the base payment computed at the contract rate.
2nd. Compute the total finance or lease charge, based on the actuarial rate, using the base payment computed at the buy rate.
3rd. Subtract the amount in (2) from the amount in (1).
4th. Multiply the amount in (3) by the appropriate % to determine the reserve payment.
Present Value of Payment Differential
Other methods determine the difference between the present value of the payments computed at both the contract rate and the buy rate using the appropriate actuarial rate or constant yield rate. This difference is multiplied by the appropriate % to determine the reserve payment.
Reserve Level Method
This is the simplest method and involves multiplying the reserve level, say 1%, by the net amount advanced.
Your thoughts???
John
Medina, Ohio
With this information you go to the dealer. You make him the offer of beating that rate and payment. He either will or won't and that will decide for you who you give the loan business to.
The only time I remember a dealer not at least meeting the bank rate was on my daughter's car which would not qualify for financing as a car (too old). Once you are in unsecured loan it's another ball game.
That has little to do with my question. What do you know about reserve calculations?
John
Why would it have anything to do with your question? Fezo was responding to someone else's entirely different question.
tidester, host
SUVs and Smart Shopper
And no, the dealer didn't even TRY to beat my CU. He said it was much better than he could do even with an 800+ credit score.
OK. We'll let it go this time....
Yeah - another poster got a question sandwiched in there. That happens a lot.
Your question is sort of out of my league.
It depends on the lender but the norm is called a 75/25 split.
If the bank rate is 8% and I charge 9% I make a 1 point spread and I get 75% of the 1 point, the bank gets the other 25%. If the customers pays off the loan in the first 90 days then I get charged back the 75%, on the 91st day there are no charge backs
For Example
$25000 loan at a buy rate of 7% 60 months. That works out to $4701 finance charge.
If I charge 8% in order to make a point that raises the finance charges to $5414.60
The difference in the finance charge is $713 and the dealer gets 75% of that which means the dealer makes $535 in reserve.
By the way, I guess this is for everyone. How good of a rate is 5.75 % for four years? Thanks.
Dealership wants to get paid.
If they submit you to a regular lender,and you are approved,the contract is overnighted to the bank,and the dealer is paid electronically.
3 days tops.
Many thanks for your response. So basically, your dealership computes the reserves as a percentage of the Total Finance Charge Differential as follows...
1st. Compute the total lease charge based on the contract rate.
2nd. Compute the total lease charge based on the buy rate.
3rd. Subtract the amount in (2) from the amount in (1).
4th. Multiply the amount in (3) by 75% to determine the reserve payment.
My gut tells me that this is the most common method.
Once again; many thanks Joel.
John
On a lease if the lease rate is 2% and we charge 3% then I take the difference in the payment X the term X 75% and that is what we get.
For example if at 2% the lease payment is 350 for 36 and at 3% it is 365 for 36 I take the difference in payment of $15x365=$540x75%=$405 in dealer reserve.
0.00150 + 0% reserves
0.00165 + 1% reserves
0.00180 + 2% reserves
etc.
John
So if I'm basicly a cash buyer but I need to finance though the dealer to get the rebate I can pay the whole thing off after 91 days without screwing you over,right?
2019 Kia Soul+, 2015 Mustang GT, 2013 Ford F-150, 2000 Chrysler Sebring convertible
So it would do me no good to promise not to pay it off until you had made your money off the deal--you wouldn't trust me? Shame, I'd like to help the salesman and F&I make a fair profit and get a no games deal in return but it seems previous liars on both sides make that difficult.
2019 Kia Soul+, 2015 Mustang GT, 2013 Ford F-150, 2000 Chrysler Sebring convertible
What year model car are you looking at? That has a bearing on it also.
Now here's my question: If the car I want goes above $29,000 after tax+license and other things, would it be better for me to ask for a higher loan to cover the whole car and pay the down payment to the credit union, or just fork over the down payment as cash to the dealer and sign a smaller loan amount than $29,000?
Ultimately I will put 20% down one way or another.
1 get a qualified co-signer.
2 Go to a car company with a more flexible finance arm.
A 620 score isn't great,but it isn't terrible either.
If you have some downpayment money Ford,Mitsubishi,Hyundai,Kia are possibilities.
As volvomax said, your credit isn't terrible. It's OK. Some bank would take a chance on being the one to help build up your credit history. Worst case scenario is a cosigner. My mom did that for my first car. Didn't really appreciate what a nice thing that was for years.
Meanwhile, get a credit card, buy a few things that you were going to buy anyway on it each month and pay it off in full every month on time. Anything that shows that you can handle credit and not go nuts will build a good history.
If you are the type who thinks plastic money isn't real money ignore the above paragraph.
One thing mentioned was: "The amount owed on your charge accounts is too high"
I have one credit card with a limit of about 17K. My balance last month was $620 which I paid in full.
How could that amount be "too high"? :confuse:
2019 Kia Soul+, 2015 Mustang GT, 2013 Ford F-150, 2000 Chrysler Sebring convertible
don't know as you NEED a higher score, but if it bothers you, you have to call up and get that straightened out. (good luck, it can be frustrating).
I have a perfect clean record and my score isn't all that much higher than yours---I showed that number to a dealer last year and he said: "Shoot, I can sell you the whole damn showroom with that score".
My history is perfect. Not 1 black mark. I don't have much in credit cards. Our household income is pretty high, I think. My score is around 760.
My sister, OTOH, went through a bad spot not too long ago. Defaulted on credit cards, sent to collections, etc, etc. She cleaned it up and has been doing well for a few years now. She has worked her score up to over 740. Now, I'm not saying I want hers to be lower, but just how the heck does she get so close to mine is beyond me. And that is not even as bad as her husband. He went through a BK in '00 before they got married. Granted, that was 7 years ago, but, again, how the heck does he now have a 740 and my 16 years of a perfect record only warrant 20 more points?
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
Most of them look at info in the 7-10 yr range.
Obviously, current accounts weigh more than an account closed 5 or 6 yrs ago.
That is why it is critical to re-establish your credit after a BK or other mishap.
I mean, some people say "oh, you should have x cards with x debt," but I've tried that and it doesn't seem to do a damned thing. It just seems to me that anything above 720 is purely random.
What I've always wondered is if there is an age thing tied to it. But nothing I've ever read states that as a factor.
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
tidester, host
SUVs and Smart Shopper
by Jane J. Kim
Thursday, December 20, 2007
provided by
The company that cooks up credit scores for millions of Americans is changing its recipe -- and that could affect how easily you get credit in the future.
Fair Isaac Corp., maker of the popular FICO credit score used by most lenders, says its new scoring model will do a better job predicting the likelihood of a borrower defaulting on a loan. For one thing, the new model, dubbed FICO 08, will be more forgiving of occasional slips by consumers, but will take a harder line on repeat offenders. Fair Isaac predicts its new system will help lenders reduce default rates on their consumer credit by between 5% and 15%.
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The rollout of the new credit-scoring system comes at a time when lenders say they are eager for more-accurate measures of credit risk, in part because of rising loan defaults as subprime mortgages go bad and housing prices fall. And there are signs that delinquencies are creeping into other types of consumer debt, including auto loans, further prompting lenders to tighten up on credit.
The FICO score, which Fair Isaac says is used by 90% of the 100 largest banks, and other similar scores hold sway over the lives of millions of people. Financial institutions use them to determine the granting and pricing of credit, insurance, cellphone usage and, in some cases, employment and utility services. Some consumer groups have raised concerns about whether credit scores are being used properly and whether they are valid measures of credit risk for some groups of consumers, especially minorities and lower-income individuals, says Travis Plunkett, the legislative director for the Consumer Federation of America.
Credit scores, which are calculated using proprietary models, also are criticized for a lack of transparency. "This is a product, per se, but it's a product that has inordinate influence on the financial lives of hundreds of millions of Americans," says Mr. Plunkett. Fair Isaac, based in Minneapolis, says it believes it does a good job of explaining the factors that go into calculating the FICO score and in guiding consumers on how to manage their scores.
Consumers could start seeing the new FICO scores by the spring, though some lenders may take additional time to test the system to see how it works with their business and loan portfolios. Fair Isaac, which last revamped its scoring model earlier this decade, says it is accelerating its FICO 08 rollout, partly in response to lenders' demand for better risk-management tools.
The latest version of the FICO score will largely look and feel the same to consumers and lenders. Scores will still range from 300 to 850 -- the higher the better -- and the model will continue to look at the same factors, including consumers' level of credit indebtedness and payment histories, length of credit histories, number of recent credit openings and inquiries, and the type of credit used, to determine scores.
But the new model will more finely slice and dice the information in consumers' credit files to do a better job of separating the "good risks" from the "bad risks," particularly for subprime borrowers; those with "thin," or young, credit files; or consumers who are actively seeking new credit. "Those are the communities that lenders are most interested in" to determine credit risk, says Craig Watts, spokesman for Fair Isaac.
"Consumers who are low risk will score better with the new FICO version, and consumers who are high risk will score lower," says John Ulzheimer, president of consumer education for Credit.com, a personal-finance Web site. Higher-risk borrowers may find it tougher to get credit, while those with less-risky profiles -- though they may have gotten approved for credit accounts in the past -- will start to get better deals from lenders, he says.
Two people with the same FICO score currently could see their scores diverge under the new system. One possible reason: FICO 08 gives more points to consumers who maintain a variety of credit types, such as credit cards, a mortgage and auto loan, because it shows they can manage payments on different kinds of loans. On the other hand, the new scoring system penalizes to a greater degree borrowers who use a high percentage of their available credit.
FICO 08 also will draw greater distinctions among different borrowers who are at least 90 days late in making a loan payment, known as a serious delinquency. Traditionally, many credit-scoring models grouped subprime consumers into one general category. But Fair Isaac says its new model will give a higher score to a borrower in arrears if they also have a number of other credit accounts in good standing. Conversely, a person's score could drop if he or she has multiple delinquent accounts.
"Overall, more consumers will see their FICO scores go up slightly than will see their scores drop," says Tom Quinn, vice president of global scoring solutions for Fair Isaac.
Despite the new scoring model, consumers still have to make sure the information in their credit reports, which Fair Isaac relies on to come up with its score, is accurate. If consumers feel their FICO score is unfair, they would have to go to the individual credit bureaus, Experian Group Ltd., TransUnion LLC and Equifax Inc., for a copy of their credit report on file and look for any errors or missing information. If there are any, they would have to contact the credit bureau or the financial institutions to dispute those errors.
FICO 08 also aims to curtail the growing business of allowing people to polish their credit by "piggybacking" on someone else's good credit history. In recent years, credit-repair Web sites have sprung up that arrange for subprime consumers to boost their scores by becoming authorized users on accounts held by strangers with better credit. When scoring a consumer, FICO 08 won't take into consideration credit-card accounts for which that person is an authorized user. But the move also will hurt legitimate users: People who give a credit card to a child or a spouse as an authorized user to help boost their credit score.
FICO 08 is likely to face some competition from VantageScore Solutions LLC of Stamford, Conn., a joint venture of the three credit bureaus that was rolled out in 2006. Fair Isaac has sued VantageScore and the three bureaus, accusing them of using unfair and anticompetitive practices to harm the FICO brand. Recently, Equifax linked the suit with the launch of FICO 08. The company has said it wouldn't move forward with FICO 08 and that its relationship with Fair Isaac remains "strained" until the lawsuit is resolved, says David Rubinger, Equifax spokesman. The new FICO model has already been distribu
Copyrighted, Dow Jones & Company, Inc. All rights reserved.
"Imports are superior"
Truth be told, there are some people with too high a credit score. Say what? Businesses look at this all the time. Having too high a score means that you may not be leveraged enough and taking advantage of deals available to you.
Credit score, while important, is just one factor. If it is over 750, you really are in great shape shape no matter what. And, if you have income and solid history, you will be able to do a lot more then someone with a 790.
With that said, I would not be comfortable with a payment over $450, so that limits me to moderate priced cars. I could qualify for 1K, but it would stretch me significantly. Now, many people with scores in the 500's or 600's (not all, but some), think that if they qualify for the loan then they can afford it. I know it is not true. Heck, if I wanted to, I could go into 90K debt on the cards in my wallet right now.
Banks start w/ the score.
If your score isn't right, even if its only 1 point below the tier you want, you aren't getting that tier.
For the captive lenders, GMAC, Ford Credit, American Honda etc, score is secondary.
If everything else is in line, someone w/ a lower score can still achieve an A rate.
Finally, I have NEVER heard of anyone having too high a score. :P
Absent other factors of course.
A college kid could have a $500 VISA card that they pay like clockwork, but unless they have a big downpayment and a good job, they aren't getting bought.
We don't do "special" or subprime car loans. That is a dirty business that we stay away from.
Once in awhile I'll get someone with HORRIBLE credit or a recent BK that just can't understand why they can't get a car loan! ????
We don't solicit for the business but are capable of handling it if they come in.
Any beacon score 520 or better does not worry me. I can get you done on A (maybe not the one you want) car as long as you don't have a repo on your last auto loan and are not past due on your house.
There are sources for the sub 500 scores but the buy fees are usually in the $1000's of and we opt not to mess with them. The only person they benefit are the lender, not us or the customer.
To my surprise I found that they were falling over themselves to loan me almost any amount I wanted. I gave them a conservative estimate of my income over the phone and was approved. It was their top tier rate too. They had a higher rate listed as well but that was for "You know, those people who don't pay their bills."
Why they would lend money to some body who didn't pay his bills was beyond me.
Fast forward to the car dealer.
I noticed that they were offering 0% interest for 48 and 60 months. I asked about this and the salesman almost offhandly said "Those rates are only for top tier customers, especially the 60 month deal." I showed him my most recent FICO score and I swear he let out a gasp. From there everything was fine. I didn't need to show proof of income or anything. Just $100 on my credit card and a few days later I drove the car away.
As I was signing the paperwork I commented how smoothly everything had gone. To this the salesman commented:
"You would not believe some of the deadbeats who come in here looking to finance cars. It sometimes takes weeks to get someone to loan them money."
He went on to say that the bulk of his ups these days had bad to terrible credit.
What is wrong with people today?
2019 Kia Soul+, 2015 Mustang GT, 2013 Ford F-150, 2000 Chrysler Sebring convertible
Guy comes to me for "free advice" on how to prevent BK. Had $300k mortgage and $60k in car loans of a $60k income. I told him to sell his cars and move down into a cheaper used cars and that his house is out of line with his income. "Maybe *YOU* can live like that, but I am not going to."
When I bought my new car last year, I was EXPECTING the hard sell on a financing deal. However, when I told the guy I was paying cash, he looked pretty relieved that the deal would go through quickly.
I went and checked my FICO scores last night and from the 3 companies they were 734, 767, 768. Not bad at all. I plan on purchasing my first vehicle here in about a month and am trying to figure out if I can get the advertised low interest rates. I know the FICO scores are considered, but also the credit history.
Would love to hear from any 'banking / lending professionals' or others in similar boats.
Do you plan on making a down payment or do you have a trade in?
Unless your credit history is based off of one credit line with a $1K high I don't think you will have a problem.
I have a 690-715 FICO (depending on which bureau) with limited credit history.
I have a $10K secured card which I maintain a $1500 balance to show some activity, and I have a $79 ATT bill which went to collections due to a misunderstanding and was paid a year ago, and a closed chase credit card which I was dumb and forgot to pay but closed and paid off 5 years ago. I have no other credit history, and no debts.
My income is good around 200K, and I wanted to put down around 10K and finance around 13-6K for a Camry hybird in order to build some credit when we want to buy our first house. This would be our first car. (we are in new york moving to Cali so we need a car)
My wife is a student. Her FICO score is above 800 but she has no income.
We planned on a joint application.
I applied to Wells Fargo where I have the secured card and they denied me.
Where else can I apply with limited credit history? How come I am not asked for proof of income? Most of the sites I see look scammy or have alot of paid links.
Thanks for your help.