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      February 23, 2019

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How Your Auto Loan Can Be Affected By Your Credit Rating

Our lives are dominated by numbers. As students, grade-point averages were the numbers which ruled our lives. In the working world, the success or failure of any business is determined by the financial bottom line – are you in the red or the black? As individuals, numbers fill our lives, too. What is our bank account balance? What is the interest rate on our loans and credit cards? All of these numbers, when put together, can affect everything we do.

Take, for example, a very important number: credit rating.

A credit rating is part of your credit portfolio. Every financial decision a person has ever made, from their first credit card to their student loans, are part of the report. Any missed payments a person has ever had also are part of the report and can have a negative effect on any future financial dealings.

There are three credit reporting agencies in the United States: Equifax, Experian and TransUnion. These companies collect financial data on individuals, and then use a mathematical algorithm formula, developed by FICO, to generate a number between 300 and 850. A high, three-digit credit score indicates the person is of solid financial standing and is considered low-risk. Individuals who have credit ratings under 500 are considered high risk for loans and other financial dealings.

FICO also groups lenders together based on their overall financial history. Lenders who occasionally get behind on their bills are classified in a separate category from chronic late-payers. Prior to 2009, anyone who failed to pay on any loan – whether it was an occasional issue or a chronic one – was lumped together by FICO, creating an unfair credit rating for some individuals. With the changes, it helps those who have fallen behind a few times to still be able to achieve fair dealings with creditors.

However, for those chronic late payers, one of the areas which can be affected by a poor credit rating is an auto loan.

Unless you are lucky enough to have enough savings to pay cash for a vehicle – and most people do not – then chances are you will need to take out a loan to finance it. The new way FICO calculates its credit scores has a tremendous impact on the auto loan industry. People with only one major credit account in delinquency are likely to still have a good chance to get a fair interest rate on a loan. However, borrowers with a history of delinquent accounts will find themselves being either completely denied for a loan, or saddled with an extremely high interest rate.

A FICO score of 720-850 guarantees an annual percentage rate of no more than 6.3 percent, while those in the bottom tier of 500-589 can expect an interest rate as high as 18.5 percent. Borrowers whose credit score falls below 500 will likely be denied any kind of auto loan, even one with an extremely-high interest rate.

If you are in the market for an auto loan, the best course of action is to request your credit report and a copy of your credit score so you are aware of whether you may have difficulty in obtaining a loan. Individuals are permitted one free credit report from each of the three credit-reporting agencies annually. However, credit scores are not included and must be purchased separately.

Record Numbers of Americans Behind on Their Car Loans

More than 7 million Americans had auto loans that were 90 or more days past due at the end of 2018, according to a New York Federal reserve report, with auto loans overall at their the highest ...

Published:  Fri, 22 Feb 2019 08:00:00 GMT

Turkish banks to extend maturities of consumer, car loans -banking association

ANKARA, Feb 22 (Reuters) - The Turkish banking association will extend maturities of consumer loans to five years from the current three, and car loans to five years from three, its chairman said on F...

Published:  Fri, 22 Feb 2019 10:37:00 GMT

KBRA Releases Research on Auto Loan Extensions

Kroll Bond Rating Agency (KBRA) releases a research report examining the use of subprime auto loan extensions as a loss mitigation tool for ABS servicers. In general, KBRA believes the use of extensio...

Published:  Fri, 22 Feb 2019 10:08:00 GMT

Debunking The Auto Loan Delinquency "Crisis"

You need a license to drive, a license to surgerize, a license to anesthesize"¦why don't you need a license to statisticize I guess because lying with statistics is as American as motherhood and apple ...

Published:  Thu, 21 Feb 2019 05:00:00 GMT

Why are so many people delinquent on their car loans

In recent months, many economists and lawmakers have frequently touted how the nation's economy is performing really well, often citing historically low unemployment rates. I've always felt that such ...

Published:  Fri, 22 Feb 2019 11:53:00 GMT

Is a Subprime Auto Loan Crisis Brewing

mic Listen to the podcast: Wharton's David Musto and University of Utah's Christopher Peterson discuss the auto-loan delinquency crisis. Christopher Peterson: It's a complicated problem.

Published:  Tue, 19 Feb 2019 10:44:00 GMT

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