MADISON, Wis. (9/8/14)--Credit Union National Association interim Chief Economist Mike Schenk was featured in a recent U.S. News & World Report article offering consumers advice on how to buy a car with low or no credit.
The article advised borrowers with credit challenges to limit themselves to a monthly payment amount that isn't going to stretch them too far financially. This limit should then be balanced against the length of the loan.
Longer auto loans--some borrowers finance a car for six years or longer--mean the borrower could be underwater for much of the loan, owing more than the car is actually worth due to depreciation. The borrower will pay more in interest over the life of the loan but have lower monthly payments.
"Depending on the lender, lenders that interact with subprime creditors may require a buyer to take a shorter-term loan in an effort to reduce their risk exposure," Schenk told U.S. News & World Report.
Schenk also advised credit-challenged borrowers not to assume that their only option is a dealer willing to offer financing a painfully high rate. Schenk urged buyers to shop around and try at least one credit union, especially if they have an existing relationship with one.
"Credit unions are member-only financial cooperatives, and they're smaller than other financial institutions," Schenk said. "They tend to be a little more flexible in their underwriting and be more willing to listen to your story. The fact that they're small means that underwriting is being written locally, not by some big corporation three, four or five states over."
Borrowers should also consider waiting a few months if they are turned down for a loan, because their credit picture can improve in a short time, especially if they gain employment. "If you were newly hired, it's conceivable that what looked like not such a great credit score a while ago looks like a good score today," Schenk said.
To read the full article, use the link.