Getting Rid of Student Loans - The Cold Hard Facts
Did you know that taking out a Federal Student Loan is just as real as taking out an auto loan or a home loan?Because it’s backed by the Federal Government, they won’t let you declare bankruptcy to get rid of it, nor will they let you off the hook because you lost your job, or you didn’t get the education you expected either.In fact, getting rid of a student loan, short of paying it off, is pretty difficult.
Although your credit history was not taken into account when you received federal student loans, your credit history will be affected if you do not repay your federal student loans under the repayment plan you agreed to when you entered repayment.
Assuming you have some Federal Student Loans that you are having a hard time repaying, let’s look at what your options are for getting rid of student loans.
What Do I Do If I Can’t Make My Student Loan Payments?
Your student loan debt is a legal obligation and can be a 10- to 30-year financial commitment. This type of debt won’t go away by ignoring it. You need to contact your lender or servicers immediately to get help and discuss what your options are.
There are many ways to get help, including changing your payment due date, repayment options, deferment or forbearance.
What Happens If I Miss A Student Loan Payment?
If you start to miss payments or you don’t make them on time, as of your first missed or late payment, your student loan will be considered delinquent and you can be assessed late fees.
After 270 days of making no payments, your loan will go into default and your credit score will plummet.This can affect you well into the future since derogatory credit remains on your credit report for 7 years.You may no longer qualify for any future student loans that you may need and you may not be able to rent an apartment, buy a car or own a home.
What Is A Student Loan Deferment?
If you meet certain requirements, you may be able to qualify for a student loan deferment.This is a period in which repayment of the principal balance is temporarily postponed to a later date.
If the loan is subsidized, the government pays the interest charged during the deferment.
You are responsible for the interest that accrues during the deferment period for all unsubsidized loans, including PLUS loans.At the end of the deferment period when you resume making payments, your principal balance will increase by any unpaid interest that has accrued.
Now, if you do not meet the requirements for a deferment, you may still be eligible for forbearance.
How Does A Student Loan Forbearance Work?
Under certain circumstances such as a financial hardship or illness, where you are unable to make your scheduled loan payments for a limited time or specific time frame, you may be able to get a student loan forbearance.This will allow you to postpone or reduce your monthly payment amount.
You’ll go about requesting a forbearance directly from your current lender or servicer.
For all loan types, you will be responsible for all the interest that accrues during the forbearance period.That unpaid interest will be tacked onto your principal balance as soon as you resume making payments once the forbearance period is over.
If you are serving in an AmeriCorps position for which you are receiving an education award, or if you are serving in a medical or dental internship or residency program and meet certain other requirements, your lender is required to grant you forbearance.
Federal Student Consolidation Loans
You can consolidate several Federal Student Loans into one loan to help make the loan payments more manageable with a federal consolidation loan.There are several types of federal consolidation loans to choose from which offer loan repayments from ten to thirty years, depending upon the amount of your debt.
The interest rate is a fixed rate for the life of the loan for both Direct and FFEL Consolidation Loans. The fixed rate is based on the weighted average of the interest rates on all of the loans you consolidate, rounded up to the nearest one-eighth of 1 percent. However, the interest rate will never exceed 8.25 percent.
What Is The Downside To Consolidating Student Loans?
There are some instances where consolidating student loans may not be the best choice for you, even though it may help you lower your overall monthly payments.
Certain benefits may be lost (such as cancellation benefits, interest subsidies, etc.) that were offered on the loans being consolidated.
Extending your payments or consolidating your loans may not be in your best interest if you are close to having those loans paid off.If you lengthen the term of your loan, interest will continue to accrue during this time, which increases the total amount of repayment.
Student Loan Forgiveness
Some schools may forgive a portion of your student loans if you perform certain types of service such as teaching in a low-income school.This program must be set up in advance, and not be relied upon say if you get a job as a teacher then default on your loan.
If you’re an employee of state or local government, you may qualify for loan repayment in return for working in a job that is in great demand.
Make sure you check into these options by asking about them at your school or job.
Student Loan Discharge
A student loan discharge means your student loan will be cancelled and will no longer require repayment by you.You will qualify for your student loan to be discharged for these reasons, even if you’re currently in default:
If the school you attend closes before you can complete your program, you are not responsible for your student loans, and do not need to repay them. The loans are cancelled in full, and your credit report is not harmed by this.
False Certification – If you can prove that the school misled you into thinking that you would benefit from their program and the loans or debt you took out was a result of such promises; under certain guidelines, you loans can be discharged.
Your death
Total and permanent disability
Student Loan Bankruptcy
In most cases, a loan, whether in default or not, cannot be discharged in bankruptcy.
However, you can request a special "hardship hearing" where you present your case to a special judge, explaining why repaying the loans would be an undue hardship.Only a very small percentage of people successfully discharge their loans, so it would be wise to consult a bankruptcy attorney for more information on this option.
Helpful Tips To Pay Off Those Student Loans
Whenever possible, buy use books instead of new ones.
Activities sponsored by your school are free and can save you money versus going out.
If you don’t stay within your free minutes on your cell phone plan, these costs can add up.Make sure to know what your plan is, and stay within the allotted minutes.
Eating out can be very costly.If you have a prepaid meal plan at school, use it instead.
Let’s face it, Starbucks is expensive.Get yourself a coffee pot and some flavored creamer.
Use coupons when you shop and try to stick with a plan of buying just what you need and not what you want on impulse.
Don’t get more than one credit card and make sure you only use it for emergencies.These charges and monthly payments can add up very fast and get overwhelming in a very short period of time.If you do charge, only charge what you can pay-off every month.
Links For Free Grants & Scholarships
2009 Free Education Guideto over 1,900 colleges and universities and step-by-step instructions to obtaining free financial aid and government grants.
Classes and Careers - Classes and Careers is a free college information service. You can request information about financial aid options, tuition costs and career paths. Career and Classes can also help match with a College that meets your area of concentration.
Free College Scholarships - Thinking of going to college or university? Make things a little easier, sign-up now and enter for your chance to win a 10K Scholarship.
10K Scholarship - Want to go to school but can't afford it? Surfers who participate in this offer can enter for a chance to win a 10k scholarship.
Once you have gone through the initial process of disputing negative items on your credit and have gotten the results back from the credit bureaus, you may find that you have some negative items remaining that should be dealt with.
Deal With Each Negative Item Individually
It is very important that each questionable item is dealt with individually, except for erroneous personal data. If you attempt to have the credit reporting agency correct several items at once, it will be easier for the agency to claim that your request is frivolous or irrelevant. If disputing multiple items, send each letter at different times, and each in a separate envelope.
The bureaus may attempt to bully you into believing that your request is frivolous, or even unlawful. But the credit reporting agencies are required to assume that all disputes are bona fide, unless there is clear and convincing evidence that it is not. A blanket dispute (i.e. all information is challenged) may be considered evidence that the dispute is frivolous, if you fail to provide any allegations concerning your specific file.
If You’ve Got Proof To Back-Up Your Claim, Send It In
I don’t recommend that you send in proof of a disputed item during the initial dispute process.This is because the dispute will be entered into the credit bureau’s system and a request will be sent electronically to the creditor to investigate the item in question. If it's not corrected once the creditor responds, this is when you should supply written documentation to support your claim.
What If You Know They're Wrong, But You Can't Prove It?
If you do not have proof, but are absolutely sure of your position on the matter, then ask the bureau to furnish you with proof from the creditor instead. As long as you're not abusing the service, they will work with the creditor to provide that proof for you. If that doesn't get you the results you are looking for, you can add a Statement of Dispute to that account or your credit report overall.Click Here for sample letter.
Accounts With Late Payments:
If you have accounts remaining with legitimate late payments, then calling your creditor and asking for a courtesy removal of the payment(s) might yield you results. If you've been a good client in the past, they just might do you a favor and agree to remove the late payment from your credit report. It's certainly worth a try.
Paying off collection agencies or other debt from more than two years ago won’t help you much.
This one is pretty strange because it seems like the right thing to do, and in fact, paying down your current debt can definitely help out your credit score.
However, credit scoring systems look at the last date of activity on your account, and if the collection (charge-off is how it’s usually called) is over 2 years old, it starts to lose its negative power.
When you make that partial or full payment, guess what happens?
The date of last activity clock resets to the day you make the partial or full payment on the charge off, causing your credit score to plummet!
In this case it’s better to not pay anything, or negotiate a one time settlement with the collection agency in exchange for removing all derogatory information.
If you choose to settle these debts, you basically have three choices:
“ Let's Make A Deal” is the name of the game when you have a collection account. Know that If you want to play this game, then the only way they'll play with you, is if you have the money to pay as soon as you negotiate the reduced amount. Most collection account companies can/will take as little as one-half of the amount you owe and call it “settlement in full”. This is not always the case, but it's true more often than not. Start low and if you have to, work your way up in small increments at a time until you come to an agreement that you both can live with.
(If you call closer to the end of the month, they'll be more eager to cut a deal with you, because collection agents work on monthly quotas of what they can collect by the end of every month.)
If you do not have the money to pay immediately, then try to set up payment arrangements with the company for a reduced total amount, to be paid back within a certain period of time. If you do this, after you've paid it off, it will no longer carry a balance on your credit report, which will help with your overall score.** Sample Letter
You can just leave it alone and it will get deleted automatically seven years after the original date of delinquency of the original account. There are two things to note if you decide to do this. One, the balance this account carries, reflects negatively on your score, and heavily for the first two years. After that, it has less of an impact, but it still does have an impact. Two, if the account has a large enough balance, the company may choose to go to court and sue you in order to get a Judgment against you. If they do that, it becomes a public record item as well and has an even worse impact on your score.
**Note:If you choose either option #1 or #2above, GET IT IN WRITING before you pay them a dime. This way you have proof of your negotiated agreement in case they don't update the credit bureaus to say you've paid the account. I've had clients call the company back after the fact, only to find out that the person who made the arrangement, no longer works there and no one has any idea what you're talking about.
By making sure you get this letter up front, you can use it, along with proof of your payment (cashiers check, money order, etc.) to send into the bureaus as proof that you paid them per the arrangements that you both agreed to.**
Judgments and Tax Liens:
Both judgments and collection accounts continue to accrue interest for the entire time you have an outstanding balance, and it's not cheap, so make sure you also take that into account when making your decision as to what to do with it.
If you own a home, a judgment will attach to the county in which you live, so if you refinance or sell during the seven year period this is on your report, you'll have to pay it anyway and it'll be a much higher amount then. Judgment creditors aren't all that eager to play "Let's Make A Deal" when they know you are refinancing or selling your home, because they know they will get paid off no matter what. Make sure you keep that in mind, and try to take care of the situation before you're put into the position of having no choice but to pay the full amount.
If you have any judgments or tax liens remaining on your credit report when it comes back to you from the bureaus after you've tried to dispute everything you can, then the only thing you can do is negotiate pay-offs or repayment terms of these items, hopefully at a reduced amount.
For judgments, you'll need to contact the attorney who originally filed the judgment and see if they'll agree to a lesser amount. (Their contact information will be listed on the top left corner of the original judgment paperwork.) Again, be prepared to send them money immediately if you're going to attempt this approach. No one is going to play “Let’s Make A Deal”, without knowing you have the financial resources to pay-off the negotiated amount immediately. Don’t forget tomake sure you get it in writing before you send them a dime.
Once the attorney has received your payoff, they are required to send you a Satisfaction of Judgment immediately. Remember, it is your responsibility to file this document with the County Recorder’s office in the original county that the judgment was filed. This Satisfaction will show up on your credit to counter-out the original judgment. This is the ONLY way to counter it out on your credit report, so be sure to take care of this important step.
As for tax liens, you'll need to get a hold of the correct taxing authority and see if they're willing to negotiate a reduced payoff, or at least set up payment arrangements with you. Tax liens also continue to accrue interest and it's not cheap, so you really should take care of these as soon as possible.
Once each lien is paid off, the tax authority will issue you a Release of Lien, for you to record to counter out the original lien on your credit. After that, it's just a waiting game for them to drop off of your report. They'll have less of an impact as time goes by, and a zero balance always looks better than an outstanding balance.
Note : ALWAYS keep copies of Satisfaction of Judgments and Release of Liens. These are your only proof that matters, anytime they come into question. This is very important!
Summary - Credit Myth To Remember
“Negative items have to legally stay on your credit report for at least 7 years.”
Collection agencies and other companies have been saying this for years, but nothing could be further from the truth.
These companies can remove any information they want, whenever they want. There is nothing legally stopping these companies from removing inaccurate information at any point of time.
They do have to remove it after 7 years, but it could possibly be sooner with your intervention, so let’s get busy!
For a Simple 8 Step System to Repair Your Credit, visit http://RepairCreditTrauma.com
I came across this question, “Can I sue a car dealer for excessive hard credit inquiries?” when reviewing search terms on my blog and thought this is a good topic for further discussion.
First Of All, What Is A Hard Inquiry?
There are two types of credit inquiries, hard and soft.
A hard inquiry is a credit inquiry pulled for the purpose of obtaining credit. These types of inquiries are usually pulled for things such as a home, auto or personal loan.Landlords and tenant screen services credit inquiries are also considered hard inquiries.
A soft inquiry is a credit inquiry requested for informational purposes. If you request your own credit through a site such as AnnualCreditReport.com, this is considered a soft inquiry and does not deduct points off your score.Additionally, creditors whom you currently do business with can pull a soft inquiry to do an account review and evaluate your current credit worthiness.Offers for “pre-approved credit are not counted as hard inquiries.Credit inquiries for insurance and employment also fall into this category, as they are not made for the purpose of granting you credit.
How Many Points Can Be Deducted For A Credit Inquiry?
Each "hard" credit inquiry (meaning the consumer has applied for some form of credit, prompting the creditor to check the credit report or score) that is counted normally subtracts no more than five points from a person's score.
Auto Loan Inquiries
Auto loan and home loan inquiries are treated a little differently since 2004. Due to the fact that most folks like to shop around for both home and auto loans, the credit bureaus recognized the fact that each inquiry was having a negative impact on credit scores because of the multiple pulls.This practice was hurting the consumer’s credit score and not allowing the consumer to shop around for the best rates and terms.
So, Fair Isaac changed the rules a bit for Auto and Home Loan credit inquiries:
The credit-scoring model recognizes that many consumers shop around for the best interest rates before buying a car or home and that their searching may cause multiple lenders to request their credit report. To compensate for this, multiple auto or mortgage inquiries in any 14-day period are counted as one inquiry.
In the newest formula used to calculate FICO scores, that 14-day period has been expanded to any 45-day period. This means consumers can shop around for an auto loan for up to 45 days without affecting their scores. But the old 14-day rule might still apply at some lenders that aren't using the new version.
The newest FICO version went online at all three credit agencies -- TransUnion, Equifax and Experian -- in 2004, Typically it takes lenders months to adjust their processes so they can accommodate revised formulas -- and some lenders never adjust.
The FICO score ignores all mortgage and auto inquiries made in the 30 days before scoring. If you find a loan within 30 days, the inquiries won't affect your score while you're rate-shopping.
How To Avoid Multiple Hard Auto Inquiries
If you want to avoid multiple hits to your credit while you’re shopping for an auto loan, you’ll need to set aside a two week period to completely concentrate on getting your financing in place.
Find Out What Your Credit Score Is
In order to shop for a loan without being dinged for multiple credit inquiries, you’ll need to know what your credit scores are.This will also help you to determine whether you are “bankable” or if you’re going to have some difficulty getting financing.
You can get an estimate of your FICO Score to give you an idea of the current range of your scores, or you can purchase a 3-in-1 Report with FICO in one easy to read report for just $39.95 so you’ll know exactly what your credit scores are.
Get Preapproved At A Bank:
Now that you know what your credit scores are, call around to local banks in your area and ask, “What is the minimum credit score one needs to have to be pre-approved for an auto loan?”
If you know that your credit scores fall into their “approval guidelines”, then ask what are their interest rates and terms, such as how much down payment are they going to require.
Once you’ve determined the lender with the most favorable terms, go into that bank and apply.Some banks even have an 800 Phone Loan Center or on-line application process available so you don’t have to go anywhere.
Once you have been pre-approved by the lender of your choice, you normally have 30 days before the pre-approval expires.
If you decide to go this route, not only are you getting the best interest rate around without generating multiple credit inquiries, but you’ll also find out how much you’re approved for, which will make shopping for an auto easier in the long run.
Getting Auto Financing If You’re Not “Bankable”
If your credit scores fall below what you’ve found to be “bankable”, you’re going to need to find financing elsewhere.There are several ways you can do this:
You can go through an on-line Vehicle Financing Network.These networks have access to multiple lenders and their guidelines.They will have to pull your credit in order to find out what your scores are themselves, but then they have access to many auto loan financing companies specializing in consumers with “less than perfect credit”.Once they’ve determined which lender you have the greatest chance of being approved with, they’ll forward your application along.
Go auto shopping and when you find the car you want, the dealership will be more than happy to submit your loan application to multiple lenders.Remember, if you decide to go this route, you have 14 days of unlimited credit pulls to count as 1 pull.
If you continue to do this month after month, you’re going to see about 5 points deducted off your score every time your credit is pulled.
The Answer To The Original Question – “Can You Sue A Car Dealer For Excessive Hard Inquiries?”
Civil liability for knowing noncompliance:“Any person who obtains a consumer report from a consumer reporting agency under false pretenses or knowingly without a permissible purpose shall be liable to the consumer reporting agency for actual damages sustained by the consumer reporting agency or $1,000, whichever is greater.”
What this boils down to is…..READ WHAT YOU SIGN!If you applied for financing with a car dealership, then you must have filled out a loan application.Did the paperwork that you signed say that they would submit your application to multiple lenders?
If you did not grant them permission to pull your credit, then you may have a case to sue for $1,000, but in my view, it’s going to be way more hassle than it’s worth. The easiest way to handle the situation to your benefit, is to dispute the inquiries with the credit bureaus that are reporting them.
If the creditors that pulled your credit cannot prove “permissible purpose”, then the credit reporting agencies will remove these inquiries.If the creditors come back stating they had permissible purpose, you have every right to ask them for the documentation to prove it.Again, if they cannot come up with that documentation, the credit reporting agencies will have to remove the inquiry.
Once the inquiry or multiple inquiries are removed, you should see an increase in your credit scores.It’s a tiny bit of work on your part, but way easier than trying to sue for $1000.00.
A Loan Modification is a negotiation between a lender and a borrower whereas the loan terms are restructured without refinancing.The rate and terms of the loan are restructured to fit the current financial situation of the borrower.
Banks and lenders would rather take less money and keep homeowners in their home making a payment that they can afford, rather than go through the expense of foreclosing on the home, hiring a listing agent, rehabilitating the home, and letting it sit empty on the market for months, only to lose thousands in the process.
A loan modification is a good solution for those who cannot refinance, are behind on payments or struggling to make the payments, have experienced a genuine hardship, and want to stay in the home.A loan modification is a permanent solution and is not meant to be used as a temporary stop to the foreclosure process.
Are Lenders and Banks Really Willing To Negotiate?
Absolutely!In these market conditions, banks and lenders have been mandated by the government to do everything they can to work out a payment plan with their borrowers.This is a great thing for today’s borrowers especially for those who are running late on their payments or are having trouble making them on time.
Lenders do not want to foreclose on your home unless they have no other alternative.If you can present them with a realistic proposal that makes sense, they are very open and receptive to the loan modification process.
Who Qualifies For A Loan Modification?
Anyone who can prove they are having a tough time or “hardship”. Especially those who are at least one month behind on a mortgage payment, hose with negative amortizing loans, those with loans that are about to adjust, those who are upside down on their loan and those who would rather keep their home than do a short sale.One of the perks when doing loan modifications is that there are no credit checks so everyone qualifies in that respect.
The bigger the hardship you are having, the more negotiating power you have with your lender.Remember, they don’t want to foreclose on any more homes.They would rather keep someone in the home and create a solution that will be affordable rather than go through the cost and expense of foreclosing on the property.
Should I Hire A Professional To Negotiate A Loan Modification?
There are several advantages of hiring a professional, but you must also be very careful if you choose to use a loan modification company that takes a fee up front to negotiate your loan modification for you.It can end up costing you another month’s mortgage payment in exchange for false hope.No one can ever guarantee a successful modification, so NEVER spend any money with any company unless they can guarantee your money back if they’re not successful with the modification.
Whatever you do, don’t ever give up without doing all you can to save your home.You have several options you may or may not even know about.Don’t just let the bank take your home.You do not want a foreclosure on your credit report.
My book, Surviving Your Credit Meltdown, goes into detail in regards to what your options are and how you can get help for free.Visit:www.RepairCreditTrauma.com
Are you afraid to go shopping for a car because of the embarrassment you may face at the very real possibility of being turned down due to bad credit?
If this is you, you’re not alone.More than ever before, millions are faced with bad credit right now.
What you need right now is a little “credit score infusion”.Your score needs to be high enough so you can qualify for that auto loan you so desperately need.
I Can’t Wait Months To Increase My Credit Score!
I totally understand.In today’s world an auto is a necessity.If you’re lucky enough to still have a job right now, you gotta have a car to get to work.
If you’ve been laid off or just can’t find a job, you need a car to go look for a job.
You need to pick up your kids from daycare, you need to go to the grocery store (jeez…nothing worse than trying to lug 6 grocery bags a mile down the road…)
Whatever the issue is, you won’t get far without wheels, so here’s a few tips you can use to infuse your credit score immediately”.
What’s A Good Score For An Auto Loan?
Different lenders have different criteria in relation to what they deem to be a “good” score.Really, what it all boils down to is “What interest rate am I going to have to pay?”
You can still probably find a lender who will give you a car loan with a credit score of 580, but you’re going to pay a really high interest rate for it.
Get yourself bumped up to over 600 and better yet, over 620, and you have a few more options, but the rate you’re going to pay is still not going to be pleasant.
If you have scores in the range of 650 to 680, interest rates are going to be decent.
Get yourself over 700 and you’ve got shopping power baby!
So, Where Do I Get My Credit Score?
There are many scoring models out there, so don’t be fooled.
There can be a 50 to 100 point difference from one credit scoring agency to another, so your best bet is to stick with yourFICO Score.This score is derived by Equifax and is the credit score that most lenders use, so you can be pretty confident with the score you receive.
You can get your FICO credit score for $9.95 if you sign up for their Score Watch program.This is the quickest way to get your score, and a great way to monitor how it’s going to shoot up after I teach you a few tricks later in this article.
You can access all three of your credit reports for free at www.annualcreditreport.com as well, but you will then have to pay around $7 to $10 to purchase your score from each of the three major credit reporting agencies.
You can only do this once a year for free, and in my book Surviving Your Credit Meltdown, I walk you through an 8 Step System to erase negative marks off your credit, so you might want to save the one chance you have this year, until after you read the book.(You can still apply my system if you’ve already accessed www.annualcreditreport.com once this year, but you’ll have to do it all through snail mail.)
How Do I Get My Scores Up Quickly?
You’d be surprised at how much inaccurate information is reported without you even being aware of it.If you don’t check your credit on a regular basis (once a year), then I’m sure you’ve got some mis-information being reported on you as well.
Go over every account that is showing on your credit.
If you have accounts showing late payments that were never late, dispute those baby!Even if you’re not sure if they really were late….dispute it anyway!
If you have multiple collection accounts showing for the same debt, dispute ‘em!
If you have recent inquiries that are showing up that you do not recognize, dispute ‘em!
What Is The Best Way To Dispute?
Again, you can do this all on-line through www.AnnualCreditReport.com, but you only get one shot a year to dispute everything you can on-line and there is so much more you can do than what I’m outlining right here.
If you want take the hour or so and do a really thorough job the first time, I’d recommend getting Surviving Your Credit Meltdown and going through each step to make sure you’re optimizing your report as best as you can the first time.If you purchase the System, you’ll also get a video tutorial walking you through the dispute process in Equifax, Experian & Transunion while on AnnualCreditReport.com, so you know exactly what and how to dispute and what to expect.
If you don’t have time to do it right now, there’s a host of creditor and credit bureau sample letters you can use to send in to the credit bureaus that will accomplish the same thing, and you can save your free yearly check until you have a little more time to spend on it.These letters just take a day or two longer because you have to send them via the mail.
Don’t worry about sending in any kind of proof to the credit bureau’s of anything you’re disputing.(Just eliminate that part out of the letter template.) They don’t keep it for the first-time dispute process anyway because on the first go-around, all they’re going to do is contact the creditor in dispute and ask them to validate the information.
If the creditor finds a record of what you’re disputing, it stays on, if not, then it comes off.You’d be surprised how many items just come off because of lousy record keeping or laziness on the part of the human involved.
There is much more you can do after the first go-around with the bureaus, but this is a quick and efficient way to increase your scores quickly when you’re in a hurry.
Now….let’s get that car loan!
Okay…..with minimal effort and a little luck, you’ve increased your credit score higher than it was before…..good job!
Now, you need financing…..but where to go?
If you go directly to auto dealerships, you need to know that in order to get a loan, your credit report will be pulled, and pulled, and pulled…..you get my drift right?
This will result in multiple “hard inquiries” on your credit report, and by going to the dealerships first, you will never find out why you are not being approved and the inquiries will just keep adding up.(For more info on “inquiries, click here)
**You do however have a 14 day grace period when shopping for an auto loan.Your credit can be pulled multiple times within that 14 day period and it will only count as one inquiry, so you need to be sure that you’re seriously ready to buy that car once your credit starts being pulled.If you keep having your credit pulled after that, kiss your new score good-bye…
What you really want is to be pre-approved.That way you can walk into ANY dealership with a loan that you can afford already in place and you’ll know exactly how much you can afford.
Next Step: Go Visit Your Local Bank
If your new credit score is 620 or higher, the best thing you can do for yourself is go to your local bank and apply for an auto loan there first.(I’m talking about walking into your branch and talking to a live human.)
You want to speak with someone who can pre-qualify you for a loan based on the banks guidelines.
Maybe you don’t have enough income to qualify for that Ferrari you wanted……(yeah, probably not…) Yet, the loan officer will be able to advise you how much you can qualify for, as long as this is your only issue.
If you’re turned down because of your score, you can ask what is the minimum score they require to get approved.This will tell you whether or not you’re going to need sub-prime financing or not.
What If I Can’t Qualify For A Bank Car Loan?
If you’re not “bankable” just yet, don’t worry…..there are still lenders out there that will give you a loan, but the rate isn’t going to be as pretty.
I’d first ask the loan officer at the bank if they have anyone they’d recommend to refer you to.
If you're ready to pocket all the extra cash you pour into your gas guzzler, Gas Saver Auto Loans can help you get a loan on a fuel-efficient vehicle.You can easily apply for a loan in seconds, even if you don't have credit, have bad credit, or have filed for bankruptcy in the past.
You can also do a search on the net for “bad credit auto loans” and you’ll get a slew of links to click on.Some of these sites will search multiple lenders for you and could save you some time.
If you like a more personal approach, you can look in your local yellow pages for “finance companies”, like Household Finance or American General.Word of caution here though, finance companies usually carry much higher rates, so be sure to shop around.
What If The Payments Aren’t Affordable?
Most people worry about whether or not they’ll be able to make the monthly payments on a loan without taking into account the loan’s term, total interest paid, and loan origination fees or pre-payment penalties.
Generally, the lowest rates on auto loans are available on short-term loans, from 12 to 36 months, which mean a large monthly payment but lower amounts of interest.
Longer-term loans often come with higher interest rates.
When you calculate the total price of your new vehicle, include the interest costs over the years.
If it seems like too much for you, try to renegotiate the interest rate, offer a larger down payment, or shorten the term of the loan.
I get asked “What is Imminent Default?” quite a bit in relation to mortgages and home loans, so I thought I’d explain this in a little more detail.
If you break down the two words in a basic sense, “imminent” means: likely to occur at any moment, impending, near, at hand, about to happen.
The word “default” means: failure to act, inaction or neglect, failure to meet financial obligations, to fail in fulfilling or satisfying an engagement, claim or obligation, failure to account properly for money in one’s care.
So, what this term boils down to is: Borrowers in jeopardy of “imminent default” cannot continue to make full monthly contractual loan payments.
Are you in danger of Imminent Default?
If you are having a hard time keeping up with your monthly mortgage payment, then yes, you are in danger of imminent default.
Most lenders are taking a proactive approach to these types of borrowers.Lenders would much rather figure out a way for you to keep your home if at all possible, rather than foreclose on it.
If this sounds like your situation, you should contact your lender the very first month you cannot make your mortgage payment.
What will the lender require if you’re at risk of imminent default?
You will be asked to provide financial and other supporting information to determine default avoidance and/or possible loss mitigation options.
If you qualify, the lender will negotiate payments and determine the optimal workout solution and as applicable, work with other departments or vendors to document and implement the workout solution, which may include temporary or permanent modification of loan terms.
Will modified loan terms affect your credit?
Normally, as long as you “pay as agreed” to the new terms, your credit should not be affected.
I would however, question the lender as to whether or not they are going to report the account as being late if the workout solution is temporary.Because you are not paying what was originally “contractually agreed to”, this may affect how updates are made to the credit bureaus.
Make sure to get any arrangement in writing, including how the modification will be reported to the credit bureaus so if you run into issues later, you have documentation to dispute any mis-reported information.
If you need to sell your home in today’s market, you may be in for a big shock if you discover that the current market value of your home is in the toilet, and you now owe more than your home is worth.If there is any possible way you can postpone selling right now until the market begins to turn around, that would be your best bet.However, if you find yourself facing a certain financial hardship that you know you can’t recover from or you’re facing a divorce or you’re relocating to a new job and have no choice but to sell, here is some information to help guide you through the process.
Will Your Lender Object To A Short Sale?
Most lenders are only interested in 2 things:
1.How much do you owe?
2.How much can you sell your home for?
The reason you are considering a short sale is not of primary concern to your lender.If you’re currently making your payments on time and your loan is current, more than likely your lender isn’t going to be all that cooperative.They want your money and they’re getting it….what’s the problem?
Now if you’ve lost your job, your mortgage payment has adjusted upward to an amount you can no longer afford and you can’t qualify for a loan modification, you’re facing a divorce or your tenant is no longer paying you rent for an investment property resulting in late mortgage payments or complete non-payment of your loan, then you just might entice their cooperation in a short sale.Your lender would much rather get “something” of what you owe versus becoming the new owner of your home.
Complete a Short Sale Package
All lenders will require you to submit to them a Short Sale Package.Usually included in this package is:
3rd Party Authorization (to deal with your realtor directly)
Previous Year Tax Returns, Year End P&L & Current P&L (if Self Employed)
If you are considering a short sale, contact your lender’s Loss Mitigation Department immediately to see if you can send in all items required, with the exception of the Purchase Contract and Est. HUD Settlement Statement, in order to be “pre-approved” for the short sale.For some lenders, approval of a short sale can take up to 3 months or more and if you can get the process going before you even receive an offer on your home, can cut back this timeframe considerably.
You may want to submit this information by fax, mail and email just to make sure the lender has received it.Immediately follow up with the lender to be sure they have it in their hands and get an approximate date on when you can expect a response.Make sure you document every conversation and get contact names and phone numbers.
Find an Experienced Short-Sale Realtor
Agreeing to accept a “Short-Sale Listing” is no picnic for a Realtor.You need to find one that is experienced in short-sales.Often this process can be long and drawn out and requires constant follow-up with the lender….this is one instance where “stalking” is considered okay.
When interviewing realtors, make sure they have short-sale experience.You should ask them what is their short sale closing ratio and if they charge for their service.Find another agent if they want to charge you anything.A seller should never incur any costs associated with a short sale.
How Much Should I Sell My Home For?
This is not a question you as the seller should be answering.Current market value is determined by the most recent sales in your neighborhood that are similar to your home.Yes, this data will include short-sales and foreclosure sales unfortunately, but these sales must be used if they are the most recent, relevant sales.Your realtor will complete a market analysis of your home and discuss with you what these homes are selling for.Whatever you do, do not try to list your home with a sales price higher than what it can actually sell for in your current market.You want to attract an offer immediately, so get input from your realtor as to what the asking price should be.
Keep in mind that the selling price of your home is not the end price to the lender.There will be closing costs, property taxes, liens and realtor commissions that will also have to be paid.These costs must come from the sales proceeds, so the lender will end up with even less than the selling price.
Okay, I’ve Got an Offer….Now What Do I Do?
If haven’t already sent in your short sale package, now is the time to do so.Make sure you include EVERY single item the lender is requesting or your file will be marked incomplete, and you’ll probably end up on the bottom of a very high stack of files.
If you have already sent in the package, you’ll now need to send them the signed purchase contract with an addendum that clearly states that the “Sale is entirely conditioned upon current mortgage holder(s) acceptance of the contract and agreement to pay all agreed costs of sale including commissions, closing costs and costs of Notice of Default.” (If applicable)
You’ll also need to have an Est. HUD Settlement Statement prepared by the title company.This is a breakdown of all costs that will be incurred and how much the lender can expect to “net” from the sale after everything has been deducted.
After you’ve submitted all the paperwork required, start stalking them baby!Some lenders can take 30 days or more to respond or even acknowledge that they’ve received your package.Follow up constantly and make sure you document every phone call and every person that you’ve talked to.
Once your short sale offer is approved, you will receive a Release of Lien.This is the document that states what the lender will accept as the net payoff.
Will the Lender Come After Me For The Difference?
Most banks will not come after you unless you have excellent credit, significant assets or are not delinquent on their loan.
At the end of a short sale transaction, a lender will send you a release.There are two types of releases:
Release without Prejudice:The lender releases all liability of the seller.
Release with Prejudice:The lender will reserve the right to attempt collection of the deficiency balance.
If your approval is subject to prejudice, try to negotiate a promissory note with the lender for a lesser balance.If you owe $50,000, offer them a promissory note for $10,000 instead as “payment in full”.Whatever terms you end up with, make sure you get it in writing before you ever pay a dime.This way you’ll have a record of your arrangement in case any disputes arise down the road.Make sure to keep copies of all paperwork and payments made.
You’ll want to negotiate terms that you can financially live up to.Some lenders will agree to zero interest and up to a ten year term.You’ll also want to be sure that this agreement eliminates any negative hit on your credit for the deficiency balance.Because you are willing to give the lender a promissory note, this will placate most lenders enough to accept your short sale offer.Just remember to get every term you negotiated on with the lender IN WRITING first.
Once you receive the release, you can forward this to the title company handling the short sale transaction and this should be all they need to close the sale.
Will the IRS 1099 me for the Amount of Debt Forgiven?
If the short sale is on your primary residence, you could be protected by the 2008 Mortgage Relief Debt Act.Under this new law, there is no federal income tax due on debt forgiven on a loan that is secured by the seller’s principal residence, provided that the loan was made to acquire, construct, or substantially improve the principal residence.However, if you just pulled money out of your house to pay for a vacation and got debt relief on that loan, you would be subject to income tax.The exemption applies to any portion of loan debt forgiven beginning January 1, 2007 through December 31, 2009. Therefore, it doesn’t matter when the loan was made; what matters is when a portion of the debt is forgiven.
IRS Income Taxes on debt relief due to foreclosure is NOT automatic though…
You have to file IRS Form 982 “Reduction of Tax Attributes Due to Discharge of Indebtedness,” and the form has to be attached to the federal tax return.
Do I Get Any Money From The Sale?
Come on….what do you think?You’re asking the lender to eat some of the balance that’s owed to them, along with paying the closing costs, taxes, liens and realtor commission.Do you really think you’re going to get any money after that?I don’t think so!
Is My Credit In The Toilet Now Too?
Well, maybe yes, maybe no…it depends.If you had late payments on your mortgage or stopped paying it entirely prior to the short sale, then you’ve already done damage to your credit and depending upon how late you were will determine how damaged it is.
If the lender has filed a Notice of Default which tells that “foreclosure proceedings were started”, this will further damage your credit.
Unfortunately, there is nothing you can do about this issue but wait it out.After two years, it will no longer have much of an impact on your credit scores, although the late payments and other derogatory remarks will remain on your credit for 7 years.
Most mortgage trade lines will report your credit as “mortgage paid” after a short sale. An actual “foreclosure” will not report.If you’ve received a Release with Prejudice from the lender, hopefully you negotiated with the lender from reporting the mortgage as a loss, therefore preventing further damage to your credit.
Please share your short sale experience with me in the comment section below! I'd be very interested to her about how it went for you.
If you’ve currently found yourself unemployed, don’t get discouraged….you’re in good company.The unemployment figures in the US are higher than they’ve been in decades.Now that the unplanned and unwanted event has arrived, if you have a savings account, regardless of how much you’ve put into it, and you have some available credit lines, you’ll have two tools that will be a huge help to you to get through this time without damaging your credit.Let’s look at some steps that you’ll need to take.
Time To Recalculate The Family Budget
Sit down with your family, including your children, and discuss the situation.You’ll need to talk about temporarily reducing expenses to keep in line with your now reduced income.Do not be embarrassed to talk with your kids about this situation.Children need to be aware of issues that are now going to affect the family and they’ll also learn an important lesson of how adults deal with difficult situations and work together to overcome them.
Get Help From Credit Counselors If Needed
If you’re afraid you’re just not going to be able to make ends meet during this difficult time, look for an “accredited” credit counselor early on.A legitimate, certified credit counselor may be just the help you need to begin resolving your financial concerns.A credit counseling agency serves as an objective third party to help you sort through your problems, give you some credit education, offer personalized budgeting advice, and design a customized plan to get you out of debt at no charge or a very nominal fee.
Severance Pay From Your Employer
If you’re lucky enough to be getting severance pay from your employer but have not received it yet, talk to your HR department and ask them to increase your “withholding exemptions” up to the maximum allowed.This will reduce the amount of tax that is withheld from your income and give you a little more cash in your pocket.Be aware that you may have more taxes to pay because of this strategy, but with reduced earnings and job hunting expenses that you may be able to write-off, you may offset this amount somewhat.
Stay Away From Cash Advances
Whatever you do, do NOT use cash advances on your credit cards as a way of generating income.The cost of using money this way is much greater than using the credit card to pay for it.Cash advance almost always come with extra fees and usually have a much higher interest rate associated with repayment.
Looking At Credit From A Different Perspective
Prior to becoming unemployed, you used credit to spend your income in a different way than carrying around your paycheck in your pocket.You also used it for purchases that took you some time to pay off because they cost more than you could initially afford.When you’re not working, you don’t have that paycheck coming in, so you may need to use credit for basic living and job-hunting expenses only.Remember, this is NOT the correct way to use credit on a regular basis, but as an alternative to getting through this temporarily insolvent time in your life.
Save Your Cash Until Last
Your cash cannot be replaced once it’s gone, so use your credit first and save your cash for last.Pay with credit for your necessities as much as possible.Make sure you follow your new budget so you keep these charges to a minimum which will make your credit last as long as possible.
Employers May Pull Your Credit
Prospective employers often pull your credit report as part their requirements in order to offer you a job, so to maximize your chances of getting a job, you’ll want the best credit you can possibly have.
Preserving Your Credit While You’re Unemployed
Keep your balances at less than 30-50% of your high credit limit.This will help keep your credit score as high as it can be.The closer your balance gets to your available credit limit, the lower your credit score drops, even if you make your payments on time every month.
Make all credit card payments on time.Making credit card payments by no later than the due date has a 35% affect on your credit score.If you start to get behind on your payments, this could attract the attention of other creditors who begin to get nervous that you’re going to do the same to them, and they may freeze, suspend or even close your account.If this happens, you will have less credit available to use during this time and it will also impact your credit score for two reasons.The first is the late payment and the second is if the account is closed, you no longer have the high credit limit on that account and that will also affect your overall debt-to-limit ratio.
Pay the car loan first.A car can be repossessed in as little as two weeks.If you lose your car, how will you get to job interviews and eventually get to work in order to keep a roof over your head by paying rent or a mortgage payment?
Pay your rent or mortgage second.You don’t ever want to get more than 60 days behind on your mortgage.If you do, the foreclosure process will begin and this is a very difficult process to stop once it’s started.If you’re having trouble paying this bill, contact your lender immediately (preferably before your even 30 days behind) and see what programs they have to offer to help you during this time.
What To Do When You Run Out Of Credit And Options
If you aren’t able to make any payments on maxed-out credit cards or credit lines and you still have no job possibilities coming up, something will have to be done.You only have three avenues to work with….income, expenses and credit.If credit is not an option, then income and expenses are your only other alternatives that you can change.
You’ll need to revamp the budget that you prepared when you first became unemployed.Take a look at each and every item and determine where you can make some drastic steps to reduce these amounts.Can you move to a smaller place? Can you move in with friends or family?Can you sell things around your house to bring in some additional income?Consider taking a side job in the interim to tide you over until you can find something in your field.If you need income, you may have to take what you can get for awhile.
This time can be very stressful, but try to keep in mind that you will come out stronger that you went in, given time and perseverance.
Imagine the impact of having your web site address, e-mail address or company name seen hundreds or even thousands of times every day in major city traffic.
Promo Plates Are an exciting new way to use your car to promote your corporate brand, business or practice. Whether you are a professional, small business owner, or individual; Promo Plates can actively promote your website, email address, phone number or personal message every time you drive your car.
Promo Plates work so well, many of our customers immediately re-order more name plates for their employees and associates. The positive feedback has been astounding!
Hope this helps you to increase your exposure in this tough economy!
Excessive inquiries to your credit can drastically reduce your credit score, although certain types of inquires don’t affect it at all.You need to know which types negatively affect your credit, so you can keep them to a minimum in order to ensure optimal credit scores on a consistent basis.
The Hard Inquiry
When you fill out a credit application you authorize a bank, credit card company or lender to view your credit history. This is known as a hard inquiry and is done with “permissible purpose”.
Collection agencies may also pull a hard inquiry. Hard inquiries can take points from your credit score.Many hard inquiries are also viewed negatively by creditors and can be used as a reason to deny you credit.
The Soft Inquiry
A soft inquiry may not have been authorized by you. Your existing creditors pull your credit reports to see how you are paying your other bills and if any problems exist. They also do this as an excuse to invoke “universal default” which can raise your current interest rate.Lenders and credit card issuers also pull soft inquiries in order to screen you for pre-approved offers. Soft inquiries do not take points away from your credit score and are supposedly only viewable by you.
Pre-Approved Offers
When you receive a “pre-approved” offer in the mail, this means a bank or credit card
company has screened your credit and made a soft inquiry. However, even when you receive a pre-approved credit offer in the mail and you respond, a hard inquiry will most likely be pulled. This means a hard inquiry will be added to your credit files and points will be deducted from your credit score.
You can opt out of these types of inquiries by visiting OptOutPrescreen.com.You can opt-out of these types of offers for 5 years with an on-line submission. If you want to permanently opt-out of these types of offers, the site will provide you with a letter you can print, sign and mail in which will eliminate you from these types of offers forever.
Why Hard Credit Inquiries Are Bad
Credit grantors view too many credit inquiries as a sign of financial trouble. The creditor has no way of knowing if you were approved for all of the credit you applied for. Your credit inquiry does not indicate approval or denial. They may assume you received the credit lines that are showing as inquiries. Additionally hard credit inquiries take away points from your credit score.Too many hard inquiries could result in a denial of credit and bring down your credit score.
Mortgage and Auto Loan Inquiries
It is wise to shop around for the best interest rates when making a major purchase such as a house or automobile. But shopping around for the best rates may result in many inquiries during the shopping phase. The credit reporting agencies supposedly have a buffer to prevent your credit scores from taking a dive for too many inquiries when shopping around for interest rates.
All inquiries related to a mortgage loan or auto loan done within a 14-day period are counted as one inquiry. The issue with this is that the inquiries are supposed to indicate a mortgage or auto inquiry on your credit report, but there is no way of knowing if a lender or bank has noted that inquiry correctly. Just be informed and ask your lender before applying, especially at a car dealership. They may run your credit through many lenders in order to get you approved.
How Long Do Inquiries Remain On Your Credit Report?
All credit inquiries remain on your credit report for two years and should drop off automatically when the two years as expired.
All “hard” inquiries show up when a lender or creditor request your credit, whereas “soft” inquiries only show up when you request your own credit reports.
Most credit granters disregard credit inquiries after 6 months. While they do remain on your credit reports for 2 years, they are not heavily weighed in decisions to grant credit.
Erasing credit inquiries
The credit reporting agencies will tell you that credit inquiries are just a statement of fact and cannot be removed. This is not true.FRCA Rules state that “Any information can be disputed and must be investigated”. You need not worry about soft inquiries as they do not count against your credit score. Credit inquiries made without “permissible purpose” should be disputed.
The FCRA states you can sue for damages in the amount of $1,000 for each instance a company pulled your credit report without your permission.
Credit inquiries made without your permission may indicate fraud, in which case the credit reporting agencies may put a fraud alert in your files. A fraud alert will make it difficult for anyone, including you, to access your credit report without your permission.
Permissible purpose would be if you applied for credit, one of your current creditors may pull a hard inquiry or a collection agency holding a debt may pull your credit report.
Is Disputing Credit Inquiries Worth The Time?
If the credit inquiry is really a mystery to you and you don’t recall requesting credit then you really should initiate an investigation with the credit reporting agencies. It could be a matter of fraud and you want to handle that immediately. A fraud alert may be put in your files in order to protect you. Fraud alerts will also keep you from applying for credit easily.
Your time may be better spent disputing other types of information that would significantly raise your credit score if deleted.
We’re facing a whole new world of “Credit Rules” now. More people than ever before need help understanding how credit scores work, what affects them, and what to do to put themselves in a better situation. Credit Trauma is here to give you the education that you need in all aspects of your life. The more you know, the more empowered you’re going to be.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
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