It used to be that the way most people bought cars was to save up until they had the money to pay for it and then they would go car shopping. This has completely turned around in the last few decades to the point where almost no one except for the rich pay cash for an automobile. Instead, we buy the car with credit and then make payments. Often times this means we are still paying for the car when it is pretty much worn out but at least we got to drive a nice car for a while.
This form of car buying works OK but it is very difficult to find car financing with bad credit with the recent meltdown in the financial sector. Actually, part of the problem was people who had no hope of making the payments on a car were still given a loan. This was because of a fundamental change in how the loan was dealt with after it was made. It used to be that a bank or finance company would make a loan with a purchaser and then that financial institution would hold the loan and receive the monthly payments. For this reason the bank cared about whether or not the customer could make the monthly installment. This changed when loans started being bundled. The loan company would still make the loan to the customer but then it would be sold to a group of investors who would bundle the loan with hundreds of others and then sell these as bonds. Suddenly, the maker of the loan didn’t care whether the loan would be repaid or not because they had already received their commission. Thus they gave loans to anybody who could breath.
Of course this didn’t work so now the pendulum has swung completely the other way. If you want to buy a car with bad credit you will have a very difficult time because the banks want to be sure you can make your payments. This means you again need to worry about improving your credit score. The best way to do this is to make all your payments on time for any outstanding credit you have now. If you can’t make all your payments then you need to get rid of some things until you can get back to a sustainable level. The days of living beyond our means has ended and financial health is again important.
No comments yet.