I've always chuckled at the reactions I receive when people ask
about bankruptcy auto loans, and I suggest they be open to leasing.
The looks I get are a cross between “are you kidding?” and “what did
you just call me?”
Leasing has undergone a change in popularity
since its inception. In the beginning, everyone purchased cars
outright…they could do this because a) buying a car on time was not
an option, b) because cars cost much less then than they do now.
As options were added to cars, such as color, 2-doors or 4-doors,
5-speed or automatic, am radio or 8-track (oh, am I dating myself
here?), vehicle prices begin increasing. Auto loans terms came out
at 12 months…moving up quickly to 24 months…36 months…and soon it
became apparent that cars were costing more than people could
afford.
In stepped the leasing option. It was a neat program at first.
You would go in, negotiate a payment with the auto dealer
calculating the suggested residual value at the end of the lease.
You were soon the proud renter of that vehicle.
The popularity of this method spread like wildfire….until it
became snuffed out when the first lessees drove back in years later
to drop off their cars. That residual value, the value that their
vehicle was supposed to be worth was much higher than what it
actually turned out to be…..and people were told they needed to come
up with thousands in order to drop off their vehicles.
As you can imagine, “open-ended leases” such as those (where the
vehicle's value would be ascertained when you came to drop off your
car at the end of the lease, rather than set in stone as they are
now in “closed-end leases”) became about as popular as a electric
shock therapy in the rain.
So, purchasing vehicles was back in vogue. And, just like in high
school economics, the prices of the cars increased faster than the
incomes of those who wanted them….and soon terms increased to 48
months.
Today, a 60 month loan is commonplace, with people signing up for
72 and 84 month loans without batting an eye. So, not surprisingly,
leasing was given a second look, has been restructured, and is now
an option for people to get the best of both worlds.
People can get a brand new (or slightly used…yes, they even lease
used cars now too!) vehicle for a reasonable payment.
So, how does this relate to me, you ask? I thought you had to
have stellar credit in order to lease.
Enter the world of the
bankruptcy auto loan!
This was the case until about 8 years ago. Banks were finding
that there were many people with sub-prime credit that needed car
loans or a bankruptcy auto loan.
For years, if you had bad credit, or required a bankruptcy auto
loan, you were charged a hefty interest rate if you wanted their
loan, take it or leave it.
Well, funny thing about interest rates. The higher the rate, the
more interest you pay out in the first years of your bankruptcy auto
loan term….the less you pay to principle. This simple fact means, if
after 1 year of paying on this bankruptcy auto loan the person finds
themselves unable to continue making payments….the amount of money
they still owe on their vehicle is still very high because such a
small percentage of their payments have been going towards
principle.
Those lucky banks that had been counting their money with their
greasy fat fingers, suddenly found themselves a year later stuck
with repossessed cars that still had huge balances owed on them.
How does this affect you? Banks and manufacturers have devised a
way that everyone benefits from leasing. Someone who does not
qualify for a prime rate, and in fact requires a bankruptcy auto
loan can, depending on the lender's guidelines, lease a new or newer
vehicle.
The lender is happy because you are given a shorter term
(generally 36 months) to pay on the vehicle. The end value is fixed
(“closed-end leases” I spoke of earlier) and backed out of the loan
amount, so you are only paying on your 3 years of use.
The interest paid is based on 3 year usage, not on the whole
value of the car, so you pay down your principle faster. And, if the
worst case happens and the car gets repossessed, the lender is in a
better position with regard to the vehicles loan balance and current
value.
What does this mean to you?
You can obtain a new or nearly-new vehicle and bankruptcy auto
loan for a reasonable payment, a shorter loan term, and all the
benefits of things like bumper to bumper warranty…things that are
not always available when you purchase a vehicle through a
dealership, and definitely not available when you purchase from a
private party.
Obtaining a bankruptcy auto loan, and even a lease can get you on
the right track immediately.
I've gone through a lot of information here. I encourage you to
learn more about obtaining a bankruptcy auto loan; ask more, and
educate yourself in the insider methods and strategies I and my
colleagues teach by signing up for membership at www.creditiskey.org.
You will benefit from my and others' years of educating people in
various aspects of rebuilding your credit after a bankruptcy as well
as how to obtain a bankruptcy auto loan.
I'll see you there!
