Credit For Defaulter

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Goodman60
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Credit For Defaulter

Post by Goodman60 » Sat Jan 20, 2018 2:51 pm

My niece recently got divorced and had a short-sale of her former home (with her husband). The first mortgage was fully satisfied but the second mortgage (not small) was defaulted upon, with agreement by the lender, for the short sale.

Anyway, I would like to help my niece get a new car (the old car was in her husband's name and "under water" financially, so it became his problem). Perhaps a new Corolla or Subaru Impreza (similar to Corolla but with AWD). My question is this: With a certain amount of money down, will someone lend to her for a 72 month loan or a 3 year lease (effectively the same thing)? My goal is to get her into something new, safe, and with payments as low as possible as she gets back on her financial feet. Yes, I recognize that leasing or a long loan can be seen as starting the bad financial habit process all over again, but I'll supervise her financial recovery. I don't want to get directly involved in co-signing, etc, but I'm willing to gift enough money for her to get the loan. Or will they lend with a small amount down, but large interest rate/larger payment? In which case, I'll gift enough to buy down the payments to under $300/month, including the 10% PA tax on lease payments (if leased). Fortunately, I've never dealt with the "bad credit/need a car" situation. So I have no idea how this works, but an old car dealer I once knew used to say, "there's a seat for every butt" (actually he used a different last word). Meaning lots of bad credit people get brand new cars.

Please, I've been around here long enough to know what's coming and ask that the replies be limited to how to do this and NOT to:

1. People with bad credit should be driving cheap used cars.
2. I shouldn't be rewarding bad financial behavior.
3. I'm a fool for getting involved.
4. There's a moral obligation to the defaulted-upon bank that everyone should think about before discussing new toys.
5. A 2-3 year old car is a better value/lower cost per mile, depreciated already etc etc.
6. Leasing and 72 month loans are the devil's work and should never be done.


Thank you in advance for your replies and limiting the usual Boglehead preaching!
Last edited by Goodman60 on Sat Jan 20, 2018 3:17 pm, edited 4 times in total.

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TomatoTomahto
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Re: Credit For Defaulter

Post by TomatoTomahto » Sat Jan 20, 2018 2:54 pm

Good luck with your caveats. I’m preparing the popcorn.

ETA: I have no directly applicable experience.
Zero Net Carbon by 2019.

Goodman60
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Joined: Mon Jun 03, 2013 8:53 pm

Re: Credit For Defaulter

Post by Goodman60 » Sat Jan 20, 2018 2:56 pm

TomatoTomahto wrote:
Sat Jan 20, 2018 2:54 pm
Good luck with your caveats. I’m preparing the popcorn.

ETA: I have no directly applicable experience.
:beer

TwstdSista
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Re: Credit For Defaulter

Post by TwstdSista » Sat Jan 20, 2018 2:59 pm

I would caution her to be wary of interest rates. My cousin has terrible credit and was thrilled to get a 10% car loan once. Eek!
Last edited by TwstdSista on Sun Jan 21, 2018 6:46 am, edited 1 time in total.

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dm200
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Location: Washington DC area

Re: Credit For Defaulter

Post by dm200 » Sat Jan 20, 2018 3:14 pm

Goodman60 wrote:
Sat Jan 20, 2018 2:51 pm
My niece recently got divorced and had a short-sale of her former home (with her husband). The first mortgage was fully satisfied but the second mortgage was defaulted upon, with agreement by the lender for the short sale.
Anyway, I would like to help my niece get a new car. Perhaps a new Corolla or Subaru Impreza (similar to Corolla but with AWD). My question is this: With a certain amount of money down, will someone lend to her for a 60 month loan or a lease? I don't want to get directly involved in co-signing, etc, but I'm willing to gift enough money for her to get the loan. Or will they lend with a small amount down, but large interest/payment, in which case I'll gift enough to buy down the payments to under $300/month, including the 10% PA tax on lease payments (if leased). Fortunately, I've never dealt with the "bad credit/need a car" situation. So I have no idea how this works, but as my car dealer friend says, there's a seat for every butt. Meaning lots of bad credit people get brand new cars.
Please, I've been around here long enough to know what coming and ask that the replies be limited to how to do this and NOT to:
1. People with bad credit should be driving cheap used cars.
2. I shouldn't be rewarding bad financial behavior.
3. I'm a fool for getting involved.
4. There's a moral obligation to the defaulted-upon bank that everyone should think about before discussing new toys.
5. A 2-3 year old car is a better value/lower cost per mile, depreciated already etc etc.
6. Leasing is the devil's work and should never be done.
Thank you in advance for your replies and limiting the usual Boglehead preaching!
If she has adequate income, I suspect she can get a car loan (without your financial assistance) with no down payment. Leasing is not (IMO) the answer. Encourage a sensible car for her needs (whether new or used). Help her "just say no" to expensive add-one - extended warranties, GAP insurance, paint protection, etc. Look at consumer reports for good new or used vehicles. Try to get pre-approved at a credit union. Do not have a longer loan than 48-60 months. Encourage regular savings to pay for repairs down the road so she can keep the car for a very long time.

Goodman60
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Re: Credit For Defaulter

Post by Goodman60 » Sat Jan 20, 2018 3:24 pm

dm200 wrote:
Sat Jan 20, 2018 3:14 pm
Goodman60 wrote:
Sat Jan 20, 2018 2:51 pm
My niece recently got divorced and had a short-sale of her former home (with her husband). The first mortgage was fully satisfied but the second mortgage was defaulted upon, with agreement by the lender for the short sale.
Anyway, I would like to help my niece get a new car. Perhaps a new Corolla or Subaru Impreza (similar to Corolla but with AWD). My question is this: With a certain amount of money down, will someone lend to her for a 60 month loan or a lease? I don't want to get directly involved in co-signing, etc, but I'm willing to gift enough money for her to get the loan. Or will they lend with a small amount down, but large interest/payment, in which case I'll gift enough to buy down the payments to under $300/month, including the 10% PA tax on lease payments (if leased). Fortunately, I've never dealt with the "bad credit/need a car" situation. So I have no idea how this works, but as my car dealer friend says, there's a seat for every butt. Meaning lots of bad credit people get brand new cars.
Please, I've been around here long enough to know what coming and ask that the replies be limited to how to do this and NOT to:
1. People with bad credit should be driving cheap used cars.
2. I shouldn't be rewarding bad financial behavior.
3. I'm a fool for getting involved.
4. There's a moral obligation to the defaulted-upon bank that everyone should think about before discussing new toys.
5. A 2-3 year old car is a better value/lower cost per mile, depreciated already etc etc.
6. Leasing is the devil's work and should never be done.
Thank you in advance for your replies and limiting the usual Boglehead preaching!
If she has adequate income, I suspect she can get a car loan (without your financial assistance) with no down payment. Leasing is not (IMO) the answer. Encourage a sensible car for her needs (whether new or used). Help her "just say no" to expensive add-one - extended warranties, GAP insurance, paint protection, etc. Look at consumer reports for good new or used vehicles. Try to get pre-approved at a credit union. Do not have a longer loan than 48-60 months. Encourage regular savings to pay for repairs down the road so she can keep the car for a very long time.
Thanks for that info, even if you did add the preachy stuff that I already admitted I know :wink:

mpsz
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Re: Credit For Defaulter

Post by mpsz » Sat Jan 20, 2018 3:42 pm

I have not been in this specific situation, but this sounds like a situation in which a credit union may excel. In this scenario, I would expect a dealer to charge a predatory interest rate. As such, I'd plan to shop around a bit and see what kind of financing you can qualify for.

Plug the interest rates into https://www.cars.com/car-loan-calculator/ to see what kind of down payment you'd be looking at.

Please don't drag the loan term out past 60 month. This is a textbook case against doing so.
Do not lease in this scenario. I am not against leasing in all scenarios, but you are trying to help your niece, and this is similar to "kicking the can down the road" from what I can see.

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dm200
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Location: Washington DC area

Re: Credit For Defaulter

Post by dm200 » Sat Jan 20, 2018 3:52 pm

mpsz wrote:
Sat Jan 20, 2018 3:42 pm
I have not been in this specific situation, but this sounds like a situation in which a credit union may excel. In this scenario, I would expect a dealer to charge a predatory interest rate. As such, I'd plan to shop around a bit and see what kind of financing you can qualify for.
Plug the interest rates into https://www.cars.com/car-loan-calculator/ to see what kind of down payment you'd be looking at.
Please don't drag the loan term out past 60 month. This is a textbook case against doing so.
Do not lease in this scenario. I am not against leasing in all scenarios, but you are trying to help your niece, and this is similar to "kicking the can down the road" from what I can see.
Yes - start with a credit union pre-approved car loan. A loan for a new car might have a lower rate and be easier to qualify for.

Dealers do not lend money - they find lenders that will make loans to buyers.

mwm158
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Re: Credit For Defaulter

Post by mwm158 » Sat Jan 20, 2018 3:58 pm

You've talked a whole lot about what you want. What does your niece want? Does she want a new car and all the new debt you're "helping" her get?

Goodman60
Posts: 243
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Re: Credit For Defaulter

Post by Goodman60 » Sat Jan 20, 2018 5:08 pm

mwm158 wrote:
Sat Jan 20, 2018 3:58 pm
You've talked a whole lot about what you want. What does your niece want? Does she want a new car and all the new debt you're "helping" her get?
Niece wants a reliable car to get to and from gainful employment. She should be financially fine within a few years. Yes, this is exactly "kicking the can". And, in my opinion, the right situation for a 72 month loan or a lease (which is really the same thing). In fact, the lease is better. It's purely renting a car while getting on her feet. 3 years later, she can turn in the car and do what she wants. Or buy it as a well maintained used car that she knows. And I am going to put MY OWN money where my mouth is (gifting any upfront cash needed to keep the payments under $300/mo, with tax, regardless of the interest rate required for a bad credit borrower).
Last edited by Goodman60 on Sat Jan 20, 2018 5:09 pm, edited 1 time in total.

Goodman60
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Re: Credit For Defaulter

Post by Goodman60 » Sat Jan 20, 2018 5:08 pm

dm200 wrote:
Sat Jan 20, 2018 3:52 pm

Dealers do not lend money - they find lenders that will make loans to buyers.
Of course that's the case. Figure of speech.

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MilleniumBuc
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Re: Credit For Defaulter

Post by MilleniumBuc » Sat Jan 20, 2018 9:35 pm

Was in this same situation in 2013, during a short sale that wasn’t complete (but all the missing payments were killing my credit) at the end of a lease that I had taken out in 2010. The rate to purchase the lease at the dealer was 18%, and based on how the language was written, I could only buy it or return it at a dealer. I could not get a loan on my own to purchase the lease.

Ended up buying a new car with 72 month loan, but was able to get the special financing deal (3.99%) only by agreeing to a higher price than what I would have paid thru true car or Costco pricing. Thankfully I was able to make a final lump sum payment this month, and it ended up as a over priced 60 month loan. At the time, I could have received the 60 month at 0.99%, but still higher than what the price was worth.

Throughout the years, the car was always worth less than what I owed, until about 4.5 years into the loan. Had to carry gap insurance longer than I wanted.

I guess I am glad that I could do it because I really didn’t want to pay high interest, but I always second guessed the lease. Should have had a paid car off about 3 years ago if a did a 60 month loan in 2010, but the job security was not there after the Great Recession. Everything is always different in hindsight.

delamer
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Re: Credit For Defaulter

Post by delamer » Sat Jan 20, 2018 11:44 pm

This is few years old, but still might be helpful:

https://www.edmunds.com/car-loan/how-to ... uptcy.html

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Watty
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Re: Credit For Defaulter

Post by Watty » Sun Jan 21, 2018 12:35 am

Before she buys the car she should also get quotes for car insurance. Your credit score is one of the factors that they use for pricing car insurance so it could cost more than she is expecting.

Goodman60
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Re: Credit For Defaulter

Post by Goodman60 » Sun Jan 21, 2018 11:59 am

Watty wrote:
Sun Jan 21, 2018 12:35 am
Before she buys the car she should also get quotes for car insurance. Your credit score is one of the factors that they use for pricing car insurance so it could cost more than she is expecting.
An excellent point I had not thought about. Thank you, Watty!

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