With the recent widespread financial difficulties, bad credit has become more common. It has become difficult for many to keep up with bills and credit scores are taking some hits. Still, people need cars to get around so getting an auto loan with bad credit is becoming a more common concern.

Do You Have Bad Credit?

This question isn’t as easy for people to answer as you might think. Many people decide that they have good or bad credit without even knowing their exact credit score. Many people just assume that they have bad credit without reviewing their credit report and the same goes for those who insist that their credit is excellent.

What is a good credit score? Again, this is a difficult question for many to answer. You would think that with all the talk these days of the importance of maintaining a good credit score that people would know what one was or at least they would know the point at which a credit score has turned from good to bad. Still, this isn’t the case.

In general, a score of 680 or above makes it rather easy to find a decent auto loan. Any score below that means that a person should be working to bring it up. The cutoff point changes but this is a place to start. Know your credit and look into what various lending institutions are offering for people with your credit rating.

Using Collateral In Place Of Good Credit

If you do in fact have bad credit then all is not lost. One way to get around the credit question is by having collateral. Collateral can assist someone with bad credit when it comes to getting a loan.

Collateral, in some cases, can almost make a credit score irrelevant. Lenders just want to be assured that they will not lose money on their investment. Collateral shows that the value of the loan will be paid back one way or another.

Sometimes the car that is being purchased can be put up as collateral. It should be noted that this means that if the borrower fails to make payments that the lender will seize the car to cover the payments that are not being made. This option should only be used if an individual is certain that the payments can be made.

Putting up the car itself as collateral may sound like an ingenious idea but there are many other types of collateral that work just as well if not better in this situation. Homes, property deeds, and other valuables can be used as collateral to help an individual secure an auto loan. Any of these can be used as collateral and can be used in lieu of good credit to help someone get their hands on the auto loan that they need.

Getting an auto loan with bad credit has always been possible. It may be more difficult and more expensive but it can be done. By knowing if you fit into the bad credit category and then using collateral to secure a loan if you do, you can obtain an auto loan even if you have bad credit.

The first home modification program is called the Home Affordable Modification Program or HAMP. The program was intended to help consumers stay in their homes by preventing foreclosure. The program works by enabling consumers to restructure their mortgages in a way that payments can be reduced. That is the “affordable” component of the program.

Unfortunately the program has not worked as planned and many consumers remain in limbo wondering if they are going to lose their homes. Despite thousands of applications only a small percentage of homeowners have actually been able to permanently adjust their mortgages. Some people are still in a temporary status while others have simply seen their applications stuck in a backlog of mortgage company paperwork.

Now Bank of America has committed to the 2MP program in an effort to reassure consumers the lender wants to help people stay in their homes. The 2MP program actually adjusts second mortgages or equity lines of credit…thus the 2 in 2MP.

During the boom years before the recession lenders pushed consumers to accept equity loans that resulted in a house being 100% mortgaged. In some cases the equity loan led to the owner owing more than the house was worth. When the market crashed, homeowners found themselves with two mortgages and falling house prices.

The 2MP program offered by Bank of America modifies the second mortgage in conjunction with the HAMP program. Qualifying homeowners must complete the modification of their first mortgage and can then modify the second. The goal, of course, is to lower both payments so that together the amount is affordable.

Bank of America has been under fire from consumers for not processing loan modification applications in a timely manner. Some consumers have actually made claims of deceptive practices claiming that Bank of America ends up costing the homeowner money by failing to process applications in a timely manner while charging additional interest and fees.

That is one reason why Bank of America is publicly committing to both HAMP and 2MP. The bank is trying to improve public relations during a time when banking giants are under a lot of criticism for taking taxpayer funded bailouts and then not assisting homeowners facing foreclosure.

In some cases, reducing the first and second mortgages is still not going to be enough to enable a homeowner to avoid foreclosure. The two mortgages together must be affordable and it remains to be seen if that is possible. Many people in homes purchased before the recession bought homes they technically could not afford. Easy mortgages led to millions of consumers buying houses that were too expensive for their income. In those cases, there is not a mortgage modification program in the world that can help short of the government handing them money to pay down the mortgage balance.

Bad loans or loans in default seem to be leveling off which is good news for banks and consumers. Big banks like Wells Fargo and Bank of America can almost be heard breathing a collective sigh of relief as the rate of loan defaults slows down.

This is a situation though that has two facets. It is good that consumer loan defaults are slowing, but one of the reasons it is happening is because the credit markets are so tight that fewer loans are even being made. The flood of loan defaults last year including millions who had taken out loans they could not afford in the first place. Lenders pulled back credit availability last year which lowered the based used for default calculations.

In other words, people who could not afford loans and people who could were both punished by the credit crunch. Underwriting standards have been tightened making it more difficult to get a loan or a credit card. Now there are signs the bleeding is being staunched and the loan markets are stabilizing. It’s been a long time coming.

But the danger of rising loan default rates continuing is far from gone. Unemployment remains high and millions are expected to face foreclosure this year despite government loan modification programs. Consumer loan losses should peak in 2010, but will they? The answer to that question depends on how the economy does over the remaining eleven months in 2010.

Millions of people have either lost their jobs or are working fewer hours or for less pay. The slow recovery is hurting consumers’ ability to repay debts. Lending write-offs last year were staggering. There was $33.7 billion in loan write-offs and $6.5 billion in credit card defaults recorded in 2009.

The loan default business is big business any way you look at it.

It probably doesn’t hurt too many feelings that large lenders like Bank of America lost $2.2 billion overall in 2009, or that credit card companies wrote off a much as 10 percent of their portfolios due to bad debt in that same year. But the reality is that consumers should not wish losses onto banks because much of the loss comes on the backs of consumers.

A stronger economy is the only way consumer loan default rates will return to normal. Economists are hesitantly saying the U.S. will expand but at a slow pace during 2010. Consumers facing foreclosure but who still have full employment can take hope from the fact the government is making it easier for them to access the government backed home loan modification programs. And in the opinion of many debt counselors, the cancelling of many of the consumer credit cards is not a negative act.

Consumers have faced a paperwork nightmare with mortgage companies frequently losing documents. The hold ups in paperwork mean that only 66,500 homeowners have managed to get their mortgage payments permanently lowered. That represents 7 percent of the total number of applications – low by anyone’s standards.

There had been hope the Obama administration would step in and work with lenders to get the process speeded up. New rules were recently issued and now consumers are told that beginning June 1 they will have to prove income up front before any processing will begin. This is a change from current policy. Right now consumers can verbally tell the mortgage company what their income is with the understanding documentation must follow immediately after.

Instead, mortgage companies are saying they have not received income verification documents and that is one reason why so many applications are not being processed to completion. Consumers are saying that in many cases they send the documents and the mortgage companies are losing them forcing borrowers to resend them more than once.

The new rules require the borrower to provide two paycheck stubs as proof of income before paperwork processing begins. In exchange for the easier proof of income requirement, mortgage borrowers will have to give the IRS permission to provide recent tax returns to the lenders. This will help those who are unable to quickly find copies of necessary tax forms needed to qualify for a loan.

There are other regulations put into place too. Now lenders must acknowledge receipt of a loan modification request within 10 days. They only have 30 days, instead of months like now, to make a decision. Once the homeowner is given approval for the program, he or she must then make three months of new payments before the loan is permanently modified.

Unfortunately there are no penalties assessed against lenders who don’t follow the regulations. That means loan processors that take months to make a decision still will not be penalized. That leaves little incentive for lenders swamped with foreclosures and refinancing requests to cooperate.

The loan modification program was funded at $75 billion. The purpose of the program is to lower mortgage payments for consumers so they can afford to stay in their homes. It is hoped that the new rules concerning income verification will improve the loan modification program results. So far it has been a real disappointment to those who though it would help stem the flow of foreclosures.

The federal government has been at odds with the financial industry during the last recession on several fronts. The loan modification program has proven to be another situation where the best intentions of the government ran into a lending bureaucracy every bit as daunting as the one that supports the government itself.

This sounds elementary, but those who learn to adhere to this rule from day one never enter into debt. Of course, there are special circumstances but generally this is true. If you never spend money that you don’t have then you will not be likely to find yourself in trouble financially. This advice is perhaps more relevant now than ever.

The Beauty Of Only Spending Money You Have

If you start off with the clear rule of only spending money that you have then it will be hard for you to get into debt. This is not to say that you cannot have credit cards. It just means that you only put as much on your credit cards as you can pay off each month. If you cannot afford to pay it off then you put off any additional purchases until a month when you can. Or you could just forget those potential purchases entirely.

But some say that’s the beauty of credit cards. You can buy things you cannot afford and not worry about paying for them until later. What about not buying them and never having to worry about paying them off? Wouldn’t that be better than having more possessions or other luxuries that you don’t really need?

What About Necessities?

You’re not going to be able to pay everything off in a month. Cars and houses are two excellent examples of this. But these are necessary expenses and you can still be smart about them.

Choose a house and a car with monthly payments that you can easily afford. Do not make choices that will have you cutting it close each month because these will not be your only expenses in life. You want plenty of leeway for all those other pressing bills that come in regularly or unexpectedly. Make sure that you can pay all your bills off every month and make sure that you can do it with plenty of breathing room.

Does Anyone Really Do This?

This question is a popular rationalization. Many say that no one really pays off their credit cards every month. Even if this were true, the poor financial planning of the rest of the world is no excuse for you to do it too. Even if this is how everyone else does it, don’t you want to be better off financially than those who continue to amass ever greater amounts of debt each month?

There are many people who don’t buy anything they cannot afford. They are the ones who are not hit as hard when recessions hit. They already know that spending more than you make can land you in precarious financial situations and have made the choice to not end up in one of their own. If you want to be free from the debt that so many people carry then you have to do things differently.

If you are starting out then this is the only financial rule you will ever need. Don’t spend money that you don’t have. Adhere to this rule and prepare for a life full of financial smooth sailing.

So how do you lower your monthly car payments without paying a lot more in the long run? Is it even possible? The truth is that it is possible. Here are some ways to lower you monthly car payments without paying more in the end.

Try To Get Pre-Qualified For Your Auto Loan

What’s the big deal with getting pre-qualified for your auto loan? How is this different from just getting your auto loan later? In actuality, there is a big difference.

When you get pre-qualified for your auto loan you may end up with better loan options. Specifically, you may be able to secure a lower interest rate and reduced monthly payments. Getting pre-qualified for your auto loan will keep you from mistakenly going with whatever loan options the dealer presents to you because they may not be the best options available to you.

Think About A Home Equity Loan

Why would you use a home equity loan to buy a car? The answer is simple. Often times with a home equity loan you will be able to secure a loan with a lower interest rate than you would get with many auto loans. Also, by the very nature of a home equity loan, there is a chance that the interest that you pay on this type of loan may be tax deductible.

Make A Larger Down Payment

A large down payment helps to decrease the amount that you pay on a monthly basis. Often it is easier to come up with a large amount once than to be trying to keep up with large car payments on a monthly basis. It may have the added benefit of allowing you the option of a loan with a shorter term too. This will allow you to not only have lower car payments but you will not be making those payments for as long either.

Buy The Right Car

A cheaper car will have lower monthly payments. This is a rudimentary solution to the question of how to secure lower car payments. A car that is less expensive will have lower car payments so remember that. Instead of trying to whittle down payments on an expensive car you can just choose a less expensive car that naturally comes with lower payments.

Do The Math

To lower your monthly car payments without paying more when all is said and done you need to explore your options. Then you need to take the time to calculate exactly how much each of these options will cost you both on a monthly basis and what each of these options will cost you when you have paid off every last cent. If you want to make sure that you will not be paying more in the end then calculate exactly how much you will be paying in the end. It’s that simple.

Many people get lower monthly car payments but end up paying more in the long run. These ways to lower your car payments without paying more will allow you to escape this trap. Never pay less now to pay a lot more later.

Perhaps you avoided leasing a vehicle before because you thought there was only one type of lease out there. Now you are about to learn the truth.

The Popularity Of Closed-End Leases

The closed-end lease is the most popular type of lease. This is the traditional type of lease where you turn in the car at the end of your lease term and that is the end of your involvement with that vehicle. You are not going to pay for the difference between the initial value of the car and the residual or remaining value of the car when you turn it in. If it turns out that the ending value of the car is less than expected then you will not be forced to pay the difference.

There are some situations where you will be required to pay more at the end of your lease, however. If you drive more than the amount of miles allotted by your lease then you will be hit by charges for that. You could also be required to pay for any wear and tear that is beyond what the lease defines as normal wear and tear.

The Risk Of Open-End Leases

Open-end leases are different because the lessee will have to pay the difference between the expected residual or final value of the vehicle and the actual final value of the vehicle at the end of the lease. This means you may have to pay more at the end of the lease or, if the value of the car is more than expected, you may even get a refund. This type of lease is a gamble. Because you pay for the difference in value, this type of lease tends to come without any limits of mileage. This lease is ideal for those who drive a lot.

The Convenience Of Single-Payment Leases

Single-payment leases are paid for with a single payment at the beginning of the lease. This allows a lessee to sidestep a lot of interest charges. You have to be careful with this type of lease and make sure that a dealer does not attempt to include all your interest charges into this one lump sum. If they do then the appeal of paying the whole amount at once is not as great.

The Savings Of Subsidized-By-The-Manufacturer Leases

These are leases that are almost always fantastic deals. They give you the benefit of low interest rates or may predict a higher residual value for the car at the end of your lease period which means that you will pay less for your lease. While a deal like this must be carefully investigated just like any other, a subsidized-by-the-manufacturer lease can be a great bargain.

The different types of auto leases allow you to risk, play it safe, pay all at once, or potentially save a lot of money. The variety of leases allows you to choose which option will work best for you. While you may end up going with the most popular option, you should be aware that you do have choices.

Mortgage Loans

Mortgage loans can make a good impression on prospective lenders under the right circumstances. Mortgage loans can serve to demonstrate your financial stability and your commitment to repaying large loans with longer term periods. Mortgage loans can show you in a positive light as long as you handle them well.

Of course, you need to be able to show that you have managed to keep up with all your mortgage payments for your mortgage loan to make you look good to lenders. In you are lucky then your home will appreciate in value. This is another fact that might help you make a good impression.

Car Loans

Again, car loans will reflect on your positively if you have consistently kept up with the monthly payments. It is favorable for both you and your image if you have secured a car loan with a low interest rate. The one thing that you want to keep in mind and that lenders might consider too is that your car is going to be losing value, not gaining, as time goes by.

Bank Loans

Bank loans can be a good thing. As always you have to be steadfast in your commitment to timely repayments but as long as you do then lenders will not hold this type of loan against you. In fact, depending on the reason for the loan, you might come off in an even better light. One example would be a loan for schooling. The bank will see this as an investment because you are likely to make more money with more education.

Credit Cards

Credit cards are essentially loans. They are not always connected to the word loan but that is what they are. You have to be especially careful with credit cards.

There are many missteps you can make and all will turn your credit cards from a loan that lenders like to see to one that makes them not want to lend you money. Late payments, a high balance, or applying for too many new cards can make you less appealing to lenders. Credit cards are a complicated resource but, when handled correctly, can make a good impression on lenders.

A Single Debt Consolidation Loan

You would not think lenders would like to see a debt consolidation loan but if it is just one then it can be a good thing. It can be a smart move to help you get out of debt and if you use this loan wisely then lenders can see that. Lenders know people are not perfect. They just want an indication of how you will behave in the future and if lending to you is a smart move.

There are loans out there that make a good impression on lenders. Part of this good impression comes from the loans themselves and the other part comes from how you manage your loans. In the end, loans can work for you or against you when you seek out new lenders and new loans. It all depends on how you deal with what you have.

While you will not have a car to show for all your payments, this option is the perfect fit for many car shoppers. Before you commit yourself to any lease, however, you need to known and understand the essential terms of any auto lease.

The Capital Cost

The capital cost is just the amount that the lender that you go with pays to the auto dealer for the car you choose. This price will be the end result of your own negotiation with the car dealer. It will help determine how much you pay for the lease. Your savvy negotiating skills will come into play with the capital cost. This is one of your big chances to get the best deal.

The Capital Reduction

The capital reduction is no more than the amount that the price of the car, the capital cost in this instance, is reduced either by your down payment or by the value of any trade-ins. While the leasing option is often attractive because a substantial down payment is unnecessary, any contributions to the capital reduction will help to decrease the cost. A down payment or a trade-in can be used to lower your monthly payments.

The Residual Value

The residual value of the car is how much the car is worth at the end of the lease period. This amount is often put in terms of a percentage of the original value of the car. In theory, the payments that you put toward the lease will be making up for the value that the car loses during the lease period. This value will help to decide your payments because car dealers need for the difference between the original value and the residual value to be covered by your payments. This may not be all you pay for but it is a determining factor of your payments.

The Term Of Your Lease

The term of your lease is nothing more than the number of months over which you will be leasing the car and making lease payments. You may be able to obtain lower payments with a longer lease term but the difference is unlikely to be substantial. If you lease a car for a period that exceeds the manufacturer’s warranty then you might find yourself paying for repairs that could make your lease a more costly endeavor.

Annual Percentage Rate (APR)

The annual percentage rate is a combination of the cost of interest and any fees or other added on service charges. This total amount is given as a percent value of the total loan. This is one figure that many smart shoppers turn to in order to find the best deal.

These are the essential terms of any auto lease. You will want to understand the terms and conditions of any auto lease before you decide to go with it. Your understanding is imperative because the lease will determine how much you pay and how long you will be paying it for.

Of course, a long period to one person may seem like a short period of time to another. For the reasons that follow, an auto loan repayment period of more than 5 years is considered a long period auto loan.

Calculate The Interest And You’ll Know Why It’s Bad

The interest that you pay on any car loan is a substantial amount. You always want to be aware of just how much you will end up paying in interest by the time you have paid off your loan. This is even more important to understand with long period auto loans.

When you take the time to calculate how much you will be paying on interest for your long period auto loan, brace yourself. You may very well pay thousands of dollars more in interest with this type of loan than you would with shorter period auto loans. The reason for this is that longer period auto loans possess higher interest rates. Not only do they have these higher rates but you also end up paying them for the longer period of time. All this adds up.

You’ll End Up Owing More Than Your Car Is Worth

A long period auto loan is your way to pay off a loan slowly. Unfortunately, while you are paying off that loan slowly, your car is decreasing in value quickly. You know that cars lose a chunk of their total value as soon as you drive them off the lot and continue to drop in value.

In fact, during the first year that you have you car it is likely to lose 20%-30% of its value and that is just in the first year. Because you have lost that much of the value but you have not paid off that much of the loan, you already owe more than your car is worth. This is not a good place to be in.

What If You Want A New Car?

Odds are you will not want to drive this same care around forever. With a long period auto loan you may want a new car before you come close to paying this loan off. This alone can make a long period auto loan a poor choice.

If you do decide you want a new car, you might think that you can sell your car to cover your costs. Actually, you might be able to manage this depending on how much you can get for your car at this point. If you cannot get enough for the care to make a profit or to break even then you will be the one who is paying off the difference.

Long period auto loans are generally not a good idea. There may be some fringe situations where they have their advantages but for most people in most situations long period auto loans are not worth it. If you are ever faced with an offer for a long period auto loan then look closely at the long term implications. The way things look now is not how they will look 5 years from now.