Leasing After A Bankruptcy;
Obtaining A Bankruptcy Auto Loan |
By John Preston |
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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 6 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.
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.com. 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! |
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