Tons of auto fin questions

[MichiganMommy]

Hello,

Second time on this thread...now that I have purchased my home, I must do something with my car that is falling apart.

I have neg equity, about 10K and have read a couple of threads on this so I know the issues that I will face...

I have a couple of questions about the auto financing though.... I have purchased two cars in the past, one was with the help of my father and although it was my money and credit, I was too young to know I should have paid more attention. We went through his CU so I got an okay deal, he co-signed.... It still shows on my report with 1 late payment. My current loan also has one late payment.... Also, my scores are in the 650s...

So, here are my questions:

1. If I go through my CU, do they pull all 3 CRS like a mortgage? Do they take the midscore? If not, my CU pulled TU to determine whether they would give me an account, would they pull the same CR for the auto loan?

2. Why are CU preferred for financing?

3. What is a tier and what are the tiers of auto financing?

4. What are the step I should take if the CU approves me, do I go to the dealership and try to get a better offer....Can I take advantage of the dealership sales, etc. if I go through the CU financing? What are the pros/cons of this?? I understand that I should probably look for cash back on a new auto loan to help with the negative equity issue...

Any other advice?

Thanks

MM

[Anonymous]

Happy Sunday MichiganMommy,

I don't see any replies to your questions, so I'll give it a shot:

--- Credit Unions only pull one credit report for auto loans. So if they pulled

TU when you opened your account, they'll pull it again..and only TU.

--- As to why credit unions are preferred, let me say this:

Banks have customers...but they answer to shareholders and must maximize profits.

Credit Unions have Members..but Members own the CU. So your CU answers to you.

This means any "profits" they make come back to the Membership in the form of lower

auto/mortgage rates, higher CD rates. etc. 

So in general, this is why you get better loan rates with CU's.

--- Tiers are simply different levels of financing based on FICO scores and interest rates.

For example, your CU's Tier 1 auto financing might be 5% with a 720+ FICO score,

Tier 2 might be 5.5% for 680-720 FICO scores, etc. It's important to understand that

the Tier criteria are different for every credit union, just as they are different with every

factory financing company (GMAC for GM cars, Ford Motor Credit for Fords, etc).

--- If you are fully approved by your CU (meaning you have the loan documents and

actual check in your hands before you go into the dealership), then you're in the best

position possible. And yes, you could elect to try a get a lower rate thru the dealership,

but it will cost you an additional hard inquiry. If you decide this is something you want

to do, speak to the Finance Manager at the dealership ONLY....no one else.

Why???? Because salespeople sell cars..but Finance Managers finance them. That's

all they do all day long, so it's a waste of time for you to talk to anyone else. 

Edit to Add: Let me correct some things in the previous paragraphs:

When you shop for a car or mortgage, all credit report inquiries within a 14-day period

count as only 1 hard inquiry. So yes, it's smart to comparison shop, but do it within

that timeframe.    Also, CU's tend to have lower qualifying FICO scores

than do banks and factory finance companies. They take a "total picture" approach to

financing (income, time on the job, time at same residence, etc), but the banks and

FF companies tend to focus just on FICO scores.

With FICO scores in the 650's, chances are almost certain that your CU will give you

the lowest rate for 100% auto financing. The only exception would be some special

factory financing program (GMAC, Ford Motor Credit, etc) that the Finance Manager

at the dealership knows about. But beyond that, I'd go with your CU.

You'd also be wise to look for cash rebates on new cars. If you get 100% financing from

your CU, I'd use the customer rebate money to make your first few monthly payments.

This way, when the auto loan account (tradeline) appears on all 3 of your credit reports

it will show that you've already made 2-3 payments, you're paying as agreed and you'll

have used the automaker's money to do it. That's a sweet deal if you ask me.

I hope this helps you, MM. This info will probably spawn more questions, so if I'm not here

in the room I'm sure someone else will be happy to help. There's a wealth of knowledge here

and you're smart to use this forum as a resource.

Please keep us posted on your progress. Good Luck to you and enjoy the weekend!

CanDo

"The right attitude is everything"

Message Edited by CanDoAttitude on 09-14-2008 04:12 PM

Message Edited by CanDoAttitude on 09-14-2008 04:15 PM

Message Edited by CanDoAttitude on 09-14-2008 04:29 PM

Message Edited by CanDoAttitude on 09-14-2008 04:42 PM

[Anonymous]

Hi MichiganMommy!

I hope you are loving your new house!!!!!

Sadly a CU isn't going to let you roll that much negative equity into a new car loan. Your only option will be with the dealer. I suggest Kia, they have great cars and currently have $2k to $4k off of certain New '08 vehicles.

I just bought a Kia Sportage with a $2K Rebate and Rolled in Negative Equity of $6K. I put $1k cash down. I went with an 84 month loan (because I plan on buying a house next spring and I want my DTI to be low to afford more house) The Interest rate was 6.99%. Had I gone with 72 months I would have been given a 5.99% Interest Rate (but the car payment would have been $50 more per month).

You can also work with any dealership by talking straight with the finance manager and telling them your best score and they will only pull for the finance companies that use that score. They want to sell you the car so they will want your highest score too.

If you have $1k or $2K cash to put down then that really gets the deal done. It shows the finance manager that you are a little liquid.

You should be able to pull the Tier listing for any dealership through the manufacturer's website. You could be a Tier 2 or Tier 3.

Good Luck!

[Miner]

$10k negative equity... You need to be very careful that whatever you buy and the terms of the new loan won't make your situation worse otherwise you will really suffer the next time around.  This means, no 6 year loans.  And with that negative equity rolled over, you will be upside down on a 5 year loan and possibily a 4 year loan for quite awhile..  Try to find something cheap (for your income) but known to be reliable so that you know it will last for 7 years so you can still drive it when its paid off and save up for the next car.  Because in your situation, even if you buy a $15k car, you are making payments like it was a $25k car which means it will have negative equity until somewhere near the end of the loan and you need to get out of that cycle.  I personally like taking 3 or 4 year loans to avoid having that sort of equity loan situation.  And yes, it means buying a lesser car, but it is financially sounder .

While I like using my credit union for loans, a dealer will be able to fianance you much easier in your situation.

Message Edited by Miner on 09-17-2008 02:54 PM