Should you get a corporate credit card?

Whether your employees fly a lot and need a card to reserve plane tickets or they purchase lumber or office supplies for the company at the store, getting them a company credit card is often a great way to keep track of expenses and make it easy for them to purchase what’s needed.

For many entrepreneurs, a small business credit card is the best solution. Many are designed to reward the types of purchases that employees typically make in a small firm.

However, for larger small businesses, getting a corporate credit card, like the ones big corporations issue to employees, often makes sense.

See related: How to get a business credit card

What is a corporate credit card?

Corporate cards are generally available only to larger small businesses, meaning those with at least several million dollars in annual revenue. A company may have to submit a federal tax ID and undergo an audit of its financials to qualify.

For example, the One Card from Capital One requires its users to have a minimum annual card spend over $1 million. Cards are issued to the company itself (rather than any individual) and require that you submit your tax ID and require an audit of company financials before approval.

Similarly, the One Card from J.P. Morgan is available to businesses that spend between $1 million and $9.9 million per year. The bank can also match companies that spend $20 million or more on travel with corporate credit cards.

Once an account has been opened, the company is responsible for paying the balance in full each billing cycle and managing spending of each cardholder. However, it is also the company that reaps any rewards the card may include, including statement credits or travel perks. In the case of the One Card from Capital One, businesses earn competitive rewards up to 1.5X net purchases.

Corporate credit card pros and cons

The biggest perk attached to corporate cards is the ease of tracking employee spending. Rather than having employees make personal charges and submit expense reports or receipts for reimbursement, the company can easily manage spend limits, track budget needs and manage fraud risk. Most corporate cards offer detailed analytics all in one system about where and how company money is being spent.

Since these cards are sometimes more complex, corporate cards often come with their own designated customer service representative who can help resolve any issues quickly. These representatives are usually on-call 24/7 and have an intricate knowledge of each company’s individual needs.

Pros

  • Simplified tracking and analysis of work-related purchases
  • Benefits and rewards help the company directly
  • Dedicated or on-call customer service representative
  • Prevents employees from trying to make personal charges on a company card with clearer visibility and better spending controls than most business cards

Cons

  • Additional cardholder fees can add up quickly
  • Not an option for smaller companies
  • Tough application process
  • Employees can’t earn their own rewards by using a personal card and getting reimbursed

See related: Managing employee cards on your credit card account

How corporate cards differ from small business credit cards

Both corporate and small business cards offer conveniences such as the ability to set limits on employees’ spending and to restrict spending to certain categories. Most also offer features that make it possible to track expenses easily.

However, corporate cards come with certain benefits that small business cards don’t offer – and vice versa.

Availability

Unlike corporate credit cards, business cards are available to any-sized business – even entrepreneurs just getting started on their own. The application process is much less intensive and usually doesn’t require an audit of company finances.

Responsibility for the debt

Business cards are issued to an individual and the company (unless it is a sole proprietor), and even if additional cards are added for employees, the business owner is responsible for managing payments.

Typically, a small business owner must personally guarantee a small business card, though some small business cards come with joint and several liability, where the owner shares liability with the business. With joint and several liability, a creditor can pursue either the business or the owner for a debt.

With most corporate cards, the company is generally liable for the debt on employees’ cards, which is a big advantage in many owners’ eyes. When the company guarantees the debt, the owner is not held responsible if, for instance, the company fails without paying its bills.

Some corporate cards also offer what’s known as individual liability. That means the employee must stay current on paying the bill in the short term and request reimbursement upon filing an expense report. This is less common than it used to be. It’s not necessarily ideal for employees, who may not have the cash available to pay for large charges until their expense report is processed.

Credit CARD Act doesn’t apply to business or corporate accounts. But many card issuers grant those CARD Act protections anyway, as a matter of practice. Nevertheless, don’t take anything for granted. Before using your corporate or business card, familiarize yourself with its rules.

Credit impact

While corporate cards are typically used for work-related travel and accommodation, business cards can be used to make all sorts of work purchases, including supplies or merchandise. This allows even small businesses to build a great credit profile. By using a business card to make larger payments, business owners can avoid racking up charges on their personal credit cards while steadily building their business credit.

With small business cards, employees are considered authorized users. As a result, their card activity may be reported to credit bureaus.

For some employees, this is a drawback. For instance, if they have put expenses from a costly business trip on their card, they may find their credit utilization is high enough to affect their personal credit. That could be a problem if, for instance, they are applying for a mortgage.

In contrast, with a corporate card, card usage does not affect employees’ personal credit. That is a big plus from an employee’s point of view.

See related: Should I wait until my business is more established to get a credit card?

Cost

Small business credit cards tend to have fewer fees, including no additional charge for employee cards with cards such as Capital One Spark Cash for Business the Ink Business Unlimited® Credit Card from Chase.

Corporate cards generally charge for this and may charge as much as $100 a year or more. This is because they often offer more robust features, like access to a specific sales rep or access to enterprise software for filing expense reports.

Of course, if you run a larger small business, the extra benefits may be worth it. It all depends on the needs of your business.

Should you get a corporate card for your business?

While corporate cards offer a wide range of great benefits such as easy expense tracking, dedicated customer service representatives and no liability for individual employees, they are typically only available to large corporations with millions in annual revenue.

If you own a small business, a business credit card can help steadily build a credit history for your company. Business cards can also help you make large purchases to pay off over time.

Source: creditcards.com

Leasing a Car: 7 Reasons Why You Should Consider It

7 Reasons Leasing a Car May Be Smarter for You

Would you like to spend less money up-front, drive away from the dealership in a brand-new car, and spend less time and money on vehicle maintenance?

Consider leasing your next car.

What Does Leasing a Car Mean?

Leasing a car is a lot like renting one—but for a much longer period of time. When you buy a car, you own it after you’ve made all your monthly payments. When you lease a car, you make monthly payments, drive it for a set amount of time (usually about three years), and then give it back to the dealer when that time is up.

Then you get to decide what you want to do next with no strings attached—do you want to lease again or buy a car this time?

While leasing isn’t the perfect solution for everyone, it is absolutely worth considering. Here are seven reasons leasing a car might be the better option for you.

1. You Get to Drive Newer Cars

If you’re the kind of person who likes driving a new car, leasing your vehicle may be a better option than buying one. Cars depreciate quickly, so if you buy a new car, you’ll probably owe more than it’s worth not long after you make the initial purchase.

If you lease instead of buy, you can keep driving new cars indefinitely—just trade in your old lease for a new one every few years. That means you’ll have access to the latest features, like better navigation, back-up cameras, or music players. You could even lease an expensive car for an affordable monthly payment.

2. You Probably Pay Less Up-Front

Traditional car loans usually come with somewhat hefty down payments. But if you lease instead, you’ll likely have a lower down payment than you would with a normal loan. In fact, some dealers may not require a down payment at all.

This means you pay much less up-front so you can put that extra money toward home repairs, a vacation, or paying down existing debt.

3. You Get to Drive a Safer, More Reliable Car

When you lease, you’ll probably drive a newer car, which can be safer and more reliable. The newest cars have the most recent safety features and are compliant with current safety regulations that older cars might not meet.

Plus, since a newer car has less wear and tear, it’s less likely to break down and leave you stranded in an unsafe situation on the side of a fast highway or miles away from civilization.

4. You’ll Likely Spend Less on Repairs and Maintenance

Usually, a newer car needs fewer repairs, but when issues do come up, repairs will often cost less if you lease your vehicle. Most of the time, the vehicle you’re leasing will still be covered by the manufacturer’s warranty, so you won’t have to foot the bill for expensive repairs. There’s a good chance that basic maintenance, like oil changes, will also be covered in your lease agreement or car warranty. 

5. Your Monthly Payments Might Be Lower

When you lease a vehicle, you pay for the vehicle’s depreciation during the lease. When you buy, you’re paying taxes, fees, special finance charges, and the full price of the vehicle.

This means that monthly lease payments are usually lower than loan payments.

6. You Don’t Have to Worry about Selling Your Car

Selling a used car can be a hassle. With leasing, you skip it entirely. Instead, you drop the car off with the dealer when the lease is up. Then you’re free to lease a car again or purchase a new one without worrying about trade-in value or an ownership transfer.

7. You May Pay Less Sales Tax

If you buy a car, you pay taxes all at once for the full value of the vehicle. When you lease, you pay taxes on your monthly payment and spread that cost out over time, so there’s a good chance you’ll pay less sales tax.

Things to Remember about Leasing a Car

There are lots of great perks about leasing instead of buying, but it isn’t the perfect solution for every person. If you decide to lease a car, there are a few things you should remember.

  1. You Still Need to Get through a Credit Check

Leasing isn’t the same as a normal car loan, but it is still a form of financing, so a dealer will check your credit to make sure you’re eligible for a lease. In fact, you might need a higher credit score to lease than you would need to buy.

If you have a low credit score, you may pay a higher interest rate or be denied financing altogether. It is always wise to keep an eye on your credit report throughout the year to look for errors or other problems. For the best rates, make sure your credit is in good shape before you apply for financing.

  1. You May Have to Stick to a Mileage Limit

Leases come with mileage limitations. In most cases, that limitation will be somewhere between 10,000 and 12,000 miles per year. If you go over that limit, you pay extra fees for every extra mile—which can be costly.

Before you sign up for a lease, think carefully about how much you drive each year. Your daily commute is probably the biggest thing to consider, but all those little trips to the grocery store can also add up. If you drive more than 10,000 miles in a year, you may want to pay for extra miles or buy a car instead.

  1. You Get Charged for Extra Wear and Tear

Leases require you to keep the vehicle in good condition. If you turn it in with stains, scratches, dents, or dings, you’ll have to pay extra charges. Should you lease a car, take extra good care of it.

  1. You Could Be Penalized for Terminating the Lease Early

Car leases work a lot like other lease agreements. If you terminate your lease early, you may be subject to significant penalties and fees—just like you would be if you broke an apartment lease early.

  1. You Can’t Modify the Vehicle

Lease agreements have strict rules, and if you violate the agreement, you’ll be fined. Modifications will likely violate the warranty or lease terms—even if they’re modifications that you consider upgrades, such as shiny new rims or a more powerful sound system.

Should You Lease or Buy a Car?

Leasing is an excellent option if you’re comfortable with the limitations that are spelled out in the lease agreement. If you’re still on the fence, ask yourself the following questions to determine whether a lease is best for you:

  • How much do you drive each year? If you love going on epic road trips, leasing may not be the best option, but if you just need a car to get to and from work and around town, a lease would work well.
  • How much do you want to spend up-front? If you don’t have a large down payment saved up, you could get into a new car faster by leasing instead of buying.
  • Is driving a new car important to you? If you’re okay driving the same car for the next 10 to 15 years, you should probably just buy one. However, if you want to consistently drive newer vehicles, leasing is one of the easiest ways to do that.
  • Does vehicle maintenance frustrate you? Because leased cars are newer, they usually have fewer maintenance issues. And when those issues do come up, they’re often covered under the manufacturer’s warranty. If you don’t want to think too often about maintenance, leasing might be a good call.
  • Do you have good credit? Sometimes, you need better credit to lease a car than to buy one. If you’re still working on repairing your credit, you may have to purchase a car instead of leasing one.
  • Do you care more about short-term or long-term savings? Leasing is a great way to save on up-front costs. It also usually results in smaller monthly payments, which makes leasing a perfect option if you want to save money right now. However, in the long run, leasing may cost more than buying since you don’t own any property at the end of your lease.

When deciding whether leasing or buying a car is better for you, carefully consider all the various factors. It’s important to take your own needs and preferences into account to determine which is the most reasonable solution. Use the tips above and research local leasing options to ensure you pick the best one.
Image: iStock

The post Leasing a Car: 7 Reasons Why You Should Consider It appeared first on Credit.com.

Source: credit.com

Can I Get a Car Loan If I Have No Credit?

buy a car with no credit

Yes, lenders have auto loans for people with no credit, but getting one is not guaranteed. It will depend on the lender’s flexibility, the down payment you can afford, and the kind of car you want to buy. It may even depend on how you ask.

Phil Reed, senior consumer advice editor for the consumer auto site Edmunds has some good advice on how to get a car loan with no credit. He says a surprising number of people simply walk into a dealership and say, “Hi, I have no credit, and I want to buy a car.” He doesn’t recommend this approach. Instead, he offers these five tips for people who need a no-credit car loan.

1. Get Pre-Approved

If you have no credit or a thin credit profile, you should try to get preapproved for a loan before heading to the dealership. This will let you compare rates with any loan the dealer may offer. It may also give you a bargaining chip when negotiating the final deal.

If you have a relationship with a bank or credit union, you should start looking for financing there. Reed recommends making an appointment to meet with your bank’s loan officer in person.

“Make a case for yourself,” he says. That means bringing your pay stubs and bank account records with you. You should also check your credit reports, if they exist, and credit scores. You want to know as much about your credit profile as a lender would. If you don’t know your credit score, don’t worry—you can check your credit score for free every month on Credit.com.

If you can’t get a loan from your financial institution, you may be able to find a no-credit auto loan online. Just make sure it’s from a reputable lender. Credit.com can also help you find auto loan offers from trustworthy lending institutions.

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2. Negotiate a Good Price

A dealership could beat the offer you get from your bank or credit union. However, if you know you’re already approved for a loan, you can focus on comparing rates and prices instead of worrying about financing.

Reed says that it’s important to be wary. You don’t want to feel so indebted to the dealer for “giving” you a loan that you fail to negotiate the price of the car. And if the dealer’s financing isn’t better than the bank’s, at least you still have an approval in your pocket.

Having a good down payment or trade-in can also help your case. A trade-in would reduce the amount you’ll need to borrow, and a larger down payment would show the lender some commitment on your part. Edmunds recommends putting at least 10% down on a used car, so start saving now.

3. Choose the Right Car

Be sure the car you’re buying is affordable for you, even if it’s not the car you’d choose if you had more money and better credit. “If you have no credit, it’s not the time to get your dream car,” Reed says. “You have to choose the right car and the right amount [to borrow].”

You want reliable transportation you can afford. Making regular, on-time payments won’t just pay down your load, it will also build your credit, so don’t get a loan that requires higher payments than you can comfortably make.

Sites like Kelley Blue Book, Cars.com, and Edmunds can help you find information on the cars that match your budget. When you’re at the car dealership, remember your budget and don’t spring for optional add-ons you don’t really need.

4. Don’t Let Interest Rates Scare You Off

Reed cautions that when you get a loan with no credit, the interest rates you’re offered may seem appallingly high, but that’s part of the cost of having no credit history.

When you don’t have a credit score, lenders can’t assess how big of a risk they’re taking by giving you a loan. To protect the money they’re lending, they will likely treat you as a high-risk borrower, which means the loan will have a higher interest rate.

As you make payments, you’ll establish a pattern of reliably paying back money. Over time, you can improve your interest rate by refinancing. Reed says that, according to a dealership employee, a customer once lowered his interest rate from 13% to 2% in two years’ time by improving his credit and refinancing.

5. Give Yourself Some Credit, Not a Cosigner

Reed advises against cosigning—a process that involves checking someone else’s credit and using that score to qualify for a loan. It might get you a lower rate and help you get approved, but Reed says that if you bite the bullet and pay a higher interest rate rather than get a cosigner, you’ll have the opportunity to build credit.

In addition, having a cosigner will tie that person’s credit to yours, and the way you repay your car loan will influence their credit. Reed says if you’re going to do it, do it only as a last resort, and make sure the cosigner is a relative.

Bottom line, though, as Reed explains, “It’s asking a lot.” It’s better to finance the car yourself, pay on time, and build your credit. That way, the next time you need a loan, you won’t have to worry about whether you’ll qualify.

Good credit doesn’t just help you get reliable transportation: good credit can make a huge difference in improving your financial security and the peace of mind that comes with it. Start tracking your credit for free today at Credit.com. Your new car will get you moving around town, but your new credit score will get you moving up in the world.

Image: iStock

The post Can I Get a Car Loan If I Have No Credit? appeared first on Credit.com.

Source: credit.com

Which corporate credit card is right for your company?

If your company earns tens of millions of dollars in revenue annually, you may be in the market for a corporate credit card. Different from business credit cards, corporate cards – sometimes known as commercial cards – are designed for large companies with hundreds of employees and substantial revenue streams.

When selecting the right corporate card for your company or organization, you should consider a variety of factors, such as: How much revenue does the company earn annually? Do you plan to use the card to purchase business goods and services? Do employees need to charge business travel and entertainment expenses? Do you need to track all company and employee spend in one place?

Although there are many corporate cards currently on the market, only a few issuers offer them, including:

  • Capital One
  • American Express
  • J.P. Morgan
  • Citi
  • Wells Fargo

Read on for more details on the corporate cards offered by these issuers.

Capital One

For companies interested in streamlining their business, Capital One’s corporate card is a great option. Along with providing flexibility in how you earn rewards and when you pay your bill, the One Card from Capital One® is designed to offer simplified payment solutions.

Earning rewards

The One Card offers two ways to earn rewards: A company can choose to earn up to 1.5X rewards on net purchases with a 14-day billing cycle and seven days to pay. Or – if you prefer a longer billing cycle – you can choose to earn up to 1.25X rewards on net purchases with a 30-day billing cycle and 14 days to pay. There is no limit on the amount of rewards you can earn, and rewards do not expire as long as the account remains open.

Rewards can be redeemed for gift cards, merchandise, statement credits or as rebates that provide cash back directly to the company.

Additional perks

The One Card offers a variety of benefits, including real-time spending controls, fraud protection services and purchase and travel protections for employees. We also found that One Card’s online platform experience to be simple and intuitive for both administrators and cardholders. Additionally, cardholders can participate in the Mastercard Easy Savings program – which lets your company earn up to a 4% discount at more than 30,000 participating merchants, from hotels and rental car companies to gas stations and restaurants.

All of these perks come at a small price: Capital One charges just $35 per authorized card user. A company can add unlimited authorized users, set and adjust employee spending limits, restrict transaction types and track and manage spending.

Keep in mind, though, the One Card from Capital One is best suited for companies with more than $10 million in revenue. Otherwise, you may want to consider the Capital One Spark Cash for Business card instead.

American Express

American Express offers several corporate credit cards that can be customized to fit each company’s needs. The Corporate Platinum Card, for example, is designed for senior executives and offers premium business travel benefits, including access to more than 1,200 airport lounges and an up to $200 airline fee credit. The card also comes with a hefty $550 annual fee.

The Corporate Purchasing Card, on the other hand, is designed to provide simplicity and flexibility for a company’s everyday business spending. By offering a convenient way for employees and departments to purchase business goods and services, the card can decrease paper invoices and checks to help reduce processing costs. The Corporate Purchasing Card also does not charge an annual fee.

Earning rewards

American Express corporate cards offer two different ways to earn rewards. A company can choose to allow individual employees to redeem points for personal use, or the company can consolidate points from several enrolled corporate cards for company use.

Employees will earn 1 point per dollar on eligible purchases charged to their enrolled corporate card. Points can be redeemed for gift cards, merchandise, air travel, hotel stays and more. Employees can also choose to transfer points to frequent traveler programs or link them to their other Membership Rewards program account.

If the company chooses to earn Corporate Membership Rewards, they will earn 1 point per dollar on eligible purchases charged on enrolled corporate cards that can be redeemed for office supplies, technology products and business services, as well as gift cards for employees and clients. Points can also be used to cover all or part of the balance on a statement credit when redeemed as a statement credit.

A company can participate in both the employee Membership Rewards program and the Corporate Membership Rewards program at the same time; however, each corporate card can only be enrolled in one program at a time.

J.P. Morgan

J.P. Morgan offers several credit card solutions for large organizations. By filling out an online questionnaire, J.P. Morgan will help match you with the most appropriate card for your organization. For example, if your company spends $20 million or more annually on travel-related expenses, you will be matched with a corporate card, which is designed for companies that want to simplify the management of business travel and entertainment expenses.

Or, if you’re company spends between $1 million and $9.9 million per year, J.P. Morgan may recommend the One Card, which allows a company to consolidate and manage all business expenses, including business-to-business purchases and travel and entertainment expenses, with a single card program. The program costs $95 per card, with a maximum of 10 cards, and costs are waived if you spend more than $1 million per year on your cards. You’ll also earn points on all purchases that can be reinvested in your business by applying a statement credit to your bill.

Citi

Citi offers several corporate credit card options – some geared toward travel and entertainment, some toward purchases and business to business and others designed for both.

The Citi Corporate Card, for example, allows companies to manage employee travel and entertainment expenses with a globally accepted card. Benefits include a 24/7 customer service helpline, implementation support, ATM cash withdraw, card optimization consultation, dedicated account management, fraud protection on unauthorized charges as well as reporting, administrative and online tools.

The card is best for companies with travel and entertainment expenses who want a global footprint and complete spend visibility and control. The card also provides program administrators with the ability to easily obtain spend reports, manage spend limits and perform other administrative functions.

The Citi One Card, on the other hand, lets cardholders pay for both purchasing and travel expenses with one card. Benefits include a 24/7 customer service helpline, implementation support, ATM cash withdrawal, dedicated account management, fraud protection on unauthorized charges as well as reporting, administrative and online tools.

Citi corporate cards do provide Citi ThankYou Rewards; however, the rewards rate and fees associated with each card vary based on the individual company. The fees and rewards associated with each card vary from company to company.

Wells Fargo

Wells Fargo offers the WellsOne Commercial Card, which allows purchasing, travel and entertainment, account payable invoices and fleet expenditures all in a single card. By optimizing payment processes and providing comprehensive reporting, the card allows companies to reduce their per-transaction costs and streamline approvals. According to Wells Fargo, its electronic payment process can eliminate up to 90% of the $50 to $150 per-transaction cost from issuing and reissuing purchase orders and checks.

The card is best for organizations that want to expand globally, reduce per-transaction costs and increase the speed of approvals. Additionally, the card allows traveling employees to easily manage card transactions and submit expenses via mobile access.

The bottom line: Shop around

Before choosing a corporate credit card, it’s important to do your research. We recommend that you contact a commercial representative from each issuer to learn more details about their corporate credit card offers – especially since some issuers do not include details, such as rates and fees, on their websites. Also, because the commercial credit card industry is highly competitive, a little shopping around may get you a higher rewards rate and/or lower fees.

See related: Corporate card vs. business card: Which is right for you?

Source: creditcards.com

I Was Denied an Auto Loan. Now What?

October 9, 2019 &• 7 min read by Steve Ely Comments 3 Comments

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You’re in the market for a new car but you’ve been denied an auto loan. Now what? Here’s what you need to know about why you may have been denied and what to do to make sure it doesn’t happen again.

Why Do I Keep Getting Denied for Auto Loans?

Unfortunately, there are many reasons a bank might reject your application for a car loan. If your loan application has recently been denied or you keep getting denied, it might be due to one of these common reasons:

  • Application errors. Sometimes, the application could be rejected because of an error you made when filling it out. A missed section, some incorrect information, a missing form or another mistake can mean your loan is ultimately denied.
  • Bad credit. Bad credit is a common reason for auto loan denial. A score below 670 is usually considered a bad credit score, and this damages lenders’ trust in your ability to pay off a loan.
  • Too much debt. A high debt-to-income ratio can make lenders leery. If you have a number of loans or credit cards with large amounts of debt, this raises your DTI and may lower your chance of getting approved for future loans, car loans included.
  • No credit. Lenders look for proof of consistency in paying off past loans when reviewing your application. If you have no credit history, lenders may feel they don’t have enough information about your ability to pay off a future loan.

What Can I Do If My Loan Application Is Denied?

You have a few options when you’ve been denied an auto loan, depending on the reason you were rejected.

Application Error

If you were rejected because of an application error on your part, you should contact the bank as soon as you can. Hopefully, the mix-up can be resolved and your request will be approved. If not, the lender will tell you when you can reapply.

Poor Credit

If you were rejected because of poor credit, check your credit report so you can determine what is negatively impacting your score. Depending on what your report says, look into ways to improve your credit so you can be approved next time. Pay your bills on time, and use your credit cards to make and then repay smaller purchases. Keep in mind that building or rebuilding your credit can take a while. Don’t be disappointed if it takes months or even a year or two to really get your score where you want it.

If you need a loan sooner, consider adding a cosigner to your application that can be your backup if you fail to pay the loan. Lenders feel more comfortable with this method, and it’s a good way to prove dependability.

Debt

If you were rejected because you already have too much debt, it’s important to reduce that amount in steady increments. Set a budget and stick to it, tackling the largest debts first. Avoid adding any debt to what you already have. Examine your credit card usage for any unnecessary expenses and cut back on those in the future.

No Credit

If you don’t have a credit history, now’s the time to start. There are a lot of ways to start building your credit: you might be able to become an authorized user on someone else’s credit card or find a co-signer for your loan, for example. You also might want to apply for a secured credit card or credit card for no credit.

Find the right credit card for your needs. Learn more.

Does Getting Denied a Loan Hurt My Credit?

Getting denied for an auto loan doesn’t in itself hurt your credit score. The lender didn’t extend anything, so there’s nothing that can hurt your score. However, multiple denied applications at once could hurt your score.

A bank conducts a “hard inquiry” when you apply for a loan. This can cause a drop in your credit score slightly—about five to ten points—whether you’re accepted or not. If you apply for too many loans, numerous hard inquiries on your credit can cause a larger drop.

What Are My Other Options?

If you don’t have time to build or rebuild your credit, can’t get a co-signer, and need a car fast, there are two options to be considered as a last resort.

“Buy Here Pay Here” Dealers

Stop by your neighborhood “Buy Here Pay Here” (BHPH) auto dealer, and one way or another, it will probably get you into a car. It won’t be a new car, and it will probably have lots of miles on it, but at least you’ll get a car you desperately need to get you to and fro.

The BHPH dealer won’t want to talk to you about interest rates. Your local BHPH will focus on your expected monthly payment and ask for a really big down payment. They mostly care about whether or not you have a current, steady income. Based on that, they’ll determine how much they are willing to lend and which car options are available to you. It’s not a great way to buy a car, but for millions of Americans, it is the only way they can make this significant a purchase.

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Unfortunately, purchasing a car at a BHPH dealer isn’t a credit boost at all. They usually don’t report anything positive to credit reporting agencies, but they will report negative actions like a missed payment or repossession. Always ask about their late payment policies before making a decision.

Alternative Credit Bureaus

If your credit score is low or your credit history is light based on traditional credit trade lines (credit cards and loans), but you have a solid history of paying your everyday bills, you may be able to take advantage of alternative credit scoring methods. If you can prove your creditworthiness by having your everyday bills verified, some companies will work with alternative credit scoring methods to offer credit. Alternative credit generally doesn’t carry the same weight as traditional credit lines, so interest rates likely will not be as competitive.

At this point, you can go to any dealer and buy the car you really want instead of being limited to the inventory on a BHPH lot. If you can afford the payments, you can buy a new car that’s under warranty and has no mileage on the odometer. If you can continue to work on your credit and improve your credit score, refinancing may even be available down the road.

However, many lenders still do not use alternative credit and don’t view it as proof of reliability. Most of these alternative credit companies also don’t report your findings to the major credit bureaus. So, while these alternative creditors may be a short-term option, building credit through traditional methods should be a priority.

Why Would I Get Rejected for a Car Refinance?

If you were denied for refinancing, it’s probably because of a poor credit score or a high DTI. Usually, these are the same as the reasons you might be denied an auto loan. Your score may have been satisfactory when you purchased the vehicle but taken a few hits since its purchase.

How to Get Approved Next Time

Before you reapply for an auto loan, make sure all your information is in order. Gather your records and make sure everything is ironed out and correct before you go to a lender. For a better shot at loan approval, your credit score should be in a comfortable range, and you shouldn’t have any large outstanding debts. Always check your credit score before you apply. If it’s not high enough for loan approval, work to improve your credit first. Then, make sure you’ve determined what type of payments and interest you can afford.

If you do get denied, don’t worry! By making sure you meet all of the income, credit and debt requirements for an auto loan, you can increase your chance of getting accepted the next time you apply.


Source: credit.com