With the current credit crisis happening before our eyes, now is the time to make sure your credit report is in order.  Many banks are taking precautionary measures to ensure a credit crisis like this doesn’t happen again.  They are lowering the loan to value ratio on how much they will lend up to the home’s value; for example, my financial institution used to lend up to 100% loan to value, and now the maximum is 85%.  The are verifying income on a regular basis and requiring pay stubs.  It seems that the rules are being changed and banks are buckling down even more on a daily basis.

Today it was announced that if there’s a joint application, the rate of the loan would be based off the person with the lower credit score.  Hypothetically, if Mr. Money and I applied jointly for a loan and my credit score is 800, which would be an interest rate of 5%, and his credit score is 700, which is an interest rate of 7%, they are going to give us the 7%.  It is really devastating for someone who has horrible credit and has a strong co-signer.  It’s almost not worth having that co signer anymore.

While I understand all the rules and regulations, it’s still hard for me to grasp.  Almost my whole banking career we’ve been very giving with our loans.  As long as you had good credit, a steady income, and would sign on the line, you’d get the loan you wanted.  Not anymore.  We’ve been struggling every month to meet our loan goal.  Thankfully, they did lower it, but even then we’re still struggling.  It just amazes me how fast things can go downhill.

What’s your opinion of all these new rules and regulations for lending?  Do you think they are a good thing?

Posted under Credit Cards, Economy, Loans

Lately I’ve been going back and forth between buying a new or used car when the time comes. Thankfully, we haven’t had any more trouble with my car, so we haven’t been having to give it too much thought. Just tossing around ideas. Tiffany brought up a good point about buying a used car.

“However, used is much cheaper, but I see it as inheriting someone else’s problems.”

That’s a great point, and I can’t get it out of my head now. Even though I’ve always wanted to buy a used car as our next vehicle, I’ve been debating about getting a brand new car. Here are some of the pros and cons I’ve been thinking about:

• If we buy new, we won’t have to worry about ANYTHING being wrong with the car. Well, of course something could be wrong, but we would know it would be covered under warranty.
• Some used cars are “lemons”. I’d hate to get stuck with one.
• If we buy new, the minute we drive off the lot, the car has depreciated in value. Of course I’m not looking at the car as an investment, but it just stinks to know there’s money gone instantaneously.
• If we buy used, our insurance will be cheaper.
• If we buy used, we may have the opportunity to pay cash for the vehicle. Mr. Money and I have different opinions on this (he’d rather take out a loan and have cash available if we need it) but the option may be there.
• Used cars can smell bad or be “beat up” from the previous owners being abusive. I definitely don’t want a car someone smoked in because of Mr. Money’s allergies.

Those are just some ideas I’ve had. I hope we don’t have to start seriously looking for a vehicle for awhile. I like having money in our emergency fund. I like not having a car payment. I like that our insurance premium is not outrageous. I’m just going to keep my fingers crossed for the moment! It’s good to know that we are exploring our options for the future though.

Is there something I missed in the “new versus old”? What would you do?

Posted under Loans

A few days ago I opened a new checking account for a very nice lady that came in asking about our free checking accounts. As I was talking with her about her lending needs, she asked me about “the loans that let you make flexible payments”, AKA home equity lines of credit. I was telling her about how they work; the minimum payment is interest only, so if you only pay the minimum payment you won’t get anywhere, but if you pay the amount you pay now on your mortgage, everything above the minimum payment goes towards principal. She thought it was a great idea, she’d be paying less than she pays for her mortgage payment each month, and it would free up some money for her and she’d be not as strapped for cash each month. I put an application in for her.

Declined.

I was a little taken aback, until I looked at her credit report. Her credit score? 494. That is the lowest credit score I’ve ever seen! I took a look and realized why it was so low. She had been 60 days late on her mortgage 3 times, and 90 days late 9 times. I was shocked. When I called her to let her know the decision, she acted surprised. I asked her if she had been late on any of her payments lately. She told me she’d been late a few times. A few times?? How can you be 90 days late 9 times?

This example is a perfect example of one of the sub prime loans and why it is a good idea to not get into a mortgage payment you can’t afford, and also why it’s important to make your payments on time. Because of her being late so many times, her credit score is trashed. I feel sorry for her, but on the other hand I don’t. She is the one that got herself into the situation, and she’ll have to get herself out.

Do you feel sorry for people like this who have overextended themselves?

Posted under Loans, Money Mistakes