Car financing evolution of online auto loans, and credit scoring
By Peter
Bonavista
Being approved
for car financing has
changed in drastic measure since the online boom of e-commerce. If my grandfather
could see it now he would be in disbelief. To think that you can actually click
a little thing called a mouse, and get car financing for tens of thousands of
dollars transferred into your bank account.....well.....it's amazing even for
my generation to see.
I can remember as a child, my father dressing up in his only
Sunday suit, cursing in the mirror at the way his wrinkled tie just did'nt work.
I knew something big was up, but I did'nt know what. I remember my mother telling
me, "leave father alone right now - he is going to talk to the banker about
a car loan." So, I grew up believing that car financing was extremely serious
stuff. I would not have been wrong. It's serious stuff alright. The finance
companies of America make a wholesome profit every year from auto loans. We,
the consumer now have more flexibility than ever before, and that can be a problem.
The number of personal bankruptcies has increased in a non linear fashion since
1980, and it's not stopping any time soon.
The great news for those wanting to apply
for an auto loan in this century, is that we don't have to fret in the mirror
over a bad tie, or hope the banker likes the feel of our hand shake. It's all
mathematics now folks. Auto financing is as simple (or complex I should say)
as the algorithms used by the lending institutions. Whether you walk in to a
bricks and mortar bank, or simply click on the Eloan website, You are given
the thumbs up or down based on the same algorithm (that's pretty clever mathematics
in them there hills). Now this can be very cold for some, and also seem very
unfair to others. An example of this would be someone who had gone bankrupt
due to a batty spouse who blew all the cash and left them hanging out to dry.
In the old days, you might be able to talk to your banker regarding a new car
loan and be approved, only because he knows you are good for it - regardless
of what the numbers say.
I will go in to more detail in this article on how your credit
score is calculated, who does the math, and how the banks decide if you've been
naughty or nice. Before I go there I want to discuss the finance companies that
are leading the pack in the auto loan industry. If you have ever surfed the
internet at all, you may remember seeing finance companies advertising their
interest rates and easy online approval method. The two largest as of this writing
are Eloan and Capital One Auto Finance. These car loan providers excel in their
fields because they have embraced the world of e-commerce. They offer "affiliates"
who have their own auto loan websites a commission on a pay-per-performance
basis. In other words, if someone clicks on a link that leads to Eloan or Capital
one, and apply for a car loan, the webmaster of the site they were on receives
a commission. This is not a middle man charge to the borrower at all. To some...the
word "affiliate" is synonymous with "pest", due to the sheer
amount of these websites on the net. Now....you'll never hear me say that, because
I get paid by affiliates to write articles like this one. Anyways, I'm getting
off topic a little here. The point to remember regarding online
car financing is that the kings of the business are there because they partner
with the webmasters of the world. Just like the days of bricks and mortar business
domination, developing partnerships is paramount.
Now I would like to provide some information on credit scores
and a company called "Fair Isaac". When you apply for a car loan online
or in person, you are given the funds depending on a mathematical equation,
as I mentioned above. The outfit that develops these algorithms is Fair Isaac.
This may seem a little dry, but some of my readers may want to know how they get
rated by the finance companies of America. If you have a credit score of 625,
or less, then you will appreciate this information.
Fair Issac tracks consumer credit ratings using various factors. If
you have a credit score of 625 you are probably thinking Isaac isn't fair at
all. I can understand that emotion. There are circumstances in which this system
does not make sense, but Fair Isaac does a good job of getting it very close
to perfect. Their secret algorithm is the standard for the United States, Canada,
the United Kingdom and Africa.
Dear old Fair Isaac even has a cute little acronym for their
scores called F.I.C.O. So if you have a credit score of 625, you can also say:
"Your Fico score is 625". For more direct information on Fair Isaac
and their Fico scores, or more details about credit scores, you can find it at
www.fairisaac.com. This is a great website and there are some quality documents
all to do with credit scores and credit concerns.
I have used their site to glean new and updated information on the subject of
"bad credit auto loans".
A credit score of 625 is very common if you have had some credit problems and
no bankruptcy. The Fair Isaac score starts at three hundred and goes as high
as nine-hundred. Just be glad you don't have three hundred. Ain't nobody talking
to you then! Anyways...a credit score of 625 would be
calculated 10% on the "types of credit you have", 10% on "recent
inquiries on your credit report", 15% on the "length of your credit
history", 30% on your "outstanding debt", and 35% on your "payment
history". As you can see, if you outstanding debt and your payment history
are OK then you are not too bad off.
This article on car financing, good and bad credit scores,
and Fair Isaac continues in my next installment.
Peter Bonavista is a successful author and publisher specialized
in Auto Financing.
He resides with his wife Twyla
in the midwest.
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