There are some situations where the additional cost of gap insurance might be justified especially if you are trying to establish your auto credit

Backend products

As dealer backend products go (backend products are those things the dealer business manager is in charge of selling), we can think of at least two situations in which at least one of them, gap insurance, might make sense. This is especially true if you have less than perfect credit and, believe it or not, are on a tight budget.

We’ve come to this conclusion here at Auto Credit Express after over twenty years of helping consumers with credit issues find a dealer that can get them approved for a car loan.  Our website is even designed so that applicants can research all aspects of the bad credit auto sales process including today’s topic, the pros and cons of gap insurance.

Understanding gap insurance

Although gap insurance is never a requirement in qualifying for an auto loan and you should never believe anyone who tries to tell you it is there are times when choosing it can be the right decision.

That’s because until the last payment is made, your car really belongs to lender.

While it’s being financed, if you’re involved in an accident with your car other than one involving a total loss, your full coverage car insurance (required by the lender) will pay to repair any damage, less the deductible.

At the same time, if you’re involved in an accident where the car is declared a total loss, the insurance company will typically pay its retail value (possibly less any deductible) at the time of the accident.

The only problem with a total loss accident is that if it occurs any time during the first half of the loan term or even further depending on the size of the down payment, the insurance settlement could be thousands of dollars less that the loan payoff amount.

If this happens, payments must continue until the remaining balance is paid in full.

Admittedly this is a worst case situation but it can and it has happened. This is also where gap insurance coverage pays off.

If you have it, the insurance company will pay the difference between the insurance settlement and the balance owed on the loan (less the deductible – although if you weren’t at fault, in many states your car insurance company will cover this as well).

When gap insurance is needed

Gap insurance doesn’t make sense if:

•    You have a short-term auto loan (36 months or less). In this case you’ll be in an equity situation fairly quickly.

•    Your down payment is 20% or more. There’s a good chance you’ll be in an equity position with most car loans – especially for terms of 60 months or less.

On the other hand, in just about every other situation it usually makes sense to at least consider gap insurance.

As we see it

There are at least two instances where purchasing gap insurance means means avoiding possibility of paying thousands of dollars to a lender for a vehicle that’s damaged beyond repair – a loan term of over 36 months or a loan in which the down payment is less than 20% of the selling price.

At the same time, we want you to know that if you have poor credit Auto Credit Express will forward your information to dealers that understand this situation and can offer you your best chance for an auto loan approval.

So if you’re ready to reestablish your car credit, you can begin now by filling out our online car loans application.

Kelley Blue Book discusses the ownership costs of cars that certainly could work for people with less than perfect credit

What you need to understand

Regardless of your credit situation it’s always a good idea to consider the total cost of a new car over time.

This is even more of a concern if you have poor credit. We understand, since for over two decades here at Auto Credit Express we’ve been helping credit-challenged applicants find a dealer that can get them approved for a car loan. Our website reflects this experience on topics such as credit repair as well as today’s issue, choosing an affordable car once you’ve received a loan approval.

Kelley Blue Book

According to Kelly, “The cost of owning a car over several years can easily exceed the initial purchase price and vary greatly from car to car.”

In compiling this information, Kelley uses “real-world data updated every 60 days,” which makes this information even more accurate for car buyers. The five-year cost figure includes depreciation, fuel, insurance and financing (although this last figure will be more for car buyers with less than perfect credit).

“With Total Cost of Ownership information, consumers can better understand the financial implications associated with the initial five years of owning a car,” said Juan Flores, director of vehicle valuation for Kelley Blue Book.  “As Kelley Blue Book’s data reveals, depending on the model’s MSRP, fuel costs and other financial factors, other models on their consideration lists could offer a greater value over time.”

Five year ownership costs

Here are the rankings of their current top five vehicles, along with their five-year costs of ownership:

Rank    Model                  5 Year Ownership Cost
1    Nissan Versa            $26,186
2    Hyundai Accent        $26,884
3    Toyota Yaris               $27,330
4    Kia Soul                      $28,203
5    Ford Fiesta S             $28,355

“As an analytic powerhouse, Kelley Blue Book would be doing a disservice by not sharing this valuable information,” said Flores. “Because cost of ownership can vary significantly from car to car, car shoppers should be aware of everything their purchase entails before making a final decision on which new vehicle to buy.”

As we see it

Picking the right vehicle is especially important for people with bad credit since, for many of them, a car is the largest purchase they will make. This means the vehicle not only has to meet their transportation requirements, it also must be affordable to own. If you are one of these individuals, we hope this information helps you in the decision process.

You should also know that at Auto Credit Express we assist people with credit issues in finding a dealer that can offer them their best chance for an auto loan approval.

So if this is your situation and you’re ready to reestablish your car credit, you can begin now by filling out our online car loan application.

Why it usually takes more than either a regular or secured credit card to establish your car credit

The answers

In order to regain or establish your auto credit you may need to work with one of the subprime auto lenders that offer approved auto loans to credit-challenged individuals.

We know this is usually the case because since 1992 we’ve spent a great deal of time helping car shoppers with less than perfect credit here at Auto Credit Express. We even created a website so that applicants could research such subjects as certified used cars as well as today’s topic: why it is sometimes necessary to take out a high-risk auto loan in order to reestablish your car credit.

High risk car loans

You may be wondering why you should even apply for a car loan from a subprime lender. After all, paying cash for a vehicle, while using a regular or secured credit card, can often improve your credit scores.

The fact is doing this probably won’t help your auto credit, even if it improves your FICO scores.

The reasoning behind this is that any type of credit card is a form of revolving credit. With revolving credit if you don’t pay off card balance every month, you are allowed to carry over the remaining balance to the next month.

An auto loan, on the other hand, is a type of installment credit. With this type of loan you sign a contract to pay back the initial amount, plus interest, for a fixed payment each month over the loan term.

Another difference that separates installment credit from revolving credit is that installment loan balances are typically higher than revolving credit limits. Installment loans also carry a higher monthly payment as a percentage of the loan balance and are much less flexible to changes. This means installment buyers have to be more disciplined in paying back the loan.

Credit scores

In determining your credit scores, FICO looks at both types of credit. Automotive lenders also look at both credit types but pay special attention to how applicants have paid on installment auto loans. This means that while a good payment history with a credit card will help your credit scores, it doesn’t carry as much weight when applying for a car loan.

For this reason, even auto loan applicants with decent credit scores are sometimes turned down if they’ve never had one or if it turns out they had a spotty payment record with a previous car loan.

Either way, these individuals might have to first prove themselves by establishing their car credit with a lender willing to take a greater risk.

But if this is the case and you’ve been turned down for a traditional auto loan, where do you find a dealer that’s signed up with these types of lenders?

Our job

Before visiting a tote the note dealer, you should know that Auto Credit Express works with dealers that understand a broad range of credit issues and can offer you your best chance for approved auto loans.

So if you’re ready to establish your car credit, you can begin now by filling out our online car loans application.

How tip income is reported can mean the difference between a credit turn down and a credit approval especially if your FICO scores are poor

The skinny

People who depend on tips for much or all of their income often face a number of problems when applying for an auto loan.

This can be a problem especially for credit-challenged individuals and we’re aware of this here at Auto Credit Express because we’ve spent the last two decades helping people like this get approved for car loans.

So here is what we’ve learned:

Tip income reporting

People who receive tips don’t always accurately report this income on their tax returns. They don’t do it because it saves them money on their taxes. But it can also prevent them from getting an auto loan if their credit is, shall we say, less than stellar.

Here are four things the IRS wants you to know about tip income:

1. Tips are taxable. Tips are subject to federal income, Social Security and Medicare taxes.

2. Include tips on your tax return. You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip–splitting arrangement with fellow employees.

3. Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all of your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.

4. Keep a running daily log of your tip income. You can use IRS Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record your tip income.

Proving income

With that being said, while traditional lenders usually don’t verify income, this isn’t true for those involved with high-risk borrowers. As far as they’re concerned, if the income isn’t listed on a W-2 or a professionally prepared tax return, there is no proof. This holds true even if there are supporting bank records that show the claimed income.

Income conditions

Non-prime lenders typically have minimum monthly income requirements. This income, along with all monthly bills, is used to compute a debt-to-income ratio and determine a car budget. This can affect people with tip income in two ways:

1. If the income reported on a tax return is too low, the loan application will not be approved.

2. If the income is sufficient but the monthly bills are too high when compared to the reported income (typically because the actual income is higher) the loan application will also not be approved.

The Bottom Line

If you have poor credit and receive tip income, the only solution is to report all of it on your tax return. If you don’t, it could prevent you from getting an auto loan approval.

If you have been turned down for a conventional auto loan here at Auto Credit Express we’ll help you find a dealer for your best chance at an auto loan that can help rebuild your car credit.

So if you’re looking to get your auto credit on track, you can begin now by filling out our online auto loans application.