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Discussion Starter #1
Hey guys.

So, I'm in the process of buying a F4i, and tried to get the financing taken care of yesterday (for those who saw my last post, I decided that I couldn't setttle for anything besides the honda). I applied for the Honda Card, and was shut down big time. Ugh.

They said that I have limited credit, but I was approved for my 23k car loan only six months ago. I don't understand why I would be denied a measly 8k line of credit.

Here's what I think may be the problems, and you guys tell me what you think:

1. My buddy tells me that banks will look at your entire financial situation, determine how much total credit you deserve, then issue your credit line based on that number, minus any credit you may already have outstanding. So, If the bank determines that I am good for 25k, I'd be screwed because I already blew 23k on my VW. Could this be the case? If I sell my car and pay off my auto loan, do you think I'd be more likely to be approved?

2. Are credit card-type loans harder to get approved for than regular auto loans? I think this may be the case-- anyone know for sure?

3. I make more than most people my age, but like any collgege kid, I have been late on a credit card or utility payment here and there, but nothing unreasonable. I know these late payments have a negative effect, but how damaging are they?

Y'all are going to be mighty happy when I finally get this thing, cause then I'll stop cluttering SBW with posts. :) In the meantime, thanks for all the help so far-- Carvin, Pete, Chris_y2k_r1 especially.
 

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Discussion Starter #2 (Edited)
btw, finding a co-signer isn't an option, unfortunately. I tried.

Also, I AM selling my car. It's on autotrader.com already and I'm not buying the bike until I have resolved the car loan. I wanted to get the bike financing taken care of beforehand in case I encountered any problems. Looks like i did.
 
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Ryan, absolutely YES, your outstanding debt (i.e., your 23K car loan, plus any other debt you may have, like credit cards) has A LOT to do with how much more credit you can get. If I asked you for a loan of $1200 to be paid back over 12 months at $100 per month, and you knew I had no other debt, made $75 per month, and could just scrape by on the leftover $25, would you loan me another $500? I think not.

First, do your own calculation to see *if* you can afford the $8000. What's your monthly take-home pay, minus all of your debts, rents. etc. What's leftover? Enough for the bike payment plus enough to feed yourself and the chicks the bike is gonna get for you? ;) If you feel like you can afford it, then go to a bank, or better yet, your company's credit union if they have one, to apply for financing. I'd venture to guess that at your stage, an unsecured simple interest personal loan is out of the question. And no, unless a credit card company had to put a collection agency on your ass for past-due payments, paying late usually doesn't tarnish your credit history.

Most importantly, don't let your lust for a new bike cause your hand to write checks your ass can't cash. And don't get suckered in to things like the "Honda Card." By the time you finish paying that $8000 off, it will have been more like $15,000. Getting up to your eyeballs in debt is not a smart thing. Without knowing, or wanting to know, your complete financial situation, I'll go out on a limb and say that if I were in your shoes, I'd either buy a much cheaper used bike, or, replace your $23K car with a $10K (or cheaper) car and then go get the $8K bike.
 
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ryannapoleon said:
Also, I AM selling my car. It's on autotrader.com already and I'm not buying the bike until I have resolved the car loan. I wanted to get the bike financing taken care of beforehand in case I encountered any problems. Looks like i did.
A-ha, you added that while I was typing my response (which took me forever as I was being constantly interrupted by employees).

Smart move on holding off on the bike until the car is gone. Good luck with it Ryan.
 

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Discussion Starter #5
Pete-- good advice.

Here's my plan: Right now, I spend $450 for my car payment, and $300 for insurance every month. I realize the Honda card and other like it is a total rip-off (my current auto loan is at 8% as opposed to the card's 17%), but by putting in on a card rather than financing through an actual bank, I can avoid having to pay full coverage insurance. My bike payment on the card would be roughly $150, and insurance would be $50 more. That's $550 less debt per month that I will have to worry about. That extra cash will go to paying off the bike as quickly as possible; I want to buy another car in the spring and I don't want bike payments in addition.

So, the Honda Card really isn't a bad deal for me, considering I will be paying it off rather quickly. And like I said, I won't have any car payments at all after I sell it. I can definitely afford the bike-- it's just hard convincing the bank that I can.
 

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Do you have much equity in the car? If you just got it six months ago I guess, probably not. If you can sell it for enough to pay off the car loan and have some left over, a nice down payment will always help to grease the financing wheels.
 

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Pete, I agree with all you told R with one significant exception. Being reported past due 30+ days on any credit line reported will most certainly have an effect on R's (or anyone's) credit score, which will have the effect of limiting or eliminating financing options. Credit scores are even being used to price and sellect homeowners insurance. This is a big deal. I volunteer for my state, teaching a class for first time home buyers. I tell them that creditors want your credit report to look like your driving record. If you keep running off the road (late pmts. collected acts.) they are not going to get in the car (bike) with you for fear of being injured. Show them you can drive. By the way, is it irony that I laid my bike down two weeks ago? Good luck guys.
 

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The other thing you gotta look at is that bikes are consider "luxury items" or "toys" and so lenders will scrutinize your credit more...I would bet you could get out and get another car loan right now...but bikes aren't considered a necessity, so their harder to finance...the best option is a Credit Union you've been with for a while (like mine since birth). I've paid my payments every month for the last 10 years ontime.....so I usually get good rates on new loans and don't usually have a problem getting them approved within 24 hours....

Just remember you're buying toys...its bound to be harder to get them :D
 

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Discussion Starter #10
doubleaught-- Yeah, it is. Five speeding tickets. (Do i REALLY need a bike??)

To be completely honest, three of those tickets have dropped off my record and do not affect my rate. Come july 7, the others will be gone too! (two tickets in two different cities, four hours apart. sucked.)

Ugh-- I guess I'm going to sell my current car to pay off the loan and buy a beater car until I have enough cash to put down. That sucks. Oh well, now I can get the 2002 yellow/black cbr. :D

Thanks for your help, all-- very cool. And if anyone else has something to add, by all means, enlighten my broke ass.

ryan
 

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Ryan,

Damn you pay a lot for car and insurance. Anyway, how are you? How many credit cards do you have? How late were you on the payments? How much debt do you have? Those questions where all answered. All the people are right 2. I believe if you go to a credit union they might give you the loan; however, I doubt it. The best way to go is to get that car off your back first. I am 21 right now and I have been working on my credit since I was 15. I got a student credit car and used it to get gas, groceries, clothes. You know little stuff. I paid the full amount before the end of the month. I did that for about 2 yrs. Then I got another credit care with 2000 limit and I did the same as before. My driving record looks like S****, but my credit now is perfect. My debt is around 20k due to my car and my credit cars. However, my debt is going to be 175,190 at the end of October because I just go approved to get a house and I just sign the papers to get it ;). After that I am getting my F4i. Another thing is do not apply too many times for loans or credit cards because that goes to the creditors and lowers your points and makes you look even worse. You are going to received a letter from the credit company who rejected you with a number. Call that number and they will give you your credit report for free. Get it and see what you have. Sometimes you have things in there that are not supposed to be there. When I got my credit report from my real state agent and showed it to me, I had 3 credit cards that I have never had in my life. So you have to be careful for that 2. Also, the max credit cards creditor recommend is less than 5 with a total debt of 45%-60% depending on your income. Good luck with your bike. I am sure if you sell your car and get that loan out of your way, you will have not problem getting the bike. I apologized for the long post.
 

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Ryan,
My two cents:

Credit cards are a wonderful thing when managed properly. I bought my bike on one (for the points), but I paid it off immediately. Consider this- if you finance the bike at 17 1/2 %, your payments may be less than your car, but make no mistake- there is no savings in doing so. If you are going to pay off the bike soon, then the interest you pay is no big deal, but if you have to keep it on the card for any length of time it adds up (WAY UP). For example, an $8500 bike at 17 1/2 % will cost you $213.53 per month. That same amount at 8% will be $172.35, a difference of $41.18. Multiply that over 5 years and you pay $2,470.80 more for it. And if you skimp on the insurance and something happens to the bike that is not covered- guess what.... your still going to have to finish out the payments. I'm not trying to discourage you at all, but I know how intoxicating the thought of a new bike is, and I'd hate to see you get screwed in the process. Be careful.

While we're on the subject of credit cards, let me tell you why they can be a wonderful thing (for me, anyway). I set myself a budget of money left over after expenses every month. I've got a card that I charge absolutely everything I can on, from automatic payments (phone bill, insurance, etc), to monthly expenses (food shopping), to going out to dinner, to two bucks worth of gas, etc etc... I NEVER EXCEED MY BUDGET, AND I NEVER OWE MORE THAN I CAN COVER OUT OF MY BANK ACCOUNT. By doing so I earn points toward free stuff from the company (I average about 1 free airline ticket anywhere in the world every year) and keep my money in the bank earning interest longer. I also take a predetermined cash advance on the card every month just to put in my savings account to earn interest (which gives me even more points). I pay off the card each month and have never paid a dime in interest. Now lets see what it gets me:

1 round trip ticket to London (why not, they speak American)- (on travelocity, for example) $1100.00
Interest earned from cash advances- $250.00
Interest earned by keeping cash in the bank longer- $100.00

So, all told I wind up with about $1450.00 worth of cash and goodies and continue to improve my credit rating for using someone elses money. Not too bad :)
 

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Hello. Let me give everyone some insite to credit cards and how they look at you when you go for financing. Everything is based on a credit report score.

800-725 is good, almost guranteed aproval
724-650, a little higher risk, but still good
649-575, medium risk, still not to bad
574-500, higher risk, the bank will look more closely
499-less, very high risk, not much chance of getting more credit

The way these scores are reached are;
amount of time in credit bureu
debt to income ratio
amount of debt compared to available credit
any late payments
amount of inquiries(everytime someone pulls your credit report you score goes down, it looks like your trying to obtain more credit at one time, so don't let people randomly pull your report.)

Also most banks won't report deliquent accounts till they have gone over 35 days past due. This means you can miss an entire payment and still not be repoted. Missing payments on a regular basis can change this can they may report right away. But if you've only been a few days or a week late, you shouldn't have much to worry about.

Everyone should pull their own report once in a while to check to see if there is anything on their that shouldn't be. I had my CU reporting my car loan as a revolving account, this is bad because revolving accounts hurt your score more than installment accounts.

The way creditors look to see if your eligible for more credit is to see you dept to income ratio.
For example

$400 rent
$200 car payment
$75 credit card 1
$40 cell phone
$40 gas card
____________
$755 total month expenses

Say income is 1700 month
44% debt to income ratio.

This may be a little high, and depending on your overall score will depend on wether or not you get approved. Most creditors recomend keeping that amount under or around 33%. They figure you still have food, insurance, electric, and other expensies to pay for. Now if your score was over 725, and you only want to borrow $100 more a month worth, you might get approved. But if you have a score of 450 and want $10 a month worth, you would have no chance, it would be too much risk for the bank to lose their investment.

By the way, I didn't just pull this out of my ass. I work at Citibank in the Collections dept. I have seen it all and heard it all. I hope I never have to see any of your accounts.

I hope all of this has helped, sorry for the long post
 

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Hey Lucky, great insight on the ratings, I have two questions.

Can you get by with a higher debt to income ratio if its just higher numbers. My D-2-I ratio has to be over 50%, but numbers are much highe (or is it just a factor of a high rating).

Does it lower your credit rating if you have alot of enquiries (liek when you buy a car and every dealer runs a rating)?

With regards to buying on a Honda Card, that has to be the worst opion. If you are going to put it on a credit card, as least put it on one that you earn miles on. Even one that'll give you 5% APR for the first 6 months then transfer to another.
 

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ryannapoleon said:
...I can avoid having to pay full coverage insurance....
Sorry I haven't been followong your saga as closely as others have, so forgive me if I ask a question thats been answered elsewhere.:)

Is this your first bike? If so, I urge you to re-think full coverage. It may be way too expensive, but I would at least look into it.
 
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MIDLIFE CRISIS said:
Pete, I agree with all you told R with one significant exception. Being reported past due 30+ days on any credit line reported will most certainly have an effect on R's (or anyone's) credit score, which will have the effect of limiting or eliminating financing options.
Well, I have personal experience that differs, but I did not mean to imply that someone should take a lackadaisical approach to timely payments. Good post.
 

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In my experience late payments make a big difference. When I got out of college it took me 6 months to get a job. During that time I was late on my car 60+ days twice and had to get my credit card to arrange to take $50 a month from me and reduce my interest rate to hardly anything. I think thats what they do right before they turn you over to collections.

Anyways now that I've been employed 8 months my debt to income ratio is 18% but creditors won't touch me with a 10 foot pole. I couldn't even get credit from gateway computers to buy a computer that would have been $75/mo. I assume all of this is from when I was making all those late payments.

I am paying 19% interest on my car, which I bought in college with a reported income of $400 a month, so its really a miracle I got that car at any interest rate. But I just looked at getting a newer used car and they quoted me at 17%, which I refused. I just hope someday my credit will get better.

Oh and $300/mo car insurance?? definately sell your car and buy something that costs less to insure, thats ludicrious.
 

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luckyguy19 said:

$400 rent
$200 car payment
$75 credit card 1
$40 cell phone
$40 gas card
____________
$755 total month expenses

Say income is 1700 month
44% debt to income ratio
I only make $1200 a month. I must be in big trouble.:eek:
 

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What I should have made more clear is that when banks figure out debt-to-income ratio, they only take into account things such as rent, car loans, personal loans, credit cards. They don't take into account things such as the electric bill or insurance. Those things aren't credit, you pay before you get them. So when you figure out your ratio don't incude everything you pay a month, just debts. Also every credit card company has different standards. At citibank if your highrisk, and 5 days late, you in collections already. If your low risk, we wouldn' even call you till you were more than 35days past due.

To answer another question, everytime someone makes an inquiry to your credit report your score goes down. You don't want to make it look like your trying to get a bunch of new credit at one time. This will only bring your score down for 6mons-1year before they don't affect it anymore. Creditors just don't want to see that your trying to get alot of credit recently. So next time your at the car dealer, and they try to get you to fill out one of those cards, don't do it, as soon as they have your ss# they can pull your report with out even telling you (this is now illegal in many states, you have to sign a release form).


If there are any more questions I'll do my best to answer them :)
 

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Discussion Starter #20
Wow-- I didn't expect THIS much info. Sweet. This thread needs to be archived for future reference. Thanks guys.

I think it's going to take longer to get the bike than I thought, but that's fine; I can lean to be patient. I can definitely get the bike if my parents co-sign, but after some thought, I decided against it. I've done everything on my own so far: job, apartment, school, car, so why not continue the trend?

I'm going to sell my Jetta and get a second job to save some cash for the bike. I'm guessing I can come up with half of the cost of the bike, and with the car loan out of the way and half to put down, it should be a lot easier.

BTW, I will be throwing a party when i finally get the bike. All SBW members are welcome. Plan for late august/september. :D

ryan
 
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