Lenny Lawson dives into the complexities of credit scores and financing, especially when buying a car. He explains how credit history impacts loan approvals, interest rates, and financing options, including the challenges faced by those with poor credit. Lenny also discusses the importance of monitoring credit reports for charge-offs and how life events can affect creditworthiness. He offers practical advice on working with dealers and rebuilding credit after setbacks like bankruptcy. The episode blends financial insights with personal anecdotes, making credit management relatable for car buyers.
"You know, that's based on more than just their credit score. It's their credit history, which is the credit score is a reflection of that."
A credit score is a number that shows how good you are at paying back money you borrow. Banks use it to decide if they will lend you money for things like cars.
A credit score is a numerical expression based on a person's credit history, representing their creditworthiness. It is used by lenders to evaluate the likelihood that a person will repay their debts.
"You know, that's based on more than just their credit score. It's their credit history, which is the credit score is a reflection of that."
Credit history is a list of how well you have paid back money you borrowed before. It helps banks decide if they can trust you to pay them back again.
Credit history is a record of a borrower's responsible repayment of debts. It includes information about credit accounts, loans, and payment history, which lenders review to assess risk.
"Credit scores normally range from 300 to 850. So a good FICO scores, what they call it, is typically between 670 and 739."
A FICO score is a special kind of credit score that banks look at to see how good you are at paying back money. The higher the number, the better.
The FICO score is a specific type of credit score created by the Fair Isaac Corporation. It is widely used by lenders to assess an individual's credit risk, with typical scores ranging from 300 to 850.
"Those people can walk into a car dealership by anything, probably finance"
Finance means borrowing money to buy a car and paying it back little by little.
Finance refers to the process of borrowing money, usually through a loan or lease, to purchase a vehicle. It involves monthly payments and interest over time.
"130 percent of MSRP, like if they're way upside down on something"
MSRP is the price the car maker says the car should cost. Dealers might sell it for more or less than this price.
MSRP stands for Manufacturer's Suggested Retail Price, which is the price a car manufacturer recommends a dealer sell a vehicle for. It serves as a baseline for pricing but actual sale prices can be higher or lower.
""You've had a couple of charge offs. You know, a charge off can be $10 at a hospital bill that you know, you paid everything except $10.""
A charge off means a company thinks you won't pay back some money you owe, so they mark it as a loss. This can hurt your credit score and stay on your credit report for a long time.
A charge off is a debt that a creditor has given up on collecting and written off as a loss, usually after the borrower has been delinquent for a significant period. It negatively impacts credit scores and remains on credit reports for several years.
"So their only option is to find some independent business that will finance them like a buy here, pay here car lot. That's what, you know, that's why there are buy here, pay here car lots."
It's a car dealership that sells cars and also lends you money to buy the car, even if your credit is bad. You pay the dealer directly instead of a bank.
A buy here, pay here car lot is a type of dealership that offers in-house financing to buyers with poor or no credit history, often requiring payments directly to the dealer rather than through a bank or third-party lender.
"I mean, why go and pay 18 to 28% interest? Can you imagine that? And today's market, that's what those, that's the interest rate those people are paying. You think that's high."
Interest rate means how much extra money you have to pay back when you borrow money. It's like a fee for borrowing, shown as a percent.
The interest rate is the percentage of a loan charged by the lender to the borrower, usually expressed annually. It determines how much extra money you pay on top of the borrowed amount over time.
"You ought to see what the check cashing places charge for interest. I mean, these title loan places, it can be over 100% interest."
A title loan is when you borrow money by using your car's ownership papers as a promise to pay back. If you don't pay, you can lose your car. These loans usually cost a lot in fees.
A title loan is a type of secured loan where the borrower uses their vehicle title as collateral. These loans often have very high interest rates and short repayment terms, making them risky.
"I mean, these title loan places, it can be over 100% interest. That's annual percentage rate is what I'm talking about."
APR is how much it really costs you each year to borrow money, including fees and interest. It helps you see which loan is cheaper.
Annual Percentage Rate (APR) is the yearly cost of borrowing money, including interest and fees, expressed as a percentage. It helps compare different loan offers by showing the true cost over a year.
"They just got their learners permit. And somebody, namely a credit bureau, is going to keep on scoring them"
A learners permit is like a special permission slip that lets someone practice driving with some rules before they get a full driver's license.
A learners permit is an official document that allows a person, usually a new driver, to practice driving under certain restrictions before obtaining a full driver's license.
"And somebody, namely a credit bureau, is going to keep on scoring them as they go through life and as they borrow money,"
A credit bureau is a company that keeps track of how people borrow and pay back money, helping banks decide if they can lend money to someone.
A credit bureau is a company that collects and maintains individual credit information and sells it to lenders, creditors, and consumers to assess creditworthiness.
"They'll just pay a higher interest rate. I've had people come in and say, well, you guys are offering 0% financing."
0% financing means you can borrow money to buy a car and not pay extra money as interest for a certain time, making it cheaper to buy.
0% financing is a promotional loan offer where the borrower pays no interest on the financed amount for a set period, often used by car dealerships to encourage purchases.
"But when you come in to borrow money for a car, not only are they going to check your credit, that score is going to be related to a table. And that table says A, B, C, D, E. And if you're A or a B, then you can get"
When you apply for a loan, lenders put people into groups from A to E based on how good their credit is. If you're in A or B, it's easier to get a loan for a car; if you're in lower groups, it can be harder.
Lenders often categorize borrowers into tiers labeled A through E based on creditworthiness. 'A' and 'B' tiers represent the best credit profiles with easier loan approvals and better rates, while lower tiers indicate higher risk and more difficulty securing loans.
"But if you're a C, you probably won't unless somebody is willing to like some loan officer at Ford credit or Toyota credit, somebody gets involved and they talk it over with the dealership and they move them up a tier."
Credit tiers are groups that show how good your credit is. If you have better credit, you get better loan deals when buying a car.
Credit tiers classify borrowers based on their creditworthiness, affecting the interest rates and financing options they qualify for when buying a car.
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