Friday, November 27, 2009

How To Finance A Small Business Without Going Into Debt

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Unless your parents are wealthy, or you have a rich uncle or aunt from whom to borrow money, once you start a small business you will quickly find that you need more money than you have to keep your business going.

Many entrepreneurs seek financial help from their local banks. Those with good credit, go into debt using their homes as collateral for loans to finance their businesses. An alternative source of financing not often thought about that does not require going into debt is called ‘account receivable financing, or factoring’.
  • Account receivable financing is available only to businesses that have been in operation for at least a year, and have sold goods or services to customers on credit – usually on 30 – 90 days credit terms. The sum of the face value of the unpaid invoices is the ‘account receivable’: or said another way, money that the small business owner must wait 30 or more days to receive. 
  • Factoring enables a small business to receive immediate cash for its unpaid receivables by selling them to a factoring company. The factoring company pays cash for the receivables to the small business owner less a fee called a ‘discount’, as well as interest where applicable.
  • Factoring differs from a bank loan in 3 ways: emphasis is on the value of the receivables not on the credit worthiness of the company selling them. Factoring is not a loan, it's the buying of a financial asset. And unlike a bank loan, factoring involves 3 parties: the factor, the seller and the debtor.
  • Ownership of the receivables is transferred to the factoring company upon conclusion of the sale, indicating that the factor accepts all the rights and risks associated with the receivables. Usually the factor sends bills to the debtors and receives all payments. If the debtors are unable to make payment due to bankruptcy, the factor cannot seek payment from the seller where a ‘no recourse’ factoring was agreed to.
  • The cost of ‘no recourse’ factoring is higher because the factor assumes the entire risk of non-payment by the debtors. However, the seller can reduce his factoring cost by entering into a ‘recourse’ factoring agreement where in the event of non-payment the seller must buy back the bad invoices with good ones.
  • A factoring transaction has 3 major parts. The ‘advance’ is a percentage of the total receivables paid to the seller on submission of the application. The ‘reserve’ is the balance of the receivables held until the debtors make full payment. The ‘fee or discount’ is the cost of the transaction that is deducted from the reserve before final payment to the seller.
  • The factoring company may also charge the seller interest based on how long it must wait to be paid by the debtors. An estimate also made for the amount that may not be collected due to non-payment is added to the mix in determining the amount the seller will receive.
  • The objective of the factoring company, as all businesses have, is to make a profit; so it is vigilant in avoiding losses due to non-payment. Consequently, the factor thoroughly examines the credit worthiness of the debtors, buying only those invoices with a reasonable chance of been paid.
  • Factoring is a trade off between the return the seller hopes to receive from using immediate cash to pay suppliers, rent, meet payroll, expand production or boost sales promotion, and the cost of using the funds raised by factoring. Obviously, where the cost of using factoring is higher than the return on investing the funds, it is not a favorable trade off for the small business.
  • A small business may also use the funds from factoring as bridge financing while it waits for approval of venture capital, or a loan from a bank, as some of these financial transactions take weeks to release cash to the borrower. Usually, a factoring company will release cash to the seller within 48 hours.
  • The benefits of factoring is that many small businesses do not meet the financial requirements of traditional lending institutions, but have a roaster of financially strong customers that they can leveraged to get immediate access to cash without going into debt.
While factoring is an attractive alternative of raising operating capital, the costs associated with it may be higher than traditional loans, since the factor’s risk is higher, and has to provide others services including credit check and collection services as part of the total transactions.

Therefore, use factoring with prudence. Do you need cash immediately? Can you arrange credit terms with your creditors that allow you time to collect your receivables before paying them? Does the return on the funds raised by factoring justify its use? A small business consultant can provide answers to these questions. Be sure to talk to a consultant before signing a factoring agreement.  

Monday, November 23, 2009

How To Be Strong After A Break Up


One of the few things with a high probability of occurring in contemporary life is that a marriage may not last “till death do us part”. As you will not depend on working with the same company till you retire, so too, regrettably, remaining married to the same person for the rest of your life is fast becoming a thing of the past.

Up to 60% of all marriages in the U.S. end in divorce within a year: not to mention the millions of break ups that occur among unmarried couples. For some the wounds of their broken hearts are still too fresh to forget, and for others the pain still lingers on years after the break up.
  • Should we go into marriage convinced that it will end, and therefore, be preparing for the inevitable, even as we say our wedding vows? No, that will take away the excitement, and change the nature of marriage. We should rely on our inner strength, personal character and the life we have lived to fortify us at the time of a break up to endure it, learn from it and triumph over it.
  • Should you feel rejected, hopeless, shut all the doors and windows and crawl into a dark corner after a break up? If you feel that way, not only has your marriage come to an end, but your life will soon too. Pick yourself off the ground, dust off your sleeves, and know that a break up is not an end, but an opportunity for a change in habit. Start doing things differently, from today forward.
  • Stop thinking about the great moments you had with your ex: they cannot help you now. Write down on paper the reasons for your break up. Make them as detailed as you can. When you write down your thoughts they stop floating around in your head, and cease to hurt and frighten you.
  • After your break up with the one person you sacrificed all others for, you will be lonely: if not physically, then emotionally. It is time to socialize and make new friends. Join a poetry club, an art club, or a sports club. Ask questions, make conversations, exchange phone numbers with people who share your interest and keep in touch.
  • If you are feeling empty and need emotionally support; offer to help a friend or neighbor with some project. Give your time and effort to help others solve their problems. In doing so, you will become involved in their lives, and in turn they will become involved in your life.    
  • Meantime, check your body mass index (BMI) to see if you are overweight or not. It is a fact of life that when we feel overweight, we feel less sure of ourselves, and often fail in our relationships when we should succeed. Talk with your doctor or dietitian to recommend a weight loss program for you, and once you get the weight off, make it your priority to keep it off.
  • When news about your break up reach your family and friends, you will get advice from all quarters. Be polite and listen to all the advice offered, sift them, keep those that are relevant and helpful to your present condition, and throw out the rest. Spend more time with people whose conversations motivate you to be strong and live your best life.
  • Sometimes the pain of a break up is so excruciating that we are absolutely convinced that our best life is behind us. We look at ourselves and see nothing but the empty shells of our former selves. Nothing could be more wrong. Our best life is always ahead of us. Think about all the things you are passionate about and wanted to do, but never got around to doing. Learn a new skill. Take cooking lessons, get involve in sports, try painting, find a hobby: the opportunities to have fun and be happy again are endless.
  • It is a human trait that when we are very happy with our lives, truly happy: we are unable to keep all that happiness to ourselves. Soon we begin to look for someone with whom to share our happiness. Even after an excruciating break up, after time has passed and the dust has settled down, you will begin to date again. Be prepared when the time is right.
  • Don’t get too emotionally involved in your new relationships. Keep the relationships light and simple. You will need up to 2 years to heal the emotional wounds caused by your break up. Rushing into a serious relationship too soon will be setting you up for another disappointment that will open old wounds, and make your condition worse than before.
Your children, if you have any, will also need time to understand why dad left home and didn’t come back, and to begin their own emotional healing process. You and your ex would have had time to reflect on your mutual faults and strengths, and on whether coming back together is what you need to do to heal the whole family.

Friday, November 20, 2009

New Management Strategies For Small Businesses In A Tough Economy


If you have not identified your business Critical Success Factors, you are certainly not using them to optimize the internal processes of your business. CSFs are action oriented management tools aimed at making clear your business goals, and the strategies to achieve them.

Fifty years ago, a business could run on automatic pilot, and yet be profitable. Today, even with a life pilot a business may fail. The adverse changes in the economy followed by the recession of 2008 and 2009, is believed by many to have changed the economy, perhaps, irreversibly. The old ideas no longer work; the formulation of innovative ideas has become imperative.
  • In the forefront of these innovative ideas are what we called the Critical Success Factors of a business. The performance measures within them link daily activities of the business to its goals. By identifying, understanding, measuring and managing the CSFs, a business has a better shot at surviving these turbulent times.
  • To arrive at the CSFs, you should do a brainstorming session with your employees where you put down on paper all the success factors you can think of. Depending on the enthusiasm and exuberance of the participants you may come up with 20 or more new ideas to help increase performance. Pare down these 20 success factors to about 8 critical success factors crafted to bring immediate positive effect on your business.
  • Improving the quality of your product or service is one of those critical success factors. All the effort you make on advertisement, price changes and enhanced customer service will come to nothing, if your competitor next door sells a better product or service than you do.
  • Delivering in full and on time to your major customers. If your customers are confident that you will always supply them with the specific items they ordered, and on time, you will become a reliable partner in the success of their own businesses, and that means more business for you.
  • Give priority to those activities that collect cash quickly from your major customers. You can have the best quality product or service and deliver on time, but if your price is unreasonably high, your cash intake will be low. Reduction in prices with strategic discounts and enhanced customer service will help encourage your major customers to begin spending again.
  • While the satisfaction of the customer is the prime reason for the existence of a business, you need a safe, happy and healthy workforce to achieve that. Many small businesses have had to learn the hard way that making adequate investment in the well-being and happiness of their employees has a direct positive effect on customer satisfaction and prosperity of the business.
  • Your employees are in direct daily contact with the customers. They are the frontline information gatherers, and as a consequence, have relevant information about customers’ preferences that you may not have. Quickly refining and implementing innovative ideas from your employees could turn a bad business year into a good one.
  • In a tough economy where cash flow is slow, invest only in value adding projects that quickly make your product or service more attractive to customers, and increase your cash intake. Put off the long-term projects for later.
  • Training your employees to do more than one task within each department will enhance their adaptability and flexibility. For instance, if for any reason an employee is unable to come to work, there will be another employee adequately trained to performed his task, and avoid a slow down in your business operation.
  • How an employer treats his employees regarding pay, benefits and safety issues get around fast, and soon a body of information will exists that informs high quality job applicants to either stay away from, or gravitate toward that employer. As the quality of your employees has a direct effect on customer satisfaction, and in turn on the profitability of your business, attracting quality employees is a critical success factor.
  • Fully informing all your employees about the CSFs is important to enable them organize their daily activities to maximize their contribution, particularly in providing feedbacks on the implementation of the CSFs.
Some will argue, for instance, that a low quality product or service can be improved with dedicated effort, and poor customer service can be corrected by training the workers, but in an economic recession when customers are not spending: what can a businessperson do?

There is an old Oriental proverb that says: you can go only so far into the forest before you start coming back. Similarly, the economy can get worse only for so long; soon it will start getting better. Small businesses that have identified their critical success factors, and begun implementing them will be the first to reap the benefits of an upswing in the economy.

Tuesday, November 17, 2009

Things You Should Know Before Applying For A Home Equity Loan


For many Americans their most useful and valuable possession is the home. It is not only a safe place to live, but also a financial symbol that you are living the American dream. Embedded in the home is an added value called ‘equity’.
The equity is the amount you have already paid against the value of the home. To determine your home net equity, subtract the amount of the mortgage balance and any liens or second mortgage from the current fair market value of the home.
For example, if your home is appraised at $350,000 and you owe $200,000 on the mortgage, including liens or second mortgage, the net equity in your home is $150,000. This is like actual cash in the bank from which you can withdraw in two ways:
  • A Home Equity Line of Credit is a revolving fund secured by your home. It allows you direct access to about 75% of the appraised value of your home minus the balance due on the existing mortgage and any other liens. In determining how much cash you can withdraw, the lender will consider your ability to repay, by looking at your income, debts and other financial obligations and credit history.
  • Home equity line of credit typically involves variable rates of interest, based on a publicly available index, such as the prime rate published in major daily newspapers. As the rate will change with fluctuations in the value of the index, it is important to know which index is used, because most lenders base the interest rate you will pay on the value of the current index plus a ‘margin’, say 2 percentage point.
  • Typically, the best use of a home equity line of credit is when you need immediate cash to cover operating expenses in your business. The income generated by the business will enable you to repay the loan. Spending it on consumer items that will lose value with time is a misuse of a home equity line of credit, and probably will cost you your home.
  • The other way to withdraw cash from your home equity is by a Home Equity Loan. It allows you to get a loan from the bank by using the equity in your home as a collateral. But, unlike a home equity line of credit, a home equity loan is paid to you in a lump sum, and may involve a fixed rate of interest. The annual percentage rates (APR) for both ways of withdrawing cash from your home equity are calculated differently, and the methods of repayment may also differ.
  • Typically, a home equity loan is used for debt consolidation, home repairs and improvement, medical bills, or college tuition for family members. Resist the temptation to use the proceeds from a home equity loan for a vacation, a wedding or to buy a luxury car, because once the money is spent you will find there is not enough left to make the monthly payments.
  • You could use your home equity loan to start a new business, buy an existing business, or perhaps buy a second home. The bottom line is that the loan be used on something that will improve your financial position, as you will have to repay the loan with interest.
  • The interest charged on a home equity loan is usually tax-deductible, if the loan is used for its primary purpose. The interest rate is also low because as a secured loan it reduces the lender’s risk. Additionally, the borrower cannot hide the home or legally stop the lender from selling it in the event he defaults on the loan.
  • The costs of setting up a home equity loan, or a line of credit are similar to those paid when buying a home, such as property appraisal fee, application fee, up-front charges based on points, closing costs, including fees for attorneys, title search, mortgage preparation and filing, property and title insurance and taxes. Therefore, examine the terms and conditions of several plans before making your final decision.
  • In which way you decide to withdraw on your home equity, be fully informed that it is a loan secured by your home. There should be no question as to your ability to repay the loan. You may want to consider getting an insurance policy to cover the monthly payments if something happens, and you are not able to make the payments.
A home equity loan, or a line of credit will result in the loss of your home if you are unable to make your monthly payments; consequently, use it only to improve your financial position, or to raise funds in a true emergency situation. For additional information that could make the difference between losing your home and keeping it, go to the Federal Deposit Insurance Corporation website.

Thursday, November 12, 2009

Straight Talk About Home Based Business


Do not be carried away by the ‘pie in the sky’ promises made by home-based business promoters that you will become financially independent in 90 days or less if you buy their ebooks or training programs. Nothing could be further from the truth.
  • First, you need to know that the marketplace is ruthless. It does not pay you simply for showing up, according to your needs, or for how many hours you work. It pays you for the value you bring to the marketplace. That value may take the form of a new product or service, or a significant improvement in an existing product or service.
  • Do not invest a cent in a home-based business until you are clear in your mind about what value you can bring to the marketplace. Once you’ve made that decision be encouraged by the fact that giant corporations like Hershey Chocolate, Ford Motor Company, Mary Kay Cosmetics and Apple Computers started out as home-based businesses. In fact, over 50% of all US businesses are based out of an owner’s home.
  • Are you ready and able to run a business? How much do you really want to change your life? How much does it mean to you? How much do you want a future different from the one your current life has install for you? What sacrifice are you prepared to make to achieve it? Are you receptive to new ideas and new ways of thinking and doing things?
  • If you want to have more than what you have now, you must become more. Are you prepared to read long hours to learn new skills and use them in your business? Are you prepared to work tirelessly to improve upon the value you bring to the marketplace, since what is valuable this year may not be so next year?
  • Hold onto your regular job, and use the home-based business as a second job. This is an advice worth heeding. It takes 2 years or more to begin making any significant income from a home-based business. Unless you are an independently wealthy person, you will have difficulty supporting yourself and your family on a home-based business in the first 2 years of operation.
  • Lack of planning, insufficient financial backing and poor management are the main reasons many home-based businesses fail. Certainly, your will need to put your business on the Internet. Have you decided on your website design; on the source of its content, and the advertisement modality to inform the public about your product or service?
  • Have you thought about not only the advantages of being your own boss, but also the challenges inherent in running a home-based business, including the lack of guaranteed employee wages and benefits, lack of job security, frequent interruptions arising from close proximity to your family, long working hours, legal requirements including zoning regulations, insufficient time to go out with family and friends.
  • Will your business be a public corporation, partnership or sole proprietorship? Not forgetting your responsibilities of acquiring licenses, complying with regulations, paying taxes, obtaining insurance policies, maintaining good record, advertising campaigns, pricing your product, and your financial obligation to your creditors in the event the business fails.
  • Do you have a support network to help you through the tough times: for there will be many. Your support network would include your family, business associates and friends who have had similar experiences in business.
  • Are you one who easily gives up when things get really tough, or are you going to hang in there and see what you started through? Are you prone to tantrums when something doesn’t go the way you wanted, or are you patient, self-disciplined and focused at such time?
  • Once you complete setting up your home-based business, within 3 months, give or take, you will find a difference emerging between your plan and the actual events in your business. You will have to constantly refine your business plans taking account of what is happening on the ground, in order to achieve your business goals.
A home-based business has the potential to make you a very rich person, but the path to that wealth is littered with the remains of millions of broken dreams. Be sure not to add your dreams onto that pile. Go to the Small Business Administration website, or talk to a small business consultant for advice on your potential market, your product or service, its sales promotion, delivery and profit potential.

Monday, November 9, 2009

Why Is It Easy To Lose Weight But Hard To Keep It Off

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It is easy to lose weight, but difficult to keep it off. All who have tried over the years to lose weight can attest to this, including our celebrated friend Oprah Winfrey. I will explore why this is is the case, and how you can keep off the weight you lose.
  • For starters, being overweight is not a disease in itself, but it is the gateway to serious diseases such as: high blood pressure, type 2 diabetes, esophageal cancer, prostate cancer, breast cancer, kidney cancer, congestive heart failure, heart enlargement, stroke, pulmonary embolism, erectile dysfunction, gallbladder disease and the like.
  • Consequently, you need to treat overweight with the same seriousness as you would treat a heart attack or cancer, meaning you should immediately consult your doctor and dietitian once you feel that you are overweight. With less effort and expense you could solve the problem of overweight, and not have to live with the fear of dying from a heart attack or cancer.
  • The first thing to do is to confirm if you are actually overweight in relation to your height by measuring your body mass index (BMI) at www.nhlbisupport.com/bmi. Below 18.5 you are underweight, 18.5 – 24.9 normal weight, 25.0 – 29.5 overweight, and 30 or greater, you are obese.
  • Once you find you are overweight call in the professionals because you cannot solve the problem on your own. The reason is this: if the body does not have a mind of its own, it certainly has a memory. If you have lost 10 to 50 pounds before, you will have experienced the relentless effort your body makes to return to its previous size.
  • For instance, if you weighed 240 pounds before, and with physical exercise or a change in diet you lost 40 pounds; by some biochemical process the body knows exactly the type and quantity of food you ate that got you to 240 pounds, and it will inflict upon you splitting headaches and dizziness to force you to return to that meal. As your weight begins moving toward 240 pounds the headaches and dizziness will stop: a strong indicator that the body has a memory.
  • You can keep off the weight that you lose by changing the memory of your body by daily physical exercise, and/or a change in diet and lifestyle. We have a choice, either to make that change, or wait like sitting ducks until we get hit by heart attack, type 2 diabetes, cancer and God knows what else.
  • On examining how difficult it is to keep off the weight that we lose, it appears there is an ongoing conflict between the ‘self’ and the ‘body’. The ‘self’ is the essence of who we are and the expression of our personality. The ‘body’ gives us our physical presence. The ‘self’ wants us to be happy and confident, look physically beautiful, be free to do the things we desire. On the other hand, the ‘body’ simply wants to be fed, repair itself and grow in size.
  • You are moving toward the danger zone when your body mass index consistently stays above your normal weight level. If so, now is the time to exert control over your body, otherwise it will control your life, move you toward obesity, take away your happiness, and put your life at risk.
  • Some helpful physical activities you could begin doing right away to exert control over your body are: jogging and walking, swimming, bicycling, tennis, dancing, triceps press, abdominal crunches and squats. You will find these physical activities will produce better results when you go to the gym. If the circumstances of your life do not allow you to do so, focus your efforts on healthy diet, lifestyle changes and home exercise.
  • While the body mass index has been around since the 1850s, some argued that it does not actually measure the percentage of body fat. It merely produces a figure from dividing a person’s weight by the square of his height. Still, when you combine the BMI and the measurement of the waist circumference, the result is a good indicator of abdominal fat, and an effective predictor of the risk of heart and other diseases.
There is no ‘one-size-fits-all’ solution to every overweight problem. Consult with your doctor and dietitian for a weight-loss program specifically designed for your health condition, body mass index and financial means.   

Friday, November 6, 2009

How To Bring Passion Back Into Your Relationship


Couples in long-term relationships, whether married or dating, often complain about getting into a rut. The relationship that started off with passion and excitement has begun to wane, as work and the ordinary chores of making a living wear us out as time goes by.

If you are in a marriage that seems to be in a rut, or are wondering why you can't keep a long-term relationship exciting anymore, you need to stop and begin finding new ways to refresh the relationship with exciting activities.
  • Some have suggested that the dinner-and-a-movie routine has lost its excitement in the first year of a relationship. Do something different like: playing paintball, rent a classic car, go skydiving, or have a picnic. Do something outside the box like, start a water fight, or surprise your partner just when he is about to leave work.
  • Relationships fail for many reasons. One of the saddest reasons is that people simply drift apart because the other person doesn't excite them anymore. The hidden secret why couples drift apart is not so much that they have changed physically, as their attitude toward the relationship has changed.
  • The nature of things dictates that when a couple gets marry in their twenties, they will continue to be physically attractive to each other until the children are in their thirties, as long as they make themselves irresistible to each other.
  • Here the wife or girlfriend must take the lead, as it is universally agreed that of all things created, the “female is the beauty of creation all”. She has the power to attract that a man lacks. If she has failed in keeping a long-term relationship with the man she loves, it is because she has not sufficiently accentuated both her internal and external beauty to make herself irresistible to him.
  • One of the important things that both parties should give particular attention in making themselves irresistible to each other is to avoid being overweight. Couples who are presently overweight should consult with their doctors and dieticians, and put their advice into practice.
  • The wife or girlfriend should make sure that the couple goes out, at least once a week. They could attend a party, go watch a play, attend a poetry reading, or go play pool. They may stop at a diner or a restaurant and buy ‘take out’ food. Eat in their car or at a friend’s house. The purpose here is to do something different from the routine.
  • Often, in a marriage relationship, the wife will say, there is so much to be done: cooking, laundry, cleaning the house and caring for the children that there is no time left to go out. If you think about it, it is precisely because of the children that the couple should go out at least once a week to recharge their love, for inner strength to maintain a wholesome home.
  • Of course, arrangement should be made with friends or relatives to take care of the children whilst you are out. If the children have to sleepover be sure to pick them up from your friend’s or relative’s house early in the morning so as not to unduly burden them.
  • On the day of the outing, spend some time on yourself. Look in the mirror and identify all the things that you like about yourself. For example, if you have full shinny hair make the most of it. Let it flow down your shoulders. Men have a fascination with hair. If you have a full pouty lips, apply liner around the edges then fill in with a deep gloss that accentuates your skin tone.
  • Because you are out with your husband or boyfriend should not stop you from flirting with him. Play up your eyes. Flirt with him with your eyes. Look at him then look away. Use your eyes to tell him everything that you are feeling, everything that you would like to do with him.
  • Wear clothes that accentuate your assets. Hint at your curves without exposing them. Remember less is more. Incite his curiosity. Make him want to see more.
  • Wear a delicate scent. Apply your perfume twenty minutes before you go out the door. A woman’s scent is enticing. Overpowering perfume, on the other hand, is a major turn off.
  • Take care of your whole body, not just your face. Use a good sugar scrub on your body and follow with a rich moisturizer. If your body feels silky smooth, you will feel and act sexier, which is the point in going out in the first place.
Don’t make the preparation of your outing a big event. Do not disrupt the normal routine at home with an announcement that you need to look pretty for the day. Your husband and children will not like that. Instead, keep the preparation for the night in the background until you drop off the kids where they will spend the night, then pull all the stops and bloom like a flower before the man waiting to take you out.

Tuesday, November 3, 2009

How To Get A Car Loan With Bad Credit

--> -->Banks are in business to accomplish two main objectives: to give out loans, and at the end of an agreed period to get back the amount loaned plus interest. A bank that fails in these two areas will soon cease to be a bank, which is why banks view the loan applications of people with bad credit as forbidden fruit.

Anyone with a bad credit tag to his name is assumed to have demonstrated that he is financially irresponsible. It does not matter if the assumption is right or wrong. A bank that is willing to consider a bad credit loan application is, in fact, facing an actual rather than a potential risk that the borrower may default on the loan.
  • Still, a bank may agree to give a car loan to a person with bad credit if he will convert it into a secured loan, where the borrower agrees to offer a collateral in physical property such as a house, or financial instruments such as shares and bonds to secure the loan. 
  • People with bad credit are expected to pay higher down payment and higher interest rate on unsecured car loans, in order to reduce as much as possible the loss the bank will suffer should they default on the loan.
  • Depending on how bad the borrower’s credit is, the down payment required can range from 20 – 50% of the car’s selling price, interest rates from 5-26%, and amortization - the duration of the loan - anywhere from 2-4 years. The amortization for a buyer with good credit is 5-7 years.
  • While it may appear that those with bad credit are really in for tough times, it may not be all that bad. 25% of Americans: a little over 75 millions people, in one form or another, have credit problems. The huge number of people with bad credit has turned into an opportunity for companies, which have found ways to make money from car loans to people with bad credit. In effect, those with bad credit will always have access to car loans.
  • There are some bad apples among these companies though. Car dealers who specialize in bad credit loans will take a car selling for $6,000, inflate the price to $9,000, take a $2,500 down payment and then finance the $6,500 at 24-26%. This will put the buyer into debt with the auto finance company for an inflated price that is higher than the real value of the vehicle.
  • A way to avoid being swindled by these sneaky bad credit car loan dealers is to first check the real value of the car you are looking at, and then only pay $200-500 extra then what is listed. Only in exceptional cases would you ever pay more than this price for a car.
  • With the coming of the Internet economy, two ways have emerged to provide car loans to people with bad credit. In the Dealer Network System, the buyer selects a car on a website and answers some basic questions. This information is passed onto a dealer specializing in bad credit car loans.
  • In the Multiple Submission Networks, the person with bad credit applies online for a car loan, and his financial information is then sent to several lenders at the same time, with the hope that one or more will agree to take the credit risk.
  • Review your credit report at least 3 months before applying for a car loan, as any correction you make will take that long to show up in your credit report. Know how much you can comfortably afford to pay both on the down payment and monthly payment, and have proof of employment and income.
Your best chance of getting a car loan, with a bad credit history, is to start preparing at least a year before your application. Assuming you have a stable job, apply for a gas station or departmental store credit card. Pay your bills on time for 12 months: paying $10 –$20 more than the minimum monthly payment. With a 12 months clean history of paying your bills on time, the bank will look at your car loan application differently.