What Could Go Wrong With An 84-Month Car Loan With No Minimum Credit Score Requirement?
People who are struggling with debt and living paycheck to paycheck often seek out loans with the lowest possible monthly payments. This only makes sense, because it reduces your chances of defaulting on the loan in any given month. The lower the monthly payment, though, the longer the term of the loan. Choosing the loan with the longest possible term or refinancing an existing loan for one with a longer term and a lower monthly payment can be the best solution when the other option is default or mortgage foreclosure. Sometimes, though, borrowing a loan with a longer term of repayment is penny wise and pound foolish. Most consumer loans, including credit cards, home mortgages, and car loans, have compound interest. This means that, the longer it takes you to repay the loan, the more interest you pay overall. A Miami debt lawyer can help you make the best borrowing decisions to repair your credit.
Beware of Loans That Are Too Easy to Qualify For
During the pandemic, Ford began offering 84-month auto loans, whereas the usual maximum term for a car loan is 60 months. The demand for car loans with longer repayment terms was due to the increase in car prices and the wide-ranging financial hardships experienced by would-be vehicle buyers. At first, Ford required borrowers’ credit scores to meet a certain minimum threshold before it would approve them for these seven-year loans, but this month, they have removed the credit score requirement. According to Lawrence Hollingsworth of Jalopnik, this is not as good for consumers as it sounds. Car buyers will pay more interest over seven years than they would if they chose a five-year loan. Ford says that it will approve or reject loan applications based on borrowers’ FICO scores, but Hollingsworth is concerned that offering loans with such a low threshold for approval is risky.
When Does It Make Sense to Choose Ford’s 84-Month Loan Option?
Under certain circumstances, it could be a wise decision to finance a car loan over seven years instead of five when your credit score is low. For example, the loan might be able to help you rebuild your credit if your credit score has recently taken a hit because of a one-time event such as a divorce, but you have a steady income from your employment. If you choose this financing option, you should pay as much as you can afford toward the principal each month, instead of just making the minimum payments, so that you can pay less interest and boost your credit score more quickly.
What to Do Instead to Rebuild Your Credit
If your credit score is low, it is unwise to take out big loans, even if lenders are willing to give them to you. You should start with something low risk, like a secured credit card.
Rebuild Your Credit With the Help of a Lawyer
A debt lawyer can help you avoid repeating the mistakes that worsened your debt problem so that you can repair your credit. Contact Nowack & Olson, PLLC in Miami, Florida to discuss your case.