Business

Avoid delinquent loans with better planning

Work with your lender, credit counselor says

Denise Fuller

Horizons, A Family Service Alliance
Denise Fuller Horizons, A Family Service Alliance

As the percentage of delinquent auto loans continues to rise in Iowa and the nation, a Cedar Rapids credit counselor says borrowers behind in their payments need to work with their lender.

“I know locally, if you have a loan through a credit union and you have been in good standing, you can skip a payment for about $25,” said Denise Fuller, financial, health and wellness counselor at Horizons, A Family Service Alliance in Cedar Rapids.

“It will be added to the end of the loan and you will have to pay more interest, but that’s one of the options.”

Fuller advises clients to create a written spending plan each month to determine their financial priorities.

“Your housing, food and transportation expenses come first,” Fuller said. “You cover those items before you spend money on recreation and similar things.

“If it comes to the choice between paying a car payment or making a credit card payment, you pay the car payment because that is secured credit. Not making the credit card payment on time is going to be reflected on your credit report, but you want to protect that secured debt first.”

Fuller advises clients seeking to buy a vehicle be aware that “buy here, pay here” auto dealers typically charge higher rates of interest and typically also have higher loan default rates than banks and credit unions.

“We have one (dealer) locally that attaches a GPS (global positioning system) to vehicles,” she said.

“They are harassing the person, saying, ‘We’re seeing that you’re going here, there and everywhere. If you are able to do those things, why aren’t you paying us?’

“It’s really freaking the customer out that someone is following them that closely.”

Fuller said any dealer offering financing should disclose the annual percentage rate in writing.

“They need to tell the borrower how much they will be paying in total for the vehicle,” she said.

“Borrowers need to determine how the monthly payment will fit into their budget.”

If prospective buyers are unable to qualify for an auto loan from a conventional lender such as a bank or credit union, Fuller said, they could consider other transportation solutions — a car pool or public transit — while saving their money to pay cash for a car.

“They won’t be able to afford a $26,000 new car, but they will be able to save enough money to buy a safe and reliable car to get them to work,” she suggested.

Sometimes unforeseen events can put a borrower in a financial bind, such as an unexpected layoff, expensive medical bill or — as was the case for many recently — a government shutdown.

“I recommend to my clients that they put aside some emergency funds,” Fuller said. “If something happens and they’ve been living paycheck to paycheck, they will have a little money to fall back on.”

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