Getting bad credit auto loans while in the process of getting a loan modification through the government assistance program (HAMP) may seem like a no brainer to some, but not all may understand how this situation works. I know someone who recently applied for modification on their mortgage, in an effort to make payments more affordable. What they didn’t know, going in, was how long the process takes and just how much it affects credit and borrowing power.
Many lenders will allow you to take advantage of the government home loan modification program that is available, if you pre-qualify… In order to move forward, with government assistance, your lender may require that you show hardship, by being late on some mortgage payments. The government program (HAMP) does not require this, but their lender did. If you have to do this, they are reported on your credit and will significantly reduce your score, until the delinquencies can be removed. The good news is; after you are accepted for a modification these are removed from your credit and it will recover. The hope is, the modification will go through quickly and you will have those removed in a matter of months. Although, modifications are a slow process and are rarely completed in less than 3-4 months.
What does this mean for other borrowing opportunities, like getting vehicle financing? Most likely nobody will lend money to you while this process is happening. Your credit shows that you’re late on paying your mortgage and you’re too high a risk, to lend to. Bottom line, don’t plan on making any purchases that require you to get a loan. While you may be able to get a higher interest car loan, from some places it’s best to plan ahead and make sure you have all needed lending taken care of, before you start or wait until your modification is completed and your credit restored.