How to Qualify for Dump Truck Financing with Bad Credit
As a company that has been offering financing on dump trucks and trailers for nearly thirty years, we’ve seen every possible credit profile. Ironically, the customers with personal credit issues have often been our best paying and longest tenured partners. Because of that, we have a passion for helping all credit types. Having an in-house finance program allows us to make loans for customers and ignore credit challenges when we know they have a thriving business, but how is it that we successfully place hundreds of dump truck loans per year even with outside lenders?
Over time, we’ve developed a tried and true method to getting bad credit, thin credit, and even no credit customers into dump truck loans and leases. This involves a simple five step approach that we train all of our representatives to follow:
1. Put your best foot forward
Prior to submitting your transaction, we ensure that all of your credit obligations show current. That means if you’re late on a car payment or have a small open collection, we’d rather guide you to bring your accounts to a positive status BEFORE submitting your application to a lender. It’s not that we can’t get rolling stock financing approved with some minor credit issues, but by being proactive we improve the character profile of your application and improve the odds that you’ll score favorably whether we look at your transaction in-house or syndicate with one our outside construction lenders.
2. Offer as much structure as possible
After addressing minor credit issues, the next biggest priority is coming up with an alternative structure to entice a lender to offer an approval. The best ways to do this include pledging a second dump truck, trailer, or other titled vehicle as additional collateral; providing a large (15% or more) down payment; being willing to accept a shorter term (like 24-36 months); and having a good credit additional signer willing to guarantee the transaction. To really sweeten the deal, having two or even three kinds of structure can make a finance company turn a blind eye to some credit hiccups, and can even result in a better rate or terms — even if you have less than perfect credit.
3. Provide proof of work
One common joke in the equipment leasing business is, “If I only had a truck…” The punchline is that owning a dump truck, or excavator, or dozer will automatically bring work, and that work will yield the money needed to make the monthly payment. The reality is that just because you buy equipment, you may not necessarily find a massive influx of revenue. Lenders know this all too well, for even some businesses with amazing work in progress and massive cash flows have gone by the wayside during slow times.
If you can provide some kind of proof that you have work in the pipeline – a letter of intent from a contractor that plans to hire you, a trucking company that will lease your unit on, or proof that maintenance on a dump truck that needs replacing is impacting your ability to do outstanding work now – the funding source will give some credence to future revenues. In general, the rule of thumb is that credit decisions are made based on what you earn now – not potential income – but lenders are also human beings with common sense and can connect the dots. If you help them see how you get from point A (buying the truck) to point B (actually making money hauling), you’ll score legitimate bonus points in the process.
4. Provide a resume
We don’t mean this literally, but giving your representative an idea of your background and body of experience in construction and trucking, including how long you’ve had your CDL, and what kinds of work you’ve done in the past can always help. This is especially true for customers with limited time in business. You may not have a track record of success under your current business name, but you can show that you’ve had personal successes in the industry. If you really want to stand out, provide work references who can vouch for your level of service and commitment. All of these things help to address any potential character concerns that pop up when they see derogatory credit marks.
5. Don’t shoot for the moon on the first try
If you have poor credit (below 600), there’s always wisdom in finding a less expensive truck or trailer, or buying one instead of multiple units. You’d be surprised how frequently we have customers contact us to buy $150,000 dump trucks with a 500 credit score. In fact, for applicants in the poor and fair credit sphere, nearly 90% end up lowering their expectations and buying something less expensive, older, or in a smaller quantity than they initially anticipated. Don’t let this discourage you. Buying a truck that can immediately generate a return on investment gives you an opportunity to use increased profits to repair credit issues and results in you showing more cash flow. All of that ultimately means that when you next apply for financing, you will have better odds of qualifying for a more expensive hauler.
Improving your financing outlook
All of the above steps are ways to minimize the damage of negative credit. In truth, nothing can fully replace a track record of paying your bills on time. Customers with bad credit seeking dump truck loans will typically have to pay larger financing charges. Nonetheless, these contracts build commercial credit ratings and references that can be powerful ammunition in obtaining better rates, longer terms, and lower or even no down payment financing in the future.
Getting the best deal on financing for a dump truck, trailer, pup, transfer, articulated hauler, or other construction vehcile doesn’t have to be rocket science, but it does require thinking outside the box. Instead of focusing in on the best interest rate programs, customers should consider return on investment, and make moves to improve their future credit outlook. By knowing how to present the best package to a lender, you’ll already be a step ahead of the pack.
At American Leasing & Financial, we’re so passionate about dump truck purchases (and financing for rolling stock and off highway trucks in general), that we actually created a special financing program just for dump trucks. Dump Truck Finance.com is a niche funding processor backed by two dozen boutique funding sources and banks, as well as our own in-house funding arm American Leasefund. We pride ourselves on offering flexible truck, trailer, and equipment lending programs, regardless of credit issues, for startups and established businesses alike. Learn more at www.dumptruckfinance.com OR apply now for an easy approval in as little as 24 hours.
Securing the Best Terms for Farm Tractor Financing
Financing a farm tractor is a really unique experience because most people who run a farm or ranch get boxed into one of two categories. Either A) you’re a large commercial outfit who produces for companies like Tyson or Costco; or B) you’re the little guy just raising your own chickens or cows.
If you’re in the ‘A’ category, companies like Ag Direct or Farm Credit can offer out of this world rates in exchange for a blanket lien on everything you own (including land and livestock). Let’s just say you’ll be lucky if they don’t ask for your first born. For bigger companies, this represents quite an opportunity cost for farm equipment financing – especially if you’re simply adding tractors.
If you’re the little guy, you still might be able to get in with one of these companies with a large down payment a really short term, and the same blanket lien on everything you have. Smaller farms and ranches usually strive to hang onto as much cash as possible to get them through harvest, making most big advance payments a non-starter.
So why do the major players in the farm tractor financing marketplace utilize these structures so frequently? That’s simple: because they want to turn their out of the box tractor leasing programs into captive financing funnels. You see, once a big company has a blanket lien, and once a small company has committed a large chunk of cash AND a large chunk of ongoing monthly revenues to tractor payments, they HAVE to return to the same lender for financing because they no longer have additional collateral to pledge or money to commit upfront to a new farm implement.
A better way
Farm tractor loans don’t have to be at the cost of pledging everything a farmer has. Moreover, for one man (or one woman) outfits looking to finance, they don’t have to be short term or upfront cost intensive. At American Leasing & Financial, we use a proprietary lending model focused on personal credit (even in the absence of commercial credit), cash flow, and time in business. What’s more: we interview every customer to learn more about their unique situation so that we can understand the return on investment (ROI) opportunity adding a tractor may yield.
For some of our customers, a single tractor may be overworked at more than one land site. For others, they need a larger tractor to cover more ground. We even help farms just getting started that need to add their very first tractor. The point is: when we have a comfort level that the tractor will help make a farmer money, we are able to structure simple, lightly structured farm tractor financing terms.
This approach also allows us to help those with credit challenges. Rather than asking for all of their money and leaving them strapped to make a payment, we might ask that they pledge another tractor as additional collateral. We can even structure their contracts with annual or seasonal payments to help take the bite out of a bill that comes in a non-revenue time of the year.
Wrapping Up
Getting the best deal on financing for a farm tractor doesn’t have to be rocket science, but it does require thinking outside the box. Instead of focusing in on the best interest rate programs, customers should consider return on investment, steering clear of captive financing traps. By knowing how much revenue you’ll net as the result of leasing or financing a tractor, you’ll already be a step ahead of the pack. Coming to the table with additional collateral to help answer back potential credit issues will also help.
At American Equipment Finance, we’re so passionate about farm tractor financing (and financing for farm trucks and other equipment and implements), that we actually created a special financing program just for farmers. Farm Tractor Finance.com is a niche funding processor backed by two dozen boutique funding sources and banks, as well as our own in-house funding arm. We pride ourselves on offering flexible farm equipment lending programs, regardless of credit issues, for startups and established businesses alike. Learn more at www.farmtractorfinance.com OR apply now for an farm equipment approval in as little as 24 hours.
“Towing” the Line: How Tow Truck Financing Can Lead to Smart Growth
Let’s face it. There’s no shortage of finance companies offering some kind of program for any and every kind of truck out there. We help provide leasing and financing options for everything from bucket trucks to water trucks. Tow trucks, however, are kind of unique. Here’s why: tow trucks are directly linked to a specific work function: towing. Now, that might sound simple enough, but if you think about why that matters, it can really be a game changer.
Tow companies earn revenue literally based on the number of tows they have, and, provided they’re operating at full capacity, the number of tows they can execute in a given day is directly tied to the number of trucks they have on hand. So, buying a tow truck, regardless of the interest rate, assuming it can be put to work, is always going to be a net profitable purchase.
For this reason, we’ve begun to help towing companies calculate the cost of their financing in a novel way: by looking at return on investment (or ROI). The calculation is fairly straightforward: You take the number of additional tows per month the new truck will addtimesthe average cost per towtimesthe financing term.
Second, you divide that result bythe total interest paid back over the life of the tow truck loan.
For example:
Recently, we helped a towing outfit in Jackson, Mississippi finance a new Ford F650 wrecker at a monthly payment of $911 per month. This truck adds the capacity for four to six additional tows per day times twenty-four working days per month for around 125 tows per month. With an average revenue stream of $200 per tow, they expected to gross an additional $20,000-$25,000 per month as a result of the tow truck’s acquisition.
It’s easy to ponder interest rate and think about the total payback being $55,000 on a $40,000 truck, but over that same 60 month period, the company will now gross $1.5 million more in revenues. When you take that $1.5 million divided by the $15,000 cost, the return on investment is an exceptional 100 to 1.
We have run through this same mathematical exercise with a number of companies considering a tow truck lease, and have developed benchmarks for what constitutes a worthwhile investment. In truth any tow truck that won’t at least produce a 3 to 1 or 4 to 1 return is not worth financing from a practical standpoint.
Wrapping Up:
So, why is ROI so much more important than interest rate in the evaluation of a tow truck financing offer? Simple, because you’re not buying a jet ski or an RV. Because this isn’t just a material possession, but rather a means to production of revenue you will almost always be worse off by not financing a wrecker than you are by financing one at a higher rate.
At American Leasing & Financial, we’re so passionate about tow truck financing (having financed thousands of rollback and wreckers over the last twenty-five years), that we actually created a special financing program just for tow trucks. Tow Truck Finance.com is a niche tow truck loan processor backed by two dozen boutique lenders and our very own in-house funding arm, American Leasefund. We pride ourselves on offering flexible tow truck lending programs, regardless of credit issues, for startups and established businesses alike. Learn more at www.towtruckfinance.com OR apply now for an tow truck financing approval in as little as 24 hours.
Leasing non-titled equipment or titled vehicles may be a new concept to many small business owners. Unfortunately, being uninformed can cost you time, hurt your credit score, and leave you feeling hopeless.
Banks and other companies have very strict lending guidelines, and cannot stray within an inch of them. Luckily for us, we find promise in people, because quite frankly, we know that life can get in the way. When we decided to provide in-house funding, we finally realized the large impact we were having on the masses.
Minimal Initial Expense
Depending on the agreement we can come to with you, we allow for a low initial expenditure. Accordingly, we submit the assets to the vendor and all you are responsible for is submitting a miniscule advance payment and/or security deposit + any document fees to transfer titles, etc. This keeps you from tying up your hard earned cash in large equipment and back where you want it – your bank account.
Tax Deductions
Along with keeping your bank account bursting, an entire lease payments can usually be deducted as a business expense on your tax return (Be sure to check with your tax professional to ensure your lease applies before implementing this procedure). If so, you have just reduced the net cost of the lease! This is largely different from a loan, and one of our biggest perks, because there is no interest component. Let’s see your bank try to do that!
Long Term Benefits
If you know you are going to need a piece of equipment for the term of the lease, then you can take advantage of making payments rather than buying it outright! This keeps you from dropping hundreds of thousands in cash, and keeping it nearby for the “what-ifs” in life.
For example, let’s look at Frank who just opened an ice creamery. He has only been in business for 6 months, so no bank will even turn they heads at him, but needs a new ice cream machine to keep up with demand during the summer months. He plans on being open indefinitely, and has $6,000 in the bank. He can choose to buy the machine for $5,000, only leaving a $1,000 cushion, or he can lease the equipment through American Leasefund. He chooses to lease it and has plenty of money in the bank in case any building repairs, wages, or life expenses need to be funded.
Winter hits, and nobody wants his ice cream, so he has to dip into some of his cushion that would not exist had he spent all of the money up front. Summer comes around again and business is booming so much so, that he needs another machine. He is able to lease another piece of equipment, keep his bank account full, and has enough cash flow after all of his lease payments to take his family on a tropical vacation.
Frank made a smart decision because he knew he would need the machines for longer than his lease term, and making payments allowed him to spend his extra money on any emergencies and personal affairs.
In summary, leasing commercial equipment and vehicles enables lessee’s to get the most out of their business, while keeping assets in the bank rather than in the form of equipment. In fact, American Leasefund, Inc. continuously strives to complete transactions with the individuals that deserve a more in-depth look.
So even if you’ve heard “no” one too many times, give us a call and we promise to do our best to get your business prospering.
As a company primarily built to be an in-house funding arm, American Leasefund has always depended strongly on American Leasing & Financial sales representatives to continue to grow our portfolio. In our efforts to encourage sustainable growth, however, we’ve been forced to turn to broker business to maintain our rate of expansion. Broker business as a model for growth is not a novel idea. Companies like Financial Pacific and Pawnee Leasing have utilized a pool of well-qualified and reputable brokers to grow their operations for several decades. For us, however, the prospect of relying on broker information has always been something we’ve undergone with a fair amount of cautiousness.
A popular question from our brokers, then, has been with regards to what they can do to increase their odds of approval? Unlike many of our contemporaries, we’re not simply analyzing a matrix score to approve or decline. Rather, we’ve built a niche for our no-nonsense, manually reviewed credit decisions. Knowing that we manual review (and in many cases even interview potential lessees/customers) is, in and of itself a powerful weapon in the application process. After all, this means that we’re very interested in the specifics of the transaction and not just in overarching generalities like credit score, time in business, and bank statements. Explanations are crucial components in our credit officers’ decision-making.
What this translates to is the reality that the average credit officer needs more than just stats to make a decision. We’ve come to rely heavily on the ‘write-up’ or ‘transaction summary’ as a critical tool to answer the outstanding questions and give a sense of humanity to the transaction that statistics simply can’t provide. A write-up, for example, can explain customer credit issues like a recent bankruptcy. It can justify the cost of the new acquisition: is the customer replacing an old piece of equipment, upgrading, or simply adding something new? The key to writing a good transaction summary is to explain any negative facet of a transaction that has a worthwhile explanation. You’d be surprised how many deals get declined that might have been approved with the benefit of a decent explanation from the broker.
Moreover, a write-up can also summarize the terms that a customer is willing to adhere to. If a customer wants a shorter-term on a riskier transaction, for example, that can be a positive selling point. If a customer can swing a larger advance payment or has additional collateral, that can lead to a sensible approval that helps the credit officer feel like they’re in a more secured position.
Our salespeople in-house with American Leasing & Financial are trained to not only prepare a transaction by collecting the minimum submission requirements, but also know to shore up any inconsistencies and prepare a transaction summary for review. Because of the sheer volume of transactions we review on a daily basis, it’s impossible for credit officers to do a broker or salesperson’s job and track down answers to such glaring questions.
From the perspective of a customer, the wisdom is to provide details and explanations to your broker/salesperson. Rather than look at a loan or lease application as an opportunity to provide simply the minimum details that are needed, it makes more sense to go above and beyond and provide more information than what’s required. Working together, a sales representative and customer can put together a package worth approving.
We received a transaction from a broker the other day. At first, we dismissed it immediately because the owners had a recent bankruptcy and their house was about to go into foreclosure. The request was for a used SUV costing $35,000. The customer was in a rural area and wanted to use the SUV as an upscale transport vehicle to expand a taxi/limo service they started three years ago.
Initially, it was an easy decision to pass on the transaction. It didn’t fit our standard credit criteria, nor would it fit any of our lending partners. What made us second guess our instincts, however, was the fact that the customer had a good website (signifying a stable and successful operation) and showed evidence of enough cash-flow to service the debt. Moreover, their business model seemed appropriate for the area: one that caters to both winter and summer recreation. After taking a closer look at the transaction, we decided it would be worth further investigation, and received permission from the Broker to interview their client.
We had a frank and honest conversation with the client in which we discussed, among other things, their plans for using and making money with this new acquisition. The customer had done his homework, but had unrealistic expectations when it came to financing. Although the company had adequate cash-flow, with the assets they had in place, this particular item needed to come with an $800.00 a month payment. The problem is a matter of term. Not many lenders want to become the new “largest creditor” for a borrower just out of bankruptcy. Recognizing the wisdom in that principle, we had in our minds the possibility of a 36 month term with additional collateral in the form of some older titled vehicles that were offered as security.
The customer knew how much they could afford, and we agreed. In a good month the vehicle would generate about $3,000 a month in gross revenue. After factoring in the cost of insurance, taxes, fuel, maintenance, and drivers, the monthly payment need to be no higher than $800.00 if they were to make a profit. We agreed to fund the transaction for up to $25,000.00, albeit at a longer term than we originally envisioned, so as to ensure a payment well within the customer’s predetermined budget.
Where many finance companies specialize in pushing a high monthly payment on customers, our strategy has always been to ensure the payment provides the customer with an opportunity to be profitable while using the equipment. The benefit to this strategy, for us, has been a stable and well-performing portfolio: not only do our customers not sign up for payments beyond their means, but we also get the comfort of knowing the payment is reasonable within the confines of their cash flow.
In short, selling a customer a high payment does us no good, it merely increases the risk of default and prevents the customer from making money when the equipment is at its most productive. By paying close attention to how the term can make or break the deal, we’ve been able to mitigate the risks to ourselves and to our customers. For us, that’s just one more piece of the American Leasing Advantage.
Rate shopping is an important part of seeking out financing. Understanding how much borrowing money is going to cost in both the short and long-term is key to making an intelligent, business-minded decision. Unfortunately, shopping for financing isn’t always about finding the best terms or rate. In some cases, people will shop for any possible lender who can get a deal done. Usually, these types of desperate measures were reserved for those who probably couldn’t get approved anywhere anyway, but recently a new form of this ‘shotgun’ approach has emerged.
Customers appreciate the ability to go to one place and get everything done. In a perfect world, a customer could go to their vendor to pick out the equipment, then get financed and funded, and make payments directly to their vendor as well. In the real world, it happens more like this:
1) Vendor takes a credit application
2) Vendor sends an application to their preferred lenders
3) If declined, vendor sends to alternative financing options
4) As a last ditch effort, the vendor might refer the customer to a brokerage house.
The problem with this scenario is, that many vendors are submitting transactions to multiple brokers rather than simply sending directly to funding sources. That is not to say that there aren’t good brokers. If there’s one thing I’ve learned from this business, it’s that there truly are professional brokers out there who know the business inside and out and can help their customers. The problem is that many brokers utilize the same funding sources. To understand why this is a problem, picture being on the other side of the equation.
Imagine that you are a loan officer at a bank, working in a department specializing in equipment financing. On a given day, you see a variety of applications, but on this day in particular you get bombarded by three different brokers with three different stories but the same applicant and roughly the same equipment. Each broker, when notified about the multiple submissions, is oblivious to the other brokers also working the deal. What’s more troubling is that the vendor is the person who submitted the deal to multiple brokers. Each broker then, in the course of trying to get the applicant approved, has submitted the customer to three or four funding sources a piece before converging at the same funding source before the loan officer now looking through the file.
This is a real scenario we encountered just the other day. Upon further investigation, it was discovered that the customer wasn’t even aware that as many as ten or eleven different lenders had reviewed their information. The moral of the story: customers need to ask more questions about where vendors and brokers are sending their applications. Utilizing the aforementioned ‘shotgun’ approach might expose the deal to more chances for approval, but it also raises red flags with a lot of lenders. For starters, it creates the impression that the customer is seeking out a lot of equipment at once. Because brokers package submissions differently, a more generic submission or a disparity in price could be incorrectly characterized as an additional ‘split’ transaction. Moreover, this strategy creates some doubt as to the credibility of the transaction and causes the lender to weigh statements from all of the brokers in making their decision, which can lead to an applicant being portrayed in an unfavorable light.
Lenders must have a permissible purpose to access a customer’s credit report per the Fair Credit Reporting Act. Most vendors and brokers use language in their credit release (next to the signature lines on the application) allowing this permission to be ‘assigned’ to the agents of the broker. Thus, when a customer signs a single application, their credit can be accessed by anyone who gets the application third hand and has the permission of the original party the customer applied with. The best way to prevent this from happening to require the vendor or brokerage to state in writing who they are submitting each transaction to. Don’t leave it up to them to simply ‘find a place that will approve you.’ Rather, take charge and ask to be involved in the process. Otherwise, you could be dealing with some red flags that will take a while to come down.
Managing a finance portfolio isn’t just about growing the number of performing accounts, or even keeping accounts in a performing status by quickly resolving collection issues. In fact, these operational tasks tend to be easily delegated and handled by most companies with experience. What is difficult, however, is deciding on how to temper the desire to grow with the desire to obtain a perfect balance of new accounts from a variety of industries.
Investors are no doubt well-aware of the age old advice to ‘diversify, diversify, diversify.’ Creating a portfolio of accounts as a funding source is not all that different from building an investment portfolio, and thus, is subject to the same wisdom. Establishing too deep a concentration in one or a few industries can be disastrous if the economic environment changes in a way that disproportionately impacts one of those sectors.
Summers are interesting for us as a funding source because we start to see a lot of people looking for change. People who have worked for a transportation company for years have decided to become owner/operators for the first time. Individuals with a background in logging have decided to obtain their own equipment and start their own operation (or continue where a failed one previously left off.) The problem is that companies like ours have to resist simply taking on all of the business before us. It’s tempting to grow as rapidly as possible (not to mention downright fulfilling to be able to help a lot of people get on the path to reaching their life goals), but throwing too many eggs in one basket can result in negative repercussions for everyone involved.
For us as a funding source if gas prices escalate unexpectedly or manufacturing subsidies are cut, it could be the start of a scenario where there are fewer opportunities for owner/operators. For our current customers, this could lead to a reduction in cash flow and a strain to make their payment to us. For customers in other industries, this could result in an increased cost of funds for new accounts, as companies like ours struggle to make up the difference in losses. One of the lesser known effects is that, ultimately, we might simply hand out fewer approvals to truckers or loggers.
Rather than allow economic factors to close off opportunities in certain fields, we prefer an approach rooted in keeping close tabs on the balance of industries in our portfolio. While we evaluate transactions on an individual basis and have no restrictions or biases with respect to industry, we also pay attention to our growth rates in different sectors to ensure they are in line with a stable expansion model. There is no perfect balance, we’ve found, as there is not so much an absolute composition we’re striving to mirror, but rather a dynamic set of rules that change on a daily basis.
Funding sources that make a conscious push to protect the future of their fund are not only guarding their own business interests, but are assuring future customers access to affordable financing with few, if any, restrictions. In that way, we have found at least one perfect balance: we’ve balanced our own desire to grow with our desire to continue to offer reliable equipment financing to our brokers, vendors, and customers.
From a customer’s perspective, the single most important part of any financing transaction is the part where the finance company cuts the final check. In commercial equipment financing, this culmination takes place when we send a wire or check to the vendor or private party our customer is buying their equipment or vehicle from. Unfortunately, this is the part of the transaction where companies like ours get especially cautious.
When monies go directly to a customer, as is the case with most direct-to-consumer lending, the customer can usually go trade their money for the goods they want to purchase. In our industry, conversely, there is some risk associated with paying the vendor. For starters, once monies go to the vendor, there are no guarantees regarding receipt of title or equipment in a timely fashion, or in some cases, at all. Pre-funding: it’s what we call paying a vendor or private party before a customer has received their equipment. In some transactions it’s unavoidable.
Recently, for example, we had to wire funds to a vendor a few states away because our customer wasn’t going to make it to the dealership before the wire cutoff and would have had to spend the night in another state if we missed the deadline. In most cases, however, we try to simply avoid pre-funding at all. It’s not simply a matter of protecting ourselves, though. We prefer to keep the best interests of our customers at heart, as well.
If we pay for equipment and the customer has signed a lease agreement with us, they are obligated to begin making their payments the following month. That means, even if the equipment isn’t what it was purported to be–even if the title is a salvage or there are substantial damages or the equipment isn’t ready for use (which are all situations we’ve encountered)–the customer is liable to our contract. If we don’t do our due diligence and protect our side of the transaction, our customer could be put in a bad spot which could promote ill will.
In a private party transaction, paying the individual before delivery of the equipment can be disastrous, too. If a seller misrepresents a title as free and clear when it has a lien on it, or “forgets” to mention a serious defect, it could leave few options apart from legal action, and that could take some time to work out. There is almost no way to get money back in a timely fashion once it’s paid out. Money is, after all, the ultimate leverage in a financial transaction. Holding the money gives you the power to ensure the transaction is completed as promised. In our case, it protects our interest as the lessor of the equipment, and it protects our customer’s interest as the buyer.
Pre-funding transactions is a common practice for some of our competitors. In fact, many of them won’t even think twice before writing a check or sending out a wire. We, like others in the industry, do find ourselves in situations where pre-funding is a requirement to complete the transaction. In those cases, we secure many layers of protection. We get a Bill of Sale signed, we ask for copies of the title signed off, we ask for a copy of the bond for a dealership. These are just some of the ways we equalize the ‘playing field’ in a transaction. In the end, the truth is, we never feel totally okay about pre-funding.
So, while we can’t entirely escape the perils of pre-funding, we have made it our goal to educate our customers about just why we’re so cautious about sending out the money before they have the equipment. Pre-funds are easy to make happen, refunds on the other hand, are hard to come by. There is a right way to do a transaction and a wrong way, and no legitimate vendor or seller will ever balk at a fair arrangement that allows you to trade payment for equipment in person. This is also a reason a lot of our customers prefer to deal with vendors they can visit in person. Hopefully, knowing the risks will make you think twice the next time the vendor is breathing down your throat to get paid before you get your equipment.
Consumers are more conscious of their finances than ever before. Want to see the evidence? Just turn on your television and watch the array of credit report and score products being advertised on commercials while you’re watching your favorite primetime shows. Little do many people realize, however, that ‘Freecreditreport.com,’ ‘Creditchecktotal.com,’ ‘Freecreditscore.com,’ ‘Truecredit.com,’ and many of the other well-known consumer credit report and score services are actually owned by the major credit bureaus themselves.
Most people don’t see a problem with this scenario. After all, Equifax, Experian, and TransUnion are the best repositories for consumer credit information–which means the information they supply is necessarily accurate, right? The fact is, that’s only partially true. While we at American Leasing & Financial will always advocate that customers view their credit reports frequently and stay on top of their information, we’ve begun to notice a concerning pattern that seems to be impacting a lot of consumers in a negative way.
Consumer credit scores are a dime a dozen. That is to say, there are no less than thirty major credit scoring models being pawned off as ‘your credit score.’ There are a variety of ways to ‘score’ a credit report, but the number most consumers see when they make buy their credit score from the major credit bureaus is almost never the same number we see as lenders on the other side of a financial transaction. One of the most common scores consumers buy is their ‘Plus’ score, a score originally created by Experian themselves. The Plus score, for all intents and purposes, is supposed to do the same thing as the FICO score: it measures a consumer’s creditworthiness. Unfortunately, it does so in some very different ways.
For starters, the Plus model ranges from 330 to 830 (as opposed to the 300 to 850 range espoused by the scores we use.) In addition, the mission statement of the Plus score is mostly educational in nature. Experian’s executives call this being ‘consumer focused.’ The reality is that by using a different scale and placing different weights on categories, consumer’s get a skewed (at best) view of their credit score. The Plus score has often been the culprit when customers call and tell us they have a 680 credit score, and we pull their credit only to find a 560.
Still other scoring models like the VantageScore model go all the way up to 990. Suddenly, a 700 credit score doesn’t sound so good, does it? We are constantly trying to educate consumers on the basics of credit scoring. Most lenders, even those in the commercial finance business (like ourselves) utilize FICO scoring models, created by a company called Fair Issac Corporation. Thus, to guarantee you’re looking at a score as close as possible to what a potential lender might see, you should only pay for a FICO score. FICO scores are available for purchase here. Recently, a new amendment to the Dodd-Frank legislation that passed last year has made it the law that any lender that denies a consumer for credit or charges a higher-than-normal interest rate is required by law to provide that consumer with their FICO score. You can read more about that in this article.
To learn more about the factors that impact your credit score, check out our free e-book.
