September 5, 2017

Obtaining credit isn’t hard with or without an insolvency proceeding – the real difficulty is getting favourable terms.

Lenders are in the business of lending, they WANT to lend you money.   Lenders take risks, calculated risks.  They do want you to be indebted to them, after all that’s precisely their business.  But remember it is BUSINESS, all about business and the lending business is a greedy one.  All lenders, banks and privates, are in a business that is focused on getting the best return with the least exposure possible.

Although some banks pretend otherwise, they really aren’t all that interested in having you sit down in a big comfy chair – that is just an advertising strategy to make you feel more comfortable about borrowing from them.  Smile please!

So you have had some debt problems – you couldn’t pay your bills on time, some bills you just never paid because you simply didn’t earn enough money.  But “you want your credit back”…

When did being in debt become such a national obsession?

Assuming you just finished an insolvency proceeding which likely followed years of struggling to make bill payments, often using one form of debt to pay for another, in your mind does it really seem logical that you should just go right back out and get access to more debt on really favourable terms?

Surely you will agree that you have to spend some time demonstrating financial responsibility and good budget management first?  O.K. so that was easy but how long should that take, a month, a year?

But in the meantime life happens:  “I MUST HAVE A NEW CAR” (“well not brand new, but new to me, better than the one I’ve got – more reliable”).  My current one needs $1,000 in repairs for it to make another year.

Don’t worry there are plenty of back-street auto dealers who buy cars on Thursday night for $1,500, over the block, at a local auction – then spend the weekend cleaning them and putting newer tyres on and throwing in an oil change.  By Monday morning the same car is on the lot for $4,500 with the big sign that says “BANKRUPT, NO CREDIT, NOBODY WALKS” – or something along those lines.

With a mere $500 down they will secure that car for you.  You hustle up the $500 and take it to the dealer they have you sign a contract, promise your car will ready the next morning and tell you to come back.  Next day they thank you for the deposit but give you the bad news that they will need another $1,000 before you can take the car off the lot because of “licensing fees” they had to “find a new financier because of your insolvency proceeding” etc.

You learned that the $500 is non-refundable so you scrape around some more and come up with the dough signing off on a long term loan agreement that will allow you five years to pay off the balance of $3,500 + HST at $585 and licensing fees $75 plus loan fee of $250 for a total of $4,210 at 39% interest.  You “got your credit back” – it’s a fait accompli.  So now what?

On the other hand if you have a good job and a decent income and you take your time about re-establishing credit you may find that more favourable rates return to you more quickly.  Avoid impulsivity, manage your money, build a nest egg and exploit that.

I recently read a quirky but thoughtful article on the website of a local mortgage broker that is very much on point – follow the link and check the article entitled “Credit Repair” in the left hand menu – take a few minutes and get an education – it will help.