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Applying for an Auto Loan While Enrolled in Credit Counselin

I am in credit counseling with DMP. I am having trouble getting an auto loan. What are some options?

I am in credit counseling with a DMP. I am having trouble getting an auto loan but have never in my life been late on a payment and have a credit score of 710. What are some options.

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  • Review the credit consequences of a credit counseling program.
  • Examine why creditors view enrollment in credit counseling program as equivalent to a Chapter 13 bankruptcy.
  • Try to wait until you finish your debt management program, before financing a major purchase.

While you are enrolled in a credit counseling program with a DMP (debt management plan), your credit score will not be affected, but a special entry will be placed on your credit report. The entry on your file will generally say  account is in a"DMP" or "credit counseling". This entry is put there to notify potential creditors that you needed the assistance of an outside party to help you manage your debt. The effect of this is often to stop you from obtaining additional credit (the idea being that you are in a credit counseling program to get rid of debt, not to accumulate more).

Although a credit counseling will help you in the long run, in the short term, it makes it difficult for you to obtain new credit. The thinking is that you went into the credit counseling program to get your debts paid off because you were unable to manage it on your own. According to the new Bankruptcy law, for anyone wishing to file for a Chapter 7 bankruptcy, it is mandatory for him or her to first enroll in an approved credit counseling program. Therefore, some creditors may view the fact that you are enrolled in credit counseling program as a precursor to bankruptcy.

Depending on how long you have been enrolled, I would suggest that you wait until you finish the program and then apply for the loan. If you are not in a position to wait then one option I can think of is to get a co-signer or a guarantor for your auto loan.  Another option is to seek financing from somewhere that offers loans to people with bad credit, but you will end up paying a higher interest rate.

You can read more about credit counseling at Bills.com.

I recommend that you shop around, to see if can find an auto loan at a decent interest rate. Different lenders may view your enrollment in the DMP differently. If you can't find a good rate, consider buying a less expensive car.

Once you have completed your credit counseling the entry on your credit report that your accounts are part of a DMP is usually removed. If you notice it has not been, you should contact the credit bureaus to have the notation removed. As your score will not take a hit during the DMP, once you complete the program, you will be able to take advantage of your strong credit score and obtain a good interest rate for any financing you seek.

I hope the information provided helps you Find. Learn. Save.

Best,

Bill

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1 Comments

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  • RR
    Jul, 2010
    Rick
    Being in debt was one of the worst feelings, I felt I was drowning with the amount of debt I was accruing. Then I had a friend tell me about credit counseling, after a meeting with their professional staff, I had a plan for the “road of recovery”. Not only was I able to reduce the debt I owed, but was able to get out of my debt in 1/3 the time if I was by myself. Don’t let debt run your life.
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