The 7 Best Auto Loan Companies in America

New cars at sunlit dealer showroom close view.

It can be incredibly difficult to have the cash on you to purchase a new car when you need it. My poor car has seemingly been on its last leg for a while now. I think the only reason it is still kicking is that it is as stubborn as I am, and I happen to be grateful for that. At this moment, there is simply no way I can just pay for a car outright so I’ve been having auto loan companies on my mind.

For those with the same struggle, know that you are not alone. I know that does not really solve the problem, but it’s still nice to know. And, anyway, the fact that so many people need help purchasing a vehicle is the reason that there are so many auto loan companies available to help us out.

With so many options, it may seem impossible to choose the right one, but it’s not. We are going to talk about seven of the best auto loan companies in America so you can narrow down your choices.

7 of the Best Auto Loan Companies in America

There are many good lenders in this country, but here are seven great ones to start with:

1. 5K Funds

5K Funds has a network of more than 100 auto lenders and offers a very simple, fast, and secure online process. The initial application can take as little as 90 seconds. If approved, you get access to the funds pretty quickly.

Unfortunately, you might also have to repay the loan very quickly. Terms do go up to 72 months, but depending on your loan amount and other factors, you could have a repayment term of only two months. All of this is stated prior to accepting any loan offer, so you have the opportunity to turn down a loan with unfavorable terms.

5K Funds is one of the auto loan companies with relaxed qualifications. There is no specified minimum monthly or annual income. They are more concerned with you having a steady income. There is also no minimum credit score requirements. In fact, other than a steady income, their only stated requirements are that you are at least 18, be a U.S. citizen, and have a valid bank account.

Pros:

  • Very quick application and approval process
  • Quick access to fund after approval
  • The complete and secure online process
  • No fees

Cons:

  • Maximum loan of $35,000
  • Some short repayment terms

2. CarsDirect

CarsDirect is a great company that can help people from all financial walks, including those that have bankruptcies, bad credit, and even no credit. You can use these loans for both new and used cars as well as refinancing current auto loans.

CarsDirect is an auto finance broker that can link you to both financing and cars in one place. With a large network of thousands of lenders, they have the ability to help pretty much anyone who is at least 18, both reside in and is a citizen of the U.S., and makes at least $18,000 a year.

CarsDirect does not specify a minimum credit score. Instead, they work with all types of credit. However, the interest, length of repayment, and the need for a down payment will depend on your credit and income. CarsDirect can be excellent for those with poor or fair credit who need a car and want to build their credit.

Pros:

  • Find car and loan in one place
  • Accepts bad credit
  • Prequalification and fast application
  • No fees

Cons:

  • The potential need for a down payment
  • Broker- not a direct lender

3. Monevo

Monevo is one of the auto loan companies that is a broker as opposed to a direct lender. They have a network of more than 30 lenders and you can easily apply for and compare loans on their website. You can also prequalify so there is not a hard credit hit until you choose one of the auto loan companies to go further into the application process with.

There are very few set requirements: You must be 18 or older and a U.S. citizen or legal resident to apply. They also require that you have a valid bank account under your name. Any additional requirements would come through the individual auto loan companies in their network.

You can apply for loans up to $100,000 with terms all the way up to 12 years. The interest rates start very low at 3.49 percent but they can get high depending on your credit.

Pros:

  • Soft credit hit first
  • Works with all credit types
  • Repayment terms up to 12 years
  • Borrow up to $100,000

Cons:

  • Fairly new to the U.S.
  • Smaller network than some other auto loan companies

4. Auto Credit Express

Auto Credit Express is connected with more than 1,200 auto loan companies that work with good credit, bad credit, and bankruptcies- even open bankruptcies in some cases. They do require that you make at least $1,500 per month before taxes, are 18 or older, are a citizen or legal resident of either U.S. or Canada, and have a valid phone number.

The auto loan companies connected to Auto Credit Express offer a wide range of loan amounts, most of which fall between $1,000 and $35,000. Interest rates for those with good credit can be as low as 3.99 percent. Bad credit scores could lead you to pay up to 29.99 percent. Repayment terms vary widely among the auto loan companies in the network.

Along with lenders, Auto Credit Express also has a network of dealerships. You can only use their loans for those dealerships, so if there is a car outside of that network you want, you will need to apply elsewhere. Some credit types and loans do require a down payment, but they tend to be very reasonable.

Pros:

  • Great for all credit
  • Works with even open bankruptcies
  • The network of over 1,200 auto loan companies and auto dealerships

Cons:

  • Can only purchase through a partner dealership
  • Might require down payment

5. Capital One Auto Finance

Capital One is pretty well known for being open to those with less than perfect credit. Their auto loans are no different. Even those with a score as low as 500 have a chance of being approved if they meet the income and citizenship requirements. Interest starts very low at only 3.59 percent, but lower credit scores do move closer to 24.99 percent. Capital One auto loans typically range from $1,000 to $35,000, and you can get up to 84 months to repay the loan.

While Capital One does supply direct loans, you still cannot shop just anywhere for your car. It has to be purchased through one of their partner dealerships. Not to worry, though. They have more than 12,000 dealerships they work with, so you are bound to find the car you need and want.

They do have other rules about the vehicles, such as they cannot have been manufactured before 2009 and they must have less than 120,000 miles. Some vehicle types, such as Oldsmobiles, Suzukis, and Saabs, do not qualify either. Capital One offers auto loans all over the U.S. except for Hawaii and Alaska.

Pros:

  • Provides an auto search tool
  • 12,000 partner dealerships
  • Up to 84 months for repayment

Cons:

  • Not available in Hawaii or Alaska
  • Can only shop with their partners
  • Rules about the vehicles you choose

6. Lending Tree

Lending Tree is a popular organization with a large network of auto loan companies. With such a network, Lending Tree does not state any specific requirements because they vary so greatly. Both the minimum credit score and minimum income requirements depend on which of the auto loan companies you choose through them.

These variations can be positive for many people, but it can still be a bit frustrating, too. The standard requirements, though, are that you must have a valid bank account, a stable income, be 18 or older, and be a U.S. citizen or permanent resident.

Lending Tree is connected with auto lenders that offer loans up to $300,000, and you can get up to 72 months to repay the loan. Interest rates start as low as 2.99 percent and often top out around 4.44 percent, though your income and credit score may affect this amount. You can use the loan for new and used cars as well as refinancing and lease buyouts.

Pros:

  • New and used cars
  • Refinancing and lease buyout
  • Up to 72 months to repay
  • The large network of lenders
  • No minimum credit score

Cons:

  • Terms vary between lenders
  • Hard credit hit

7. Car.Loan.com

Car.Loan.com is another auto broker that can link you up with several auto loan companies. There are loans for good credit, bad credit, and no credit as well as a history of bankruptcy. There is no minimum credit score, but they do want you to have at least $1,500 per month. You are also required to have at least five personal references, three years of job history with 6 months at your current job, and a valid phone number.

Car.Loan.com has access to loans ranging from $1,000 up to $45,000. Interest rates start as low as 7.99 percent but- like all other auto loan companies- your interest will depend on your credit score. Repayment terms go all the way up to 84 months for qualifying loans. The only real downside is that the process is not completely online. An agent will contact you to finish up the application. This kind of takes away the convenience factor, but it is still a good option to consider.

Pros:

  • Up to 84 months to repay
  • Fast approval process
  • Works with all credit types
  • Low interest for good credit

Cons:

  • Some dealings with an agent
  • Interest can get high

Before You Apply

You really need to make a plan before you apply to any of these auto loan companies. Your plan will help you choose the best auto loan and lender for you.

Granted, that down payment may be a bit steep for some people with low income and little time to save, but you should still try to have a good down payment to minimize what you need to borrow. Here is a calculator to help you determine how much you can actually afford.

You should also determine how long you will need to pay off your debt. Most lenders offer repayment terms from a few months to several years. Experts suggest keeping it around 60 months, or five years.

However, you might need to keep it much lower than that. Are you expecting any major life changes or any negative impact on your income before those five years are up? Do you have a baby on the way or is one of your kiddos heading off to school? Will you be taking a year off to help take care of your aging mother or even taking some time off due to an operation you will be having? If the answer is yes, you might not want to commit to a five-year repayment plan.

The more you can decide beforehand, the easier it will be to narrow down your options. Also, if you have not yet picked out a car or dealer, don’t do it. Your best loan offer may come from a lender that requires you to purchase specific cars from specific places. It is okay to window shop and to get an idea of what you are looking for, but try not to settle yourself on any one single vehicle until you know the rules of engagement.

Conclusion

Paying out of pocket is most certainly not the only way to buy a vehicle. Even better, you do not have to have a perfect credit score, a perfect job, and a perfect down payment, either. There are auto loan companies out there who work with just about anyone, any income, and any credit. You just have to look for them.

We provided you seven awesome auto loan companies to check into, but by all means, look into as many as you need to in order to be comfortable with the company you choose. Shop around as much as you can, receive as many prequalifications as you can to more thoroughly compare your options, and take the time to think each of your options through carefully before making a final decision.

Drive Away Lease Buyout Auto Loans Explained

If you have leased your car and have fallen in love with it then buying the car at the end of the lease can seem like a good option. Lease buyout auto loans can give you the financing you need. There are some things you want to consider before you get a loan. Depending on the current fair market value of your vehicle at the end of the term, the agreed-upon price in your lease agreement, and the interest rate you could be approved a loan, these loans may be an expensive option.

The lease car will serve as collateral for the loan and this type of auto finance, which makes lease buyout auto loans secured loans. The amount of the secured loan will cover the lease balance, plus any applicable taxes or fees. Even though the loan is secured, there will still be requirements that you must meet to get the most affordable rate.

Why Lease a Car in the First Place?

Many people choose a lease in the first place because it’s cheaper than buying a car. Sometimes people are chronic leasers. They like to have the greatest and latest car as soon as it hits the market. So leasing can provide a degree of flexibility. And lease buyout auto loans can help people with the process if they want to purchase the car after leasing.

Leases usually have shorter-term loan agreements and run from three to five years. Many small businesses with limited capital can also choose to lease vehicles for the company. Lease buyout auto loans are also available for businesses that want to buy a car after the lease period ends.

There are a number of pros to leasing a car, including:

Lower Monthly Payments: If your monthly bill is a concern then leases give you savings in the short term. You may pay more interest but you will pay less monthly.

A New Car Every Few Years: Many people love the feeling of driving away in a brand new vehicle, and if this is you then leasing can be the way to go.

Worry-Free Maintenance: With new cars, you have a warranty that lasts three years. When you take out a three-year lease then it is likely that you will not have to pay for the repairs additionally.

Maximize Tax Deductions: If you are using your car for business purposes then a lease will give you more tax write-offs than a loan. This is because the IRS will allow you to deduct the financing costs and depreciation that are part of each monthly payment.

No Resale Worries: If you are the type of person who hates to haggle then you don’t have to worry about this with a lease.

Pros and cons of leasing a car

How Do Lease Buyout Auto Loans Work?

When your lease is up, you have a few options when deciding what to do with your car before figuring out lease buyout auto loans. You can extend the lease, return the vehicle, re-lease the car, or purchase it. You will need to check your paperwork to confirm your options because not all agreements will actually allow you to buy the car after your term ends. If yours does and you do want to buy the car but don’t have the money for it on hand then you need to secure auto financing with a lease buyout loan. You need to get the loan before the lease officially ends.

Before you apply for this type of loan, it’s important to read your lease agreement to learn what you need to do in order to buy the car. You need to let the leasing company know what your plans are ahead of time. Some banks, online lenders, credit unions, and financing companies offer lease buyout auto loans. These loans are similar to other types of car loans. Just like with every other loan, it’s important that you shop around for different options for lease buyout auto loans in order to make sure you are getting the best one for your needs.

Qualifying for Lease Buyout Auto Loans

Qualifying for lease buyout auto loans will be similar to other used vehicle finance options. However, there will be some unique requirements.

Good Payment History: Payment history is important in your current lease agreement. Until the account is brought current, you can’t get lease buyout auto loans and pay off or refinance any residual amount on the contract.

Good Credit: In order to be qualified for this loan, you need a prime credit score. This is usually a FICO credit score of 650 or higher. If the dealership submits your application and the lender declines you due to your credit score, you may have the option to find a co-signer.

Your Lease Terms: You may have to wait until the end of the lease before you can purchase the vehicle. If you do so earlier, you will need to get financing for the remaining payments and then you are financing more than the fair market value of the vehicle, which can lead to a higher interest rate.

Down Payment: You may need a down payment if the residual value of the vehicle is much higher than the fair market share. There will be very few lenders that will allow you to finance more than 100% of the retail value. With a down payment, you can bring this closer to the threshold where financing is allowed.

Titles: For titling purposes, you need to have it be titled under the same name for which it was leased. In some states, this can be changed with a release from the lessor or power of attorney.

Documentation: There needs to be documentation that is standard in all vehicle transactions. Including an insurance card, signed bill of sale, odometer statement, credit statement, and driver’s license.

There may not be any flexibility in the residual value and buyout amount. This was set at the original contract completion and was set high to allow for such low lease payments. While you may be able to negotiate, plan on financing this amount when you visit the dealership.

Determining the Market Value for Your Car

For lease buyout auto loans, one of the most important things is determining the market value of your car. The current retail price should indicate whether or not you should buy the leased car or instead purchase a different option. Determining the market value is actually a pretty simple process because there is so much information available online. You can use sites such as Kelley Blue Book, Edmunds, Cars.com, or AutoSite. Note that the price will vary from site to site so visit different sites in order to get a thorough idea of the car’s value.

If your leased car is popular on the market then the residual cost is likely lower than the retail price to buy a different car. In this case, buying out the lease makes more sense than purchasing a different one. The reality for many people is that the quote for lease payoff will be higher than the typical retail price. Many financing companies increase the residual price. So they can offer lower monthly payments for the people who leased the cars. The price of a used car has also gone down in recent times, which means that buying a different car can usually be the most affordable option.

How to Get a Lease Buyout Auto Loan

Leased cars will be considered used cars, which means that you will need to secure auto financing for a used vehicle. Typically, a used car loan will have a higher interest rate than a new car loan. Lease buyout auto loans may even have higher interest rates than used car loans as well.

Contact Your Leasing Company: Your leasing company may begin to get in touch with you at the end of your lease term. This way, you can discuss options and check your contract. Ask your leasing company any questions you may have about the end of lease cost, the car’s residual value, and fees associated with a buyout.

Shop Around: Some lenders for this loan offer preapproval. If you do get preapproved, the lender will let you know what you are able to borrow and what your loan terms and APR may be. Preapproval doesn’t mean that you automatically get the loan and it just gives you an idea of the terms. When applying for preapproval, know that you’ll need to share some personal financial information.

Preapproval can lead to a hard inquiry on your credit, which then lowers your score by a few points. You should be careful with timing since you don’t want to get a loan quote and have it expire. Most loan offers are only good for a month. Don’t apply for a loan too late. If you keep the car for a few days after the lease expires and you don’t buy it then you could face financial penalties.

Once Approved, Close on the Loan: If you have been preapproved then it’s time to finalize the paperwork and transfer the title. Talk to the lender, as well as your state’s motor vehicle department, in order to find out the next steps for transferring the title. Usually, the title will be in the name of the lender until you pay off the loan.


What to Consider with Lease Buyout Auto Loans

There are some things you should know before you apply for lease buyout auto loans.

Not All Lenders Offer These Loans: Whether you plan to borrow from a finance company, bank, or credit union, remember that not every type of loan will be available and the terms and rates very by lender. When you are shopping around, the first step you should take is to determine if the potential lender offers this loan because not everyone will.

You Could End Up Upside Down on the Loan: Knowing the current market value of your leased vehicle is important. You can get an estimate of what the car is worth with free online tools. If the car’s current market value is higher than its residual value then you may have equity in the vehicle. And it can make more sense to buy it. But if the situation is reversed then a lease buyout loan can put you at risk for being upside down on the loan. If you don’t make a down payment and end up financing the entire cost of the loan buyout then you could be borrowing more than the car is worth.

Interest Rates Can Be Higher: Leased cars are considered used cars so the loan interest rates are typically higher.

Calculating Lease Buyout Rates

Lease buyout rates will vary depending on what you will do with the buyout. If you have completed the lease and made the required payments on time then the residual value agreed upon at the beginning of the lease will be the amount due if you want to buy out the lease. When buying out a lease early, things are a bit different. In many cases, you need to make the remaining lease payments and then pay off the residual.

Statistic: Interest rates on auto loans in the United States from September 2017 to September 2019 | Statista

When Should You Buy Your Leased Car?

The buyout option on your lease may be an attractive option or it may be a way to control damage. The leasing company sets the purchase price at the beginning of your contract. If you are anticipating some extra penalties and fees then buying out the car can cut your losses. If market conditions have changed since you signed the lease then you can turn the hidden value in your car into some real savings. There are some instances where it makes sense to buy the car.

You Are Way Over or Under the Mileage Requirements: Most contracts are for 36,000 miles and three years. If you are over the mileage, you will owe money but if you are under then you are leaving money on the table. Why pay mileage penalties and have nothing to show for it? Buying the car can also save the disposition fee. This is the fee that is charged in order to prepare the car for resale. When you return a car that only has 10,000 miles on it and you paid for 36,000, it’s almost like handing the dealer money. Instead, buy the car and use the value you have paid for already.

The Car Matches Your Lifestyle: Sometimes, you need a different car at different points in your life. For example, if your kids are off at college, you likely don’t need to stay in a minivan. If your leased car still fits your lifestyle and you still like it, what’s the point of making a change and getting something new?

The Car Has Excess Wear and Tear: The car has a number of scrapes, bumps, etc. So, you could have extra penalties. However, if you buy the car then you don’t have to pay for the damage. And you can fix the issues on your own if you want.

You Can Negotiate a Reduced Buyout Price: When you buy your car, it saves the leasing company the cost of having to pay for auction and shipping fees. In some cases, this means you can negotiate a lower buyout price than what was originally specified in the contract. However, be careful since this negotiation may not be the best price. Because you are likely getting it at retail instead of wholesale. In order to negotiate a cheaper buyout price, you need to speak to the manager at your leasing company. He or she has the authority to approve the lower prices. It’s really a case by case basis and leased vehicles that are electric can sometimes have reduced buyout costs because of the low resale values those vehicles get.

Your Friend Will Want to Buy Your Leased Vehicle: If you buy the car and then you sell it to your friend, you have to pay sales tax. However, ask to see if the finance manager at the local dealership will do a lease pass through, which will match the leaseholder with a car shopper who is looking to take over the lease. In this process, the dealer buys the vehicle from you and then sells it to your friend. You aren’t charged any sales tax and the dealer also makes some money off the deal.

You Like the Car: If you like the car then check the buyout price when compared to the retail price. If it’s a fair deal then you can skip the dealership and send the leasing company a check. However, keep in mind you don’t have the bumper-to-bumper warranty protection. The powertrain warranty that covers major parts, such as the transmission and engine, may still be in effect.

When Should You Not Buy Your Leased Vehicle?

There are plenty of times it makes sense to get a lease buyout auto loan. But there are also times when it may not make sense.

The Car No Longer Matches Your Needs: Maybe you have moved and now you need a vehicle that is better for snow. Maybe you just had a kid and now you need more room for a car seat. If your leased car is no longer matching your lifestyle and needs then there is no reason to keep it. You can now move on to something that fits better in your current stage of life.

It’s Not Affordable: It may not be in your budget or affordable to buy your leased car. If your credit score went down, it could make the APR on your car that isn’t even new pretty high. You may be better off turning in the car and then buying an older used car.

If It’s Damaged: If the car was damaged due to a storm or an accident then it is considered that it is worth less than a car that is not damaged, even if was repaired. In a lease, you don’t own the car so the negative impact on this would be if you bought it so you shouldn’t buy in this case.

If the Vehicle Is Worth Less than What Your Contract Says: When you sign the lease then the car’s buyout value is set. Which means even if the car is worth less than predicted, you still have to pay the agreed-upon price. You would end up paying more than what the car is worth, which isn’t a great deal.

Higher APR: The APR you got when you leased your vehicle was partial because the car was new. When you buy the leased car, it’s now used. The APR can be too high for the car. And you may be better off getting a lower APR on a different vehicle.

Benefits of Buying Your Leased Vehicle

There are a number of benefits to buying your leased vehicle and having to get one of the options for lease buyout auto loans.

You Know the Vehicle. It’s okay to admit that you are in love with your car. After all, you drive it and you know whether or not it’s a good fit for you. When you buy your leased vehicle it means that you can continue driving the car you know and love.

It Can Be a Good Deal. This will be based on a case-by-case basis and it may not be a good deal for everyone. Be sure to do the math to make sure you are getting the best deal.

You Can Skip Fees. Buying your car outright allows you to avoid any penalties the dealer would charge. So you can bring back your leased car into sellable condition.

Your Car Is Still in Great Shape. If you have been meticulous about keeping your car looking like new and haven’t driven over the mileage allowance then buying the car can be a wise choice. Mint condition, low mileage cars are hard to find, even at the three-year point. Keeping the one you have can be a way to reward yourself for the upkeep you have done.

There Isn’t Any Haggling. While you do have the option to negotiate and haggle, you don’t have to. The price to purchase is already in the contract and, for the most part, that is a set option. If you want, you can close the deal without having to deal with any negotiation.

Take Advantage of Improved Credit. You have made your lease payments on time then. And if you decide to finance your purchase, you could be in for a good surprise. You may be able to get a better interest rate than what you had on your lease. And it can make the purchase more attractive.

Lease End Versus Early Buyout

Many people will wait to the end of the lease in order to buy the vehicle. However, depending on your contract, it could be possible to get one of the options for lease buyout auto loans and buy early. There are some disadvantages to an early buyout though.

Early Termination Fees: In many cases, there will be fees if you decide to end the lease early. These fees could be high depending on your contract. If you wait until the lease is up to buy the car then you won’t need to deal with these fees.

Higher Payments: Some people like leasing because the payments are more affordable. And it can get them in a new or better car they may not be able to afford otherwise. After a buyout, the payments can be higher. So waiting until the lease is over can keep the lower payments going for longer.

Taxes: When you first lease the vehicle, you have to pay the license and registration fees and taxes. Even though the car isn’t registered or titled in your name. When you buy your leased vehicle the license, title, and registration are changing. You have to pay for that all over again. The longer you can wait, the less the car is worth, which means all the fees will be less.

One of the reasons to do an early buyout is because of the penalties. The lease penalties can include going over the mileage allowance, damage to the car, and not maintaining the car properly.

Paying for Your Car with a Lease Buyout Loan

If you pick the lender that is the same one that leased the car to you then you shouldn’t have much to do. If it’s not the same then the new lender will send a check to the old leasing company. Or send you the check and you give it to them.

Leasing a car can give you a lot of benefits. With lease buyout auto loans, you can get the financing you need to purchase the car after the lease. There are some instances where it makes sense to buy your leased car. And other instances where it may not make sense. You want to make sure you shop around for the best deal, just like with any other loan. There may be different requirements for lease buyout auto loans. And you need to make sure that the lender you choose actually offers this option. While the option to buy the car in the middle of the lease may be available to you, it’s usually not a good financial option.

Auto Refinancing to Help Save More Money

Always focus on the front windshield and not the rearview mirror.

~~Colin Powell

When you think “refinancing,” there are probably two basic scenarios that come to mind. One is the possibility of refinancing your mortgage to lower your house payment or secure temporary cash to invest in home repair or improvements without adding to your monthly debt. The other is an overall debt consolidation of some sort – taking out one large personal loan to pay off credit cards and other debts in exchange for a single, lower monthly payment and hopefully a better interest rate and more manageable terms.

These are both completely valid refinancing scenarios and have proven useful to many people in many different situations. But they’re not the only time you might consider refinancing. Besides, you may have a great interest rate on your home and it would be counterproductive to rock that boat. You may have your monthly bills under control and don’t need to get too carried away with how you’re handling them.

But how are those car payments looking these days? Are you wishing you’d managed to negotiate a better price or lower interest rate? Regretting taking on that second or third payment before the first one was completely paid off? Maybe your financial situation has changed and you need to lower your monthly payments. Maybe your credit rating has improved and you qualify for a better interest rate or other terms now. Or maybe you took advantage of some sort of promotional dealer financing that looked great for the first few months and then the small print kicked in and it suddenly didn’t look so great anymore.

Auto refinancing is a valid option whatever your situation. It’s not for everyone in every situation, but it’s worth looking at long enough to decide whether or not it’s right for you right now.

The car has become an article of dress without which we feel uncertain, unclad, and incomplete in the urban compound.

~~Marshall McLuhan

How Do I Shop For Auto Refinancing?

Shopping for auto refinancing is not all that different from shopping auto lenders before you buy a vehicle to begin with. You’re going to look for lenders willing to listen to your needs, offer flexible terms and competitive auto loan rates, and make things convenient for you, the customer.

Just like when you borrowed the first time, your credit rating and credit history will be major factors in determining what sort of terms you can secure. Auto lenders will often more heavily weight your history with auto payments specifically when calculating your credit score. They’re less concerned with what you might owe the hospital or the apartment complex you lived in last year than whether or not you have a strong track record of making your car or truck payments.

The same is true for auto refinancing. Your overall credit rating matters, but your history of car or truck payments matters a little bit more.

Have you ever noticed that anybody driving slower than you is an idiot, and anyone going faster than you is a maniac?

~~George Carlin

Just like borrowing the first time, you’ll want to take some time before applying to calculate what you can reasonably afford. Although in most cases auto refinancing is intended to reduce monthly debt rather than take on more, extending the life of the loan might mean paying more in the long term. Or, there may be refinancing fees or other charges up front to consider, even if overall you’ll save by making the change.

Finally, gather your documentation ahead of time to simplify the process. All the usual items – proof of income and employment, any outstanding debts or assets, etc. You’ll also want records of the auto loan or loans you wish to refinance. What did each vehicle cost? What were the terms? How much have you paid? What’s the balance on each loan? Having this information prepared and ready helps keep things moving and might even help persuade the lender that you’re a bit more reliable than most.

You never know.

Americans will put up with anything provided it doesn’t block traffic.

~~Dan Rather

Why Consider Online Refinancing?

It’s probably no surprise to you that we’re pretty big fans of online lending and online auto refinancing. You may not know exactly why, however.

There’s certainly nothing wrong with talking to your local bank or credit union. If they offer you the best rates and favorable terms, that’s awesome – go for it. They sometimes run specials or go the extra mile to try to bring in new customers in hopes you’ll do the rest of your banking with them as well. Just like with any loan or other financial decision, check out all of your options before committing!

Let’s look at some of the reasons online auto loan shopping and refinancing might be the best option for you.

Flexibility with Auto Refinancing (or Anything Else)

Many online lenders are able to offer more flexible terms and often better interest rates because they were designed to be nimble. They may have low overhead, no nice brick buildings near the mall with fancy lobbies and public restrooms to maintain. A number of them specialize in specific types of loans or customers, meaning they don’t have to be all things to all people.

An online lender who deals primarily in auto financing or auto refinancing and who specializes in customers with limited credit or poor credit is able to focus all of their resources, training, knowledge, and creativity into that segment of the financial world. Of course they can do it more efficiently and flexibly – it’s literally the focus of what they do. It might be ALL they do.

Willing to Compete for Your Business

That also means they want your business. It’s not like there are other customers or other types of banking they’d rather be doing, but they have to be nice to you because you’re there. You’re the customer, and they know you can go anywhere you want – including banks, credit unions, or other online lenders. That means that online lenders are more likely to compete for your business. They want you to be happy now and down the road so that next time you need a loan, you’ll be more likely to start with them.

Isn’t that how healthy competition and capitalism is supposed to work? Making things better for the consumer? Sure, we should be realistic. Not all of us are going to qualify for the premium rates or the maximum amount. Sometimes we’ll have to accept certain fees or slightly higher interest in order to move forward.

But let’s not be so quick to act like everyone who makes us a loan is doing us a huge personal favor, or like we’re doing something wrong by asking for it. Loans come with interest and fees, which we’re going to pay. That’s how lenders make their money. We’re paying for the right to use that money and pay it back over time, but in years past, anyone with less-than-perfect credit or with a below-average income was expected to almost… grovel before a loan officer somewhere, as if we were seeking charity or forgiveness for a personal wrong.

I may be exaggerating a bit, but the point is that it’s about time lenders treated borrowers as equal players in the game, whatever our credit history. So yes, that’s something I particularly like about online lenders. They simply tend to be better at this part of things.

No offense to your brother-in-law at the credit union or anything. I’m sure he’s nice, too.

The Convenience of Online Auto Refinancing

Finally, it’s simply SO convenient to auto finance (or auto refinance) online. You don’t have to dress up or get to any particular office at any particular time. There’s no waiting in the lobby reading old magazines and no sitting across the desk from a guy in a suit who asks you way too many questions then types for a long time without telling you what’s happening. Online auto refinancing can be handled on your schedule, at your pace, and on your terms. Very often, the money is in your account within 24 hours.

Don’t confuse reputable online lenders with the sort of sketchy payday loan storefronts you pass next to the liquor store or any of those “quickie cash” signs flashing outside the gas station with the bars in the window. Of course the same sorts of iffy operations exist online – it’s the internet. That’s why we here at Loanry go to great lengths to maintain a curated database of legit lenders and what they do – so we can connect you to those most likely to meet your needs.

What you work out with them from there, of course, is entirely up to you.

The American really loves nothing but his automobile: not his wife, his child, his country, nor even his bank account first… but his motor-car. Because the automobile has become our national sex symbol. We cannot really enjoy anything unless we can go up an alley for it.

~~William Faulkner

Where Should I Start With Refinancing an Auto Loan?

Before contacting lenders, look at your current vehicle payment(s) as part of your overall budget. How much are you bringing in each month, and how much is going out? Just as importantly, where is it going? If you don’t have a fairly detailed household budget, you should make one. I’ve belabored this point elsewhere, so I won’t badger you about it too much right now, but let’s be honest – you really shouldn’t even be talking about auto refinancing or any other kind of major financial decision unless you have a pretty good handle on your exact fiscal situation now and for the foreseeable future.

Can you tell I’m giving you a very serious “I hope you’re taking me seriously about this part” look right now?

Next, take advantage of our auto loan calculator to see just how much you could save (or not) by refinancing. It’s often helpful to have a general idea of what sorts of numbers you’re talking, particularly when comparing interest rates or factoring in upfront charges.

Cars are the ultimate symbol of freedom, independence, and individualism. They offer the freedom to “go anywhere,” whenever it suits and with whom one chooses.

~~Sarah Redshaw

Other Considerations

Remember that while you’re probably not dealing with down payments or trade-ins when you’re looking at auto refinancing, there are still other factors besides interest rate which impact the total cost of the loan. Perhaps the most overlooked, despite being one of the biggest, is the length of the loan.

Stretching out the number of months over which you repay what you’ve borrowed certainly lowers your monthly payments. Over time, however, you’re paying much more in interest – not because the rate is higher, but because it’s being calculated over a longer length of time.

NPR recently did a piece on the growing popularity of seven-year car loans:

A seven-year car loan means lower monthly payments than a three- or five-year loan… A third of all new car loans now have terms longer than six years, according to the credit reporting company Experian. That’s more than three times as big a share of the loan market as a decade ago.

Hey, at least you’re not alone, right?

But while these loans are popular, they’re probably not the best personal finance move…  Longer-term loans usually have higher interest rates — and you’re paying longer…

And if you want to sell your existing car — maybe you have another child and need a minivan — with a seven-year loan you are much more likely to be stuck still owing a lot more than the car is worth.

Sometimes this sort of compromise is necessary in order to manage your many obligations. If so, that’s fine. Monthly payments matter, and it’s better to pay a little more over the long term than risk not being able to make your payments on time every month. Just be aware of the trade-off so the decision you’re making is an informed one.

On the other hand, the article goes on to explain that much of the time, the issue isn’t rising car prices. It’s that buyers want more car or truck than they could otherwise afford. In other words, many times, the issue isn’t need so much as greed.

You can know or not know how a car runs and still enjoy riding in a car.

~~David Byrne

Anything Else I Should Watch For when Refinancing?

Pay attention to any refinancing fees or other upfront charges. Make sure you know what sorts of charges are involved if you’re late on a payment (we never plan on being late, but it’s still best to know). Ask also about the lender’s policies regarding overpayment or early pay-offs. Some companies love it when you pay extra or pay back the loan early; others not so much.

Obviously, if you’re looking at auto refinancing, you probably already have one or more auto loans which you negotiated, or at least considered while someone else laid out the details, at some point in the past. You apparently signed the dotted lines, because you’re here now considering reworking them a bit.

That said, some of us manage to get pretty deep in the process without fully understanding all of the details (and not just when it comes to auto loans). If you’re considering refinancing but still have questions about how you got here in the first place, it’s probably not a bad idea to revisit a few auto loan basics before moving along any further.

Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.

~~Ogden Nash

Once You’ve Refinanced

Now that you’ve rebooted your loan, there are a few pitfalls to avoid. I’m sure YOU won’t be tempted by any of them, but other folks sometimes are, so I feel obligated to cover them.

The first is that if your auto refinancing went well, your monthly payments have probably gone down. And before long, your credit rating may start to go up. That means you’ll soon have the option of spending more than you have been on other things. Or taking on more debt now that you’re not so buried as you were only a few short months ago. You may be offered some pretty sweet terms on new credit cards or some pretty special deals on another vehicle.

I hope you’ll allow me to be blunt.

Dude. Just don’t even. You’re doing so well – why go backwards now? That big-ticket item you want to charge and that new debt you want to take on are like tequila and Jello shots for a recovering alcoholic. They’re chocolate pecan pie and Double Stuff Oreos in the second week of your diet.

I’m not suggesting you deny yourself life’s essentials, or that you can never charge again. But keep thinking big picture. You want to be free of excessive debt. You want to have options when it really matters. And you want access to low-interest funds on reasonable terms when it’s time to pay for that wedding, those medical bills, that vacation, those repairs, that remodeling. Fiscal responsibility isn’t about making sure you stay miserable and deprived – it’s about being intentional and making sure that what you’re CHOOSING is actually moving you closer to what you actually WANT.

It’s not about my rules or what I’d buy. It’s about why you’re working so hard to begin with. And it’s about where you want to be in six months, and in two years, and at retirement.

If you think nobody cares if you’re alive, try missing a couple of car payments.

~~Earl Wilson

Fresh Starts and Timely Payments

The other thing to avoid is getting careless with your wonderful new refinancing loan. Whether you got a great auto refinancing deal thanks to your good credit or whether you had to accept a few fees and a slightly less impressive interest rate because you have poor credit, you are now going forward one way or the other. Your credit history and credit rating will get better or worse based on how you repay this loan (they rarely stay the same).

If you realize you’re going to be late, contact the lender before the due date. That doesn’t make it OK, but calling is always better than not calling. If you realize you can’t make the full payment, make part of a payment. That doesn’t make it “not late,” but paying some is almost always better than paying none.

Ideally, of course, you make the payments on time. Every time. Wherever you started, you’d be surprised how quickly your credit improves when you do this. That is, in fact, the whole idea.

Told my girl that I’ll have to forget her – rather buy me a new carburetor. So she made tracks saying, “This is the end, now.” Cars don’t talk back – they’re just four-wheeled friends now. I’m in love with my car.

~~Queen

Did You Know?

  • More Americans are borrowing money to purchase a vehicle than ever before. There were over 27 million new auto loans in 2018. And it looks like 2019 will top that by the time the year has wrapped up.
  • The average debt for that car or truck (new OR used) is going up as well. (Hence the seven and eight-year loans we mentioned above.)
  • Home mortgages account for the biggest chunk of personal debt, which isn’t particularly surprising. Over two-thirds of the money we owe is for our homes.
  • Student loans account for another 12%, making them a hot political topic all by themselves. Some major candidates are suggesting college and other post-secondary education should be free or far more affordable for anyone who wants it. (So far no one has suggested the same thing about cars or trucks.)
  • Auto loans come in a close third, just ahead of credit card debt. Nearly 10% of our total debt is for a car or truck of some sort.
  • Over the past decade, auto loans for borrowers with credit scores of 620 or less (generally considered “poor”) have risen, although the number has leveled out in the past year or two. The same is true of scores in the 620 – 659 range (“fair” credit) and those between 660 – 719 (“good” credit). Borrowers with a credit score between 720 – 759 (“excellent” credit), however, continue to grow as a percentage of total borrowing, as do those at the top of the credit history food chain with scores of 760 or above (“please have my babies” credit).
  • Despite the fact that so many people are behind on so many things, the average credit score in the U.S. is gradually increasing. (Isn’t America wonderful and strange at the same time?) In 2018, more than 21% of Americans were considered to have an exceptional FICO Score, an increase of 5.6 percentage points from the average in 2005.
  • The total amount owed by Americans on their personal vehicles is over $1 trillion at the moment, and the number of those getting behind on their payments is rising. Around 6.5% of vehicle loans are currently 90 days or more late.
  • The credit scores demanded by auto lenders and the interest rates they’re charging are going up. A higher credit score means better terms and a higher limit, but that in turn means more debt.

Conclusion

Auto refinancing isn’t the answer for everyone, but it’s worth looking at and something we don’t always consider. Our hope at Loanry is that whatever you decide about your car or truck payments, it will be part of your larger journey towards financial security and informed personal money management.

We’re happy to help you find the right loan and connect you to some great online lenders. Let’s not downplay the power of getting some of that auto debt under control. Or re-negotiating some of those terms and rates.

Even a successful refinancing isn’t always enough all by itself to turn today’s struggle into long-term, ongoing success. That’s why at Goalry we offer a range of financial blogs, online tools, and personal organizational services. We care about your debt, but we also care about helping you create and maintain a useful budget. And appropriately invest your wealth, and manage your personal or small business taxes, and…

Well, you get the idea.

There aren’t always easy answers. We certainly aren’t trying to do everything for you or even tell you what to do in all situations. We just have this crazy idea that life is complicated enough, and personal finance doesn’t have to be. It at least doesn’t have to be as hard as it sometimes seems.

Subprime Auto Loan Options to Get You on the Road

Subprime auto loans are types of loans that are used to finance a car that is purchased. They are offered to people with a limited credit history or a low credit score. These loans usually have a higher interest rate when compared to prime loan options. And they can come with a prepayment penalty if the borrower chooses to pay off the loan early. However, these borrowers may have no other option for purchasing a vehicle. So they are often willing to pay the higher rates and fees associated with subprime auto loans.

The History of Subprime Auto Loans

Subprime auto loans became a big business in the auto finance industry after the monetary expansion of 2001 to 2004, along with subprime mortgages and other lending options for higher risk individuals. Financial institutions were flush with money so they sought out higher returns by charging higher interest rates to subprime borrowers. The term subprime was then used in the media later, during the mortgage crisis of 2007 and 2009. Subprime lenders began to thin out after the Great Recession but have since been making a comeback.

With the risks lenders face with subprime loans, you may be wondering why they even bother. The answer is that there is a lot of profit, especially in the auto industry. By having a blend of loans that have different credit risk profiles, auto lenders can manage the total risk and this maximizes the profit potential.

How Do Subprime Auto Loans Work?

There is no official cut off for a subprime loan. Usually, your credit rating would have to be below 650 and above 450 in order to be considered subprime. In general, there are fewer than 20% of Americans who fall below 600. In evaluating borrowers, lenders can ask to see W-2s, 1099s, and pay stubs to be able to prove income. If a borrower is in a line of work that is hard to prove income, such as being a restaurant server who receives a lot of cash tips, then he or she may need to bring in bank statements that indicate a history of consistent deposits in their account.

Some lenders do accept bank statements in place of standard pay stubs. Even when getting subprime auto loans, it’s still best to shop around for rates. Not all lenders will be using the same criteria for approval and some charge different fees than others. Interest rates can be quite high because the lender wants to ensure it can recoup the cost should a borrower default on payments. Borrowers may decide they want to improve their credit score to qualify for better loan terms.

Determining If You Have a Subprime Credit Score

Understanding your credit score can make a big difference when paying for bad credit auto loans. In order to interpret your credit score and what it tells you about your borrowing power for loans, you need to know where your score falls on the range between the lowest and highest number generated by the scoring system. All credit scores have the same goal, which is to help lenders understand how risky it may be to do business with you. A high credit score will mean that you are less risky and have a low likelihood of default. A lower score means more risk to a lender.

The average FICO credit score for Americans is 701. If you have a score of 800-850, that is considered exceptional. If you have a score of 740-799, that is considered very good. But if your score ranges from 670 to 739, that is considered good. A score between 580 and 669 is fair. A score that is below 579 is considered very poor. Scores in the fair range are likely to be considered subprime borrowers. Those with poor credit scores may not qualify at all, even for subprime auto loans.

Types of Credit Scores Matter

You may be surprised to learn that there are different types of credit scores. The scores are calculated using computer models and look at the contents of your credit report. The three national credit bureaus are Equifax, TransUnion, and Experian. Models developed by different companies, such as the FICO score, differ in how they calculate and report the scores. There are usually multiple versions of a given model available from the developer of the software used to score. When you are comparing one credit score to another, or looking to track changes over time, it’s important that you know which scoring model is being used to calculate the score, which credit bureau furnished the credit report, and the highest and lowest scores you get using the model.

When looking at your credit, you need to look at the credit score range. For example, the good credit range spans quite a bit and wouldn’t make you eligible for a variety of loan offers. The FICO score is used in about 90% of the lending decisions so it’s a good reflection of creditworthiness to a lender.

Calculating Your Credit Score

The specific calculation method that is used to calculate a FICO score is a trade secret but there are some things that factor into how your score is calculated.

Payment History: Paying bills and your debt on time is the biggest factor that affects your score and can account for 35% of the score.

Credit Usage Rate: You shouldn’t be using more than 30% of your total credit card limit if you want to keep your score higher. The credit utilization rate is responsible for about 30% of the score.

Length of Credit History: Your score will continue to increase over time, as long as you are following basic guidelines. New credit users aren’t able to speed up the length of the credit history but can help build up the score as the credit history continues to get older.

Total Credit and Debt: The credit score reflects total outstanding debt, as well as the types of credit you use. The FICO score likes it if you have a variety of different loan types, including installment credit and revolving credit.

Recent Applications: If you recently have applied for a loan then it will trigger a process called a hard inquiry. This means the lender has requested your credit score. A hard inquiry will usually lower your score by a few points, but as long as you continue to pay bills on time, the score will rebound quickly. If the lender uses a soft inquiry, or you are checking your own score, then it doesn’t have an impact.

Why Are Subprime Auto Loans Popular?

The standards for subprime loans have gotten more relaxed that they are being given out more often. There are a few reasons for that.

Collateral

A car loan is secured by the vehicle, which can be repossessed if you default on the loan. This means that some lenders are more willing to take the risk of giving loans. New technology makes it possible for the lender to disable the car remotely if you miss a payment.

Secondary Debt Sales

The growing market for subprime auto loans that are bundled into asset-backed securities have also prompted some lenders to make financing available to those who wouldn’t have qualified just a year earlier due to a history of not managing obligations.

Dodd-Frank Exclusion

The Dodd-Frank Financial Reform law from 2010 exempted automobile dealers from the oversight of the U.S. Consumer Financial Protection Bureau. This means that financing that is arranged through a car dealer is less regulated from loans that are obtained from a credit union or bank directly. It’s easier for lenders that are working through a dealer to take advantage of borrower’s bad credit.

Getting Subprime Auto Loans

If you have a credit score that puts you in the subprime category, you should still shop around for a loan. Banks, credit unions, and online lenders will specialize in borrowers with poor credit. Auto loans for bad credit online may be easier to get.

Figure Out What Kind of Car You Can Afford

See what kind of monthly payment you are going to be able to fit into your budget before you apply for a loan. If you aren’t able to finance the car you want within your budget then consider looking at more affordable or older models. Sticking to your budget is very important.

Work with a Lender You Know

If you have a credit union or bank where you already have an account, you may be more likely to get a better auto loan from that institution.

Know Your Credit Score

Your credit score carries a huge weight and is the main factor that puts you in subprime borrower status. Knowing your score will help you know where you stand and what your options are.

Consider More than Just the Monthly Payment

You need to weigh the total cost of financing the car. If you lengthen your term then you will pay more in interest over the life of the loan.

Look at All the Expenses of Car Ownership

This will include title fees, insurance, maintenance, repairs, and state taxes.

Shop Around

Just like with other loans, you need to shop around for subprime auto loans. Shop around and compare offers so you can make sure that you are getting the best possible loan terms for your situation. You can do that here, on Loanry. Remember, all lenders we work with are reputable companies who can be trusted when it comes to loans and honesty about terms and the agreement.

Benefits of Subprime Auto Loans

While there are plenty of disadvantages of subprime auto loans and you need to proceed with caution, there are some advantages as well.

Helps You Get a Vehicle: Depending on where you live, you may not have an option to use public transportation and need a car to get to and from work. Subprime auto loans can get you in a vehicle without having to spend the time working on improving your credit score.

Can Help with Credit: A subprime loan can help you improve your credit if you make your payments on time.

Can Help First Time Buyers: If you are a first time car buyer then a loan may be your only option for buying a car. You may not even have a credit score at all if you are just looking to buy a car for the first time.

Disadvantages of Subprime Auto Loans

There are some hidden risks with subprime auto loans. Before you sign a loan agreement, consider the potential cost.

High Interest Rates: A subprime auto loan usually comes with a higher APR than a conventional auto loan. The APR is the interest rate of the loan expressed as a yearly rate. The APR for an auto loan can also include fees, such as one for the origination of the loan. This number will give you a sense of how much the loan will actually cost. The interest rates on a subprime auto loan can be up to 29%. Those with employment situations that require access to a car can often be vulnerable in these situations and won’t have much of the power to negotiate the loan’s rates and terms.

Extra Fees: In addition to the higher APR, there may be higher fees attached to the loan. Some of these high fees can include a processing or origination fee, a prepayment penalty, and a service contract for repairs and maintenance service.

Risk of Repossession and Default: Subprime auto loans are at a higher risk for repossession and default. If the borrower takes out a loan with a harder-to-manage payment plan, it’s likely he or she will default and then the car is going to be repossessed.

Income Demands: Although subprime loan lenders may not be demanding about your credit score, they can be stricter when it comes to your income. You must have sufficient cash flow and income in order to cover the monthly payments. The lender will go through a thorough financial check in order to make sure that you can meet the payments. If you aren’t able to prove that you have enough cash flow, you likely won’t qualify.

Is a Subprime Auto Loan Right For You?

If you need to work on your credit score but don’t have the time before you need the financing then subprime auto loans may be better for you. As long as you can make the payments on time, you can actually improve your credit score and still have the financing you need for a reliable vehicle.

If you are tired of getting rejected for traditional loans and credit options then a subprime loan can be for you.

Leasing a car makes sense for certain situations but if you can’t afford a car lease or don’t end up qualifying for one then you will need to get a subprime auto loan.

In the subprime loan market, it’s easier for borrowers to get the money they need and be approved. This approval process can be smoother and get you on the road sooner.

Where to Go for Subprime Auto Loans

It’s best to find subprime auto loans at a bank or credit union instead of the dealership. It’s never a good idea to step into the dealership without preapproved financing, especially if you have subprime credit. When you get preapproved financing from a lender other than the dealer, it can help you with your car buying budget based on what you can afford, instead of the car you are trying to buy.

What Happens if You Don’t Pay Back a Subprime Loan?

If you aren’t able to repay your subprime auto loan then your current financial situation is only going to get worse. If you have just one late payment then you may be able to redeem yourself with a long series of on-time payments. Many lenders don’t want you to default on the loan and will help work with you to make sure that doesn’t happen. Some unscrupulous lenders have built a business model where they do repossess your car and then sell it to another borrower with credit issues.

If you fail to make your payments and you default on your loan then it can destroy what little you have left of your credit score. This can make it much harder or impossible to borrow again. You will also risk losing your vehicle. In some states, you can also be liable for the difference between the amount the lender gets from selling your vehicle and the balance of the loan. Subprime auto lenders may have electronic auto trackers installed in order to make finding the car easier so they can repossess it. Some even go a step further with a system that disables the vehicle until a you make a payment or they have the car back.

If you think you are in danger of missing a payment then the best course of action is to contact your lender. You don’t want to just hide from them. Describe your circumstances and see if you can find a solution. If your issue is just a one-time thing then you may be able to skip a payment. If it’s a long-term issue then they can work with you to sell the vehicle so that you won’t have your loan obligation.

Can You Avoid Getting Subprime Auto Loans?

If you can avoid getting a subprime auto loan, it may be in your best interest. There are some things you can do to get a new vehicle when you have a bad credit score.

Improve Your Score

Take a look at your credit history and be sure to correct any errors in your reports. Then work to improve your credit score. While it’s easy to destroy your score with a bad financial decision, raising it can take patience and time. You want to have several months of on-time bill payments and start reducing your credit card debt. This can help get you out of the subprime lending market and into a much less expensive loan. Even if you don’t raise your score to get into the next category of borrowers, if you can show an improvement in the history of payments, it can convince a loan officer at a smaller financial institution to give you a chance to prove yourself.

Find a Second-Chance Lending Program

Some lenders, especially community banks and credit unions, have what they call second-chance borrowing programs for their customers with not the best credit history. The loan terms can be restrictive but a second-chance loan can be a stepping stone in the right direction to avoiding non-subprime auto loans.

Use a Co-Signer

Have a friend or family member co-sign a more traditional loan. This can be helpful for getting you in a car but be aware that it can be dangerous to the credit score of your co-signer. Before you have a friend or family member co-sign a loan, both you and the co-signer should understand the risk and benefits.

Refinancing

If you don’t have a choice to accept anything other than a subprime auto loan then you need to make sure you pay all your payments on time and in full. After doing this for the first year, you can put yourself in a position to be able to refinance the loan with better loan terms and interest rates.

What Is the Most You Can Borrow with a Subprime Auto Loan?

You can only qualify for subprime auto loans? Then you have to be more realistic about your car choices. You need to choose a vehicle that fits in your budget. So you need to see how much car you can afford. With a budget in place, you can focus on cars that fit within those parameters.

When dealing with subprime auto loans, there can be a few layers to the qualification process. They can affect how much you can borrow. Prime lenders typically look at your income, debts, and credit score. Then you get approved if you have good credit. Subprime lenders have some extra qualifications, such as a minimum income per month, a certain amount of time at your current job, and references. These extra qualifications will of course vary by lender and your credit score. But they can also affect how much you can borrow.

Since lenders usually look beyond your credit score, one of the main things that they will focus on is your debt-to-income ratio. If the ratio is high then you may not qualify at all. If it’s high but not high enough to disqualify you, it adds to the cost of your car paymen. Along with your cost of insurance.

While there is no set answer on how much you can borrow, it’s important to shop aroun. This way you can get an idea of what you qualify for before you go car shopping. This way, you aren’t going to go over budget and won’t risk finding out you can’t qualify after you already found a car.

How Do Subprime Loans Affect Your Credit Score?

Subprime loans will affect your credit just like any other loan will. Your payment history is such an important factor in your score. So it’s absolutely necessary to make payments on time if you hope to improve your score in the future. One way to make sure that this happens is to set up automatic payments from your checking account.

Make sure that there is always enough in your account in order to cover what you owe. Then you don’t have to face additional fees. Or overdraft your checking account. If you do miss a payment keep in mind the following. It won’t be reported as late until 30 days after the due date. You may face fees if you are just a few days late. But it doesn’t show up on your credit report right away. Make up the missed payment as soon as you can. Before it shows up on the report and affects your credit.

Work on Your Credit Before Applying

If you are hoping to avoid subprime auto loans then it helps to work on your credit before applying. It’s possible to get approved if your financing needs aren’t urgent. But it’s helpful if you can wait. This way you can get a better interest rate and be in a better place financially.

Start by checking your credit score. If you get a copy of your credit report, it may have specific areas that you need to work on. It’s possible that you have fallen behind on payments with a credit card or loan. So work to catch up as fast as possible and make sure to make on-time payments moving forward. If your credit utilization rate is high then start to pay down debt as soon as you can. While improving your credit score can take some time, it’s worth it, in the long run, to save you money.

Final Thoughts

While subprime auto loans are here to help get you in a vehicle quickly, there are also some risks. You will likely pay more in interest and fees. However, there are options available and if you shop around, you can find the best rate for your situation. Research your various options and don’t take the first offer you get unless it is, in fact, the best offer. Avoid other short-term loan options, such as auto title loans or payday loans, in order to get into a car.

How Do Car Payments Work: Follow This Lane

So you think you might want to buy a car? The thought of buying a car sounds exciting to me, well I should say the thought of having a new car is exciting to me. The thought of actually going through the process of buying the car makes me feel sick to my stomach. I am not exaggerating. It truly makes me feel like I have a rock in my stomach. The process takes so long. I cannot tell you how many times I have spent my whole day at a car dealership. With the technology of today, it just should not take that long.

Car buying seems to be the one thing that has not gotten faster with time. These feelings begin before I even think about the car payments. For me, car buying is a tense and uncomfortable situation. It does not have to be that way. You can be prepared. And you can have your loan in order. You can get in and out of the dealership in a few hours, instead of being there all day. Continue reading to learn some of the tips I have picked up over the years about car buying and car payments.

What Is An Auto Loan?

An auto loan is sort of like a personal loan, but at the same time, it is not. Like a personal loan, you can get an auto loan through a credit union or a bank. Unlike a personal loan, you can also get an auto loan through the car dealership. When you get the loan through the car dealership, sometimes they have their own finance group and it is through them, like Honda. Other times, the car dealership uses a lending source other than themselves. It completely depends on the dealership.

An auto loan is considered a secured loan because the car you are buying becomes collateral. This means that if for whatever reason, you do not pay the loan, the lender can, and certainly will, take possession of the car. The lender technically owns the car until the time you pay off the loan. When you pay it off, you get the title and it becomes yours.

A point to consider when you obtain an auto loan is the lender makes you have full coverage auto insurance. They really do not give you a choice in the matter. If you want a loan through them, you must have full coverage. They want to make sure the car is fully protected in the event of an accident. After all, the lender has a vested interest in what happens to the car as long as you making car payments to them.

If you have a good credit score, you will receive a lower interest rate. Since the car is collateral, the lender is not taking as big of a risk by lending you money. Auto loan repayment schedules are often longer than a typical personal loan. You can take up to seven years, or longer, to pay back some auto loans. This may help to reduce the amount you pay each month. However, that also means you are paying the loan for seven years and therefore stuck with the vehicle.

How Do I Make My Payments?

This could depend on a number of different factors. The main factor being the lender. The lender often dictates how and when you make your car payments. Some lenders want to debit your car payments directly from your bank account. If you are someone like me, this is a great plan. I prefer to have the money come out of my account automatically so that I do not have to do anything. I put a reminder on my phone a couple of days in advance to remind me the money is coming out of my account. This way I can double check my account to make sure the money is there and I am all set.

Now, if you are someone that never has money in their bank account, this might not work for you. I know several people that move most of their money to an interest savings account and pay for everything with a credit card. When it comes time to pay the bill, they move the amount of money they need from their savings to the checking and pay one bill, the credit card bill. This way they are always earning interest on what is in their savings account. They only pay one bill from their savings account. They feel this is a safer way to pay for things. Everything is paid with the credit card. It works for them and it seems like a good system for them. It is not for everyone.

However, this means that they rarely have any money in their checking account. Some bills, or loans cannot be paid with a credit card, so this bill may have to come directly from a bank account. It really depends on the lender. These are details you should determine before you sign any paperwork or agree to any type of loan.

How Does Interest Impact My Payment?

The simple answer is simple, the higher your interest rate means the higher your car payments. The opposite of that is also true, which is the lower your interest rate means the lower your car payments. Your credit score drives your interest rate. You should understand a few things about interest rates first. The amount you want to borrow is called the principle. Lenders added the interest rate on top of the principle amount you borrow. Lenders that see loans as a lower risk are given a lower interest rate. It is better to get good credit auto loans so you can have a lower interest rate.

I will use numbers to illustrate this (keep in mind these are just estimates, not actual numbers):

You want to borrow $30,000 for a car. Due to your good credit, the lender adds 10 percent interest. You lower payments, so you pick a 48 month, or 4 year, repayment period. 10 percent of the $30,000 you borrowed is $3,000. The principle amount is $30,000 + $3,000 interest = $33,000 you are borrowing. Your monthly payments are $687.50. That is $33,000 divided by 48 months.

Now, the same car with bad credit: You are still borrowing $30,000 but your credit is bad, so the lender adds 20 percent interest to your loan. 20 percent interest is really high and equals $6,000. So, you have a principle of $30,000 + $6,000 interest = $36,000 total. Your monthly payments are $750.00. That increases your monthly payment by about $63 per month. For a $30,000 car, you are paying over $700 per month.

Can I Use A Credit Card?

You most likely can use a credit card to buy a car and then you would not have any car payments. Depending on the dealership, they may have some restrictions on using a credit card. They may not let you use a credit card to purchase a car. There is a fee issued to the dealership by the credit card company when you use a credit card. The fee is 1 percent to 3 percent. The dealership may not want to pay that fee. Also the  dealership makes money when you finance a car through them instead of paying for it in full.

A car is expensive, so if you use a credit card, you are putting a lot of debt on it. If your credit card has a high interest rate, you may not be able to afford to pay the balance. In this case, you could receive hefty interest charges. Those credit card charges may be higher than if you applied for an auto loan. If you have a credit card offering 0 percent interest with enough available credit, it could be a good idea to use a credit card. If you cannot pay off the credit card before the special interest ends, you could get all of those interest charges.

Can I Pay Cash?

Well, you certainly could pay for a new car in cash. This would prevent you from making car payments. It may not be the best way to buy a car. You must take a few things into consideration. One is that a car is going to depreciate as soon as you drive it off the car lot. It could end up that if you finance the entire amount of the car because you do not have a down payment, at some point you owe more on the car than it is worth. For this reason, it may make better sense to pay cash for the car so that you own it outright.

However, if you have enough money to pay cash for the car, better use of the money might be to put it in an account where it can earn interest and grow. You could take out a loan and pay the monthly payments with the amount you have in a savings account. However, what might make the most sense is if you take half of the money and put it as a down payment for the vehicle. This way you are only financing half of the cost of the car. The car value is still more than what you owe and you are able to put some money in a savings account and let it gain interest. This also keeps your car payments low.

How Do I Know If I Can Afford An Auto Loan Payment?

This is a fairly important question. It is really important to know if you can pay the monthly car payments before you agree to the loan. You are putting yourself in a terrible position if you do not verify this first. Honestly, the best way to know if you can afford to repay the loan is to look at your budget. What? You do not have a budget. Is that what you just muttered under your breath? My first response is why not? My second response is you should get on that. All joking (not really) aside, you really should have a budget. It is the best way to understand your financial picture and in this case, know if you can afford to pay back a loan.

If you do not have a budget, you can quickly put one together. A quick way to do this is list all your income in one column. Then list all your expenses in a separate column. Add up all of your expenses and subtract it from your income. Hopefully you have a positive number. If you have a negative number, you should stop here. Buying a car is not for you right now. Perhaps you should consider cutting some of your expenses before you buy a car.

Once you figure out your budget, you can use an online auto loan estimator. This helps you determine how much an auto loan will cost you each month. You can input the vehicle amount, the interest, and the length of the loan. Also, you can adjust these numbers and see how they change your monthly payment amount. You can compare this number to what your budget is telling you that you can afford. Hopefully this number is not more than what you can afford. If so, do not buy this car. Find a cheaper one.

Can I Negotiate?

When I was younger, I did not realize things, such as interest rates and car payments, were negotiable. I have since learned that if you are willing to haggle, you just might find yourself a better deal. I have also learned that it is a smart idea to negotiate the terms of my loan. You can negotiate many aspects of your loan, including pre-penalty payment, loan origination fees, and the overall length of the loan, in addition to the interest rate. You are also able to negotiate the warranty and free upgrades. If you are trading in a car, you can negotiate the value of the trade in.

There is a way to negotiate the cost and value of all of these items without being a jerk about it. You do not know what the dealer is willing to give you until you ask. Lenders are not going to give you the best terms outright. Remember, they are in the business to make a profit. The more discounts and deals they give you, the less of a profit they are going to make.

Can I Get An Auto Loan Through A Car Dealer?

Yes, I briefly mentioned early that you can obtain an auto loan through the dealer. Many people often pay for their cars this way. It is a convenient way to get an auto loan. Since you are already at the dealership, you can get the loan there and not have to deal with any other lender. Every time I have bought a car, I did not go into the dealer planning to leave with a new car. It just happened. Since I was not prepared to buy a car, I had not gotten any type of financing for the car. I had to get my financing through the dealer.

This can be a blessing and a curse. It is incredibly convenient to have the car and financing all in one place. Due to its convenience, I never knew if I was really getting the best deal I could find. I did not do an auto loan shopping, so I just took what was offered. Maybe I could have gotten a better deal somewhere else with lower car payments, but I will never know. I cannot go back and change the past, but I know now for any future cars I purchase. You can also learn from my mistakes. Do not take the first option that comes your way. It may be the best deal, but do some research first and find out.

How Does My Credit Impact An Auto Loan?

The short answer is your credit determines your car payments. Of course there is a much longer answer too. Here it is. Unfortunately, your credit impacts just about everything you do in life. It impacts how much you pay for a house, if you even qualify for one. It impacts if you can rent an apartment, or get insurance. In some cases, your credit can prevent you from getting a job. For real, a bad credit score can really hurt your chances at living the life you want.

I will dig a little deeper into credit reports and credit scores to talk about how you can find your credit score and what it means. First, your credit score appears on your credit report. They are not the same thing. People often mistakingly refer to them interchangeably. Your credit report shows a detailed list of all your credit activities. It shows how much debt you have and how you have used it. And it shows how much credit you have been given.

Your payment history, the good, the bad, and the ugly, it shows everything. You cannot hide anything from your credit report. It lists all of your late and missed payments…yes, every single one of them. You can also find information about loans on which you have defaulted. And it shows if you have filed for bankruptcy. It takes a long time to build up a good credit score. But it can plummet quickly with just a few late or missed payments.

A typical credit score ranges anywhere from 350 to 850. Most people have a credit score between 600 to 750. Good credit is between 670 to 800. Anything below 570 is considered bad credit. When you have bad credit, it is much harder to get a good interest rate. You may find it is difficult to be approved for a loan.

What If I Have Bad Credit?

You should prepare yourself now, if you have bad credit, you will have to pay a higher interest charge which means your car payments will be higher. If you already think you have bad credit, there must be some reason why you feel that way. You should pull your credit report. You are entitled to one free copy of your credit report per year.

When you get your credit report, you have a chance to see what your credit score really is. This lets you see what a lender will see to help prepare you for their questions and response. This gives you an accurate picture of your credit score. Maybe what you thought was there really is not. When you know for sure, you are able to make necessary changes. If there are items on your credit report that are incorrect, you can fix them. Just fixing discrepancies could increase your credit score.

It is possible to get auto finance if you have bad credit, however, you may have to work harder for it. You may have to do some research to find the right auto lenders for you. It is important to make sure whatever you loan you take that you can repay it. The worst thing you can do is get a loan that you cannot afford. You just put yourself in a worse place financially. You can check right now whether there is a reputable lender out there who would give you a loan in your situation.

What Is The Process For An Auto Loan?

I have talked a lot about how time consuming it is to buy a car, but I have not told you much about the process itself. Your experience may be a little different from dealer to dealer, but the basic parts remain the same. You can also save yourself time and money by doing some research ahead of going to the dealership. And you can determine if you qualify for a better loan from another lender. You can research exactly what vehicle you want and all the upgrades and features it needs to have. Let us say that you have picked out your exact car and you know that you want to finance it through the dealer.

Most dealers have a finance department that handles the financing right there. The upside to this is someone is always available no matter the time or day. The downside is it may only be one person for the entire dealership, or several dealerships. This is where the time comes in. There is a lot of sitting around for you while you wait. You pick out your exact car and fill out all the loan paperwork. Someone whisks off the car to detail it and check it over one last time. The finance person sits down with you and tells you what he can offer you, including the amount of your car payments. He goes off to work some magic, although it is slow magic. He gets everything processed and hopefully your car is ready to go when you are. That is the basic process of buying a car.

Should I Save The Money?

Saving money is always a good idea. As a general rule of thumb, you should already be saving money. I know someone that saved the money to buy a car and once she bought the car, she took the money she would have spent on a car payment and put it in the bank. When she had enough money to buy a car, she used that money and bought a new car. She did not buy a new car until she had all the money saved. If something happened and she needed a new car before she had enough money saved, she bought the car she could afford with the money saved.

That is one way to handle purchasing a new car. It prevents you from taking out more debt. It prevents you from having to make car payments. If something unexpected happens one month and you cannot afford to save the money, then you do not really lose anything. It may take you a little longer to save, but you are not hurting your credit or your finances. I hate to say there are any downsides here because I do not want to deter any one from saving money.

There are some points to consider. Car prices keep rising, so you have to be careful in the amount you are saving each month to ensure it will be the amount you need. You have to be dedicated to saving the money. Otherwise there may always be something more important that pops up. I think it is an excellent way to save money for a car and certainly could decrease the amount you pay in monthly payments.

Conclusion

I have walked you through the good and the bad of car payments. I do everything I can to avoid car payments, but I realize it is a necessity. Make sure you make smart and informed decisions when it comes to buying your next car.

How to Save Money on Your Auto Loan

Buying a car is one of the most expensive purchases you will make. Although you may not be able to do anything about the rising auto prices, you can save money on your auto loan by lowering the interest rate you will pay.  When using auto finance options to pay for a vehicle, you will end up paying a higher amount when compared to the actual value, thanks to the interest. By the time you finish paying of the loan, the value of the vehicle has gone down significantly from when you bought it. Paying with cash may be a better way to purchase a vehicle but it’s just not a reality for most people.

Ways to Cut the Cost of an Auto Loan

If you are hoping to save money on your auto loan, there are some ways you can cut down on the costs.

Work on Your Credit

The terms of an auto loan will be based on your credit. If you have perfect credit then it’s easier for you to get the lowest interest ate. But if you don’t then you may have to pay more. If there are issues with your credit and you don’t need to get a new car right now then consider waiting until you can work on your score. Just a small decrease in the interest rate can save you a lot of money over the lifetime of the loan.

Getting a Car Loan with Bad Credit: Money Speed Bump

Don’t Borrow Too Little

If you only need a few thousand dollars to purchase a new vehicle then don’t get an auto loan. Instead, save money. Since small loans are paid off quicker than larger loans, the bank doesn’t make as much money. Smaller loans will have a higher interest rate than bigger loans so the bank can make more money off you. If the car purchase is an emergency then this may be the only option you have.

Don’t Get a Loan at the Dealership

The dealership is the middleman when selling you a car and also the middleman when you are set up with a lease or loan. Middlemen always get paid and the person that is paying is you. You should get a financing quote from the dealer because it may be a good option but if you don’t get other quotes, you could be paying too much money. You are doing some shopping around for your car so you should do the same for the loan.

Buy a Cheaper Car

This may seem like obvious advice but many people are in a habit of purchasing more than they can afford. Do you need to purchase a new car or can you get a pre-owned model? Do you really need a luxury car that will just put you more in debt? It’s worth considering if you are looking to save money on your auto loan.

Does It Make Sense to Lease or Buy?

Buying a new car can be overwhelming and one of the decisions you are faced with is whether or not to lease or buy.

Buying a Car

Purchasing a car is one of the straightforward ways of getting it and you either pay cash or use a loan to cover the cost. The great benefit of buying a car is that one day you will own it and be free of vehicle payments until you decide to purchase another one. The car can be yours to sell at any time and you won’t be locked into a fixed ownership premium.

Car insurance premiums can be lower and you don’t have to worry about any mileage restrictions. The downside is that there will be a higher monthly payment. Dealers may also require a down payment so out-of-pocket costs will be higher when buying a car. As you pay down the loan you have the ability to build equity in the car. However, this may not be the case since depreciation can take a toll on the value. Buyers with down payments can find themselves in an upside-down situation where the car is worth less than what the buyer owes.

Leasing a Car

For those who haven’t leased before, the process can seem confusing. There are some benefits to leasing a car. The greatest advantage is the lower out-of-pocket cost when maintaining and acquiring the car. Leases don’t require much of a down payment and the monthly payments are usually lower. You also get the advantage of getting a new car every few years. The drawback is you have a payment but you never get to own the vehicle. Depending on the lease you choose, when the term is up you could have the option of financing the remaining value, which means you will own it once you finish making payments.

Mileage restrictions also are another disadvantage. If you drive a lot during the year then buying a car may be a better choice. If you do drive a lot, there could be the option for an open-ended lease, which may not have as many mileage restrictions. You may get charged more for insurance for lease vehicles. Depending on your driving record, age, and where you live, the additional cost may be small but it’s still something to consider.

How to Shop for an Auto Loan

In order to save money on your auto loan, you have to shop around and shop smart.

Shop the Loan Separately from the Car

Before you start negotiating the extra features, price, and car you want, start the loan application process with banks, credit unions, and other well-respected online lenders. Banks may be the best, especially smaller ones. Credit unions are also a good choice. You can get prequalification for a loan, which then allows you to go to the dealer with a blank check for the specified amount. Once you have a solid written contract with the dealer then you can get a good financing deal. Use an auto loan estimator to help with the shopping process.

Limit the Loan Shopping to Two Weeks

When you apply for a loan, your credit score will go down a bit, which can make it harder to shop for a prime rate loan. If you make the applications within a two-week period then it’s only one inquiry.

Look at Your Own Credit History

Be sure to get copies of your credit report from the three main agencies. With an auto loan, you may have some more wiggle room in terms of your score as opposed to a mortgage. If you are looking for auto loans for bad credit online may be your best option.

Shop for the Total Loan Amount and Not Just the Monthly Payment

The only time you should be considering the monthly payment is when you calculate how much you want to spend on the car. Other than that one time, don’t focus on monthly payments. Some lenders want you to focus on payments in order to get you to spend more money by extending the number of months you pay. This allows them to make more in interest and you will have to drive your car longer.

Don’t Assume You Are Getting the Best Rate

Lenders are not obligated to give you the best rate you qualify for on a loan. Let your lender know you are shopping around or have another offer and you may be more likely to see a better rate.

Read the Fine Print

It’s best to take the loan paperwork home and read it before signing anything. If the dealer or lender won’t let you do this then walk away from the offer. A loan is a binding agreement that will last you for years so you need to know what’s in it. There are some things that warrant some special attention. If you see mandatory binding arbitration, know that this will take your right to court to court away.

A variable interest rate could mean that you end up with a high payment. Find the highest possible payment and see if you can afford it. If you can’t then the loan isn’t right for you. See if there are any prepayment penalties. Learn how much it costs you if you want to pay off the loan early or refinance it. Is what the lender promised you in the contract? Oral promises can be impossible to enforce so you need to make sure it’s in the written paperwork.

Check the Math

If the monthly payment is slightly different from your own calculations then this means the loan may not have the terms you negotiated.

Avoid Any Conditional Financing

Don’t take a car from the dealer until the financing is finalized. If the financing is conditional or contingent then it can be changed later and you could be stuck with terms you don’t want.

Investigate the Lender

Check on any lender you are dealing with ahead of time. Search online to learn what any customers or former customers are saying. While online comments should be taken with caution, you may be able to use them as an early warning for any possible problems. You can also consult with us about your lender choice.

Refinancing Your Auto Loan

One of the ways to save money on your auto loan is by refinancing. You need to carefully look at your current situation to see if you are actually getting a better deal.

See How Refinancing Can Benefit You

The first step is finding how much you owe on your existing loan. Then find out how much interest you will pay on the existing loan. Add together the remaining amount owed and the estimated interest payment and this is the number you want to beat with your new loan.

Figure Out What You Want

Shop around to see what other lenders are offering you. If the interest rates aren’t lower than the current rate you have then refinancing may not make sense. If your goal is to lower your monthly payment since you are struggling to pay it then refinancing but extending your loan term can help with that. This shouldn’t be done unless absolutely necessary since you will pay more for the car in total. If you aren’t in danger of defaulting on your current loan and there aren’t any lower interest rates available to you then it’s best to keep working on your credit score. Remember the higher your credit score, the better interest rate you may be offered. If there are lower rates available then it’s time to calculate the monthly payment and total cost for different loan lengths.

Different Options

If you shorten your loan term then you pay less for the car overall since the shorter term lowers the amount of interest you are paying. The disadvantage with that is the monthly payment is higher than some other options.

If you keep the loan term the same, it can mean a small decrease in your monthly payment, which allows you to save money on your auto loan over the life of the loan.

When you extend the term, you get a lower monthly payment but you do pay more.

Once you run the numbers and understand the outcome of the different term lengths, you will have the information you need to determine if auto refinancing actually benefits you. You may see that you won’t save enough to warrant the process of refinancing or you may find that it does. Your decision should be based on where you see the most value, whether it’s a reduction in the cost of your car or lowered monthly payments.

Mistakes You Could Be Making with Your Auto Loan

If you want to save on your auto loan, you should avoid making some of these common mistakes.

Not Investigating All Your Options

The key to saving the most money with an auto loan is to investigate all your potential lending options and this can include the dealership.

Going by the Rate Alone

The rate is only part of the equation. You also need to know how much of a down payment is required and the terms of the loan before you make a decision.

Following Your Emotions

You need to do your research up front and know what car you want. You also need to know what you are prepared to pay. Don’t cave if the dealer pushes another model or color or doesn’t waver on the price.

Not Reviewing Your Credit Score First

Know what your score is so you now what the lender is looking at. If there are any errors on your report, you can get them fixed beforehand.

Being Quick to Accept the Dealership’s Offer

Dealerships may offer a higher rate because they get financing from banks. They raise the rates to make a profit so it’s always necessary to shop around.

Focusing on the Payments over Price

If you are more focused on the monthly payments than the overall price of the car, you could be paying more in the long run. Consider the price of the car, the terms, length of the loan, and the APR.

Looking for a Car First

If you are serous about getting a car, you need to start shopping around for financing first and determine how much you can afford before you start car shopping.

Not Being Able to Walk Away

Once you begin negotiations, you don’t need to take the offer. If you don’t like the offer or how the negotiations are headed then you need to be prepared to walk away.

Not Taking the Shorter Loan Term

Cars depreciate rather quickly so you want to finish paying off the loan in the shortest amount of time. Monthly payments will be higher with shorter-term loans but you will also be paying less in interest.

Not Determining What You Can Afford

When it comes to car buying, not everyone takes the payments into careful consideration. Since it may only be for three years, you may not evaluate the impact these payments have on your budget but you need to. Before you buy a car, you need to determine how much you can put down and how much you can spend according to your monthly budget.

Ways to Pay Off Your Car Loan Early

A typical car loan can take you 60 to 72 months to pay off, which equals five to six years. That is a lot of interest to pay so if you want to pay off the loan faster and save money on your auto loan with interest, there are some things you can do.

Pay Half Your Monthly Payment Every Two Weeks

If your lender lets you do this then you should consider it. When you pay every two weeks, you are actually making 26 half payments throughout the year, which adds up to 13 full payments instead of 12. While you may not save you as much on your auto loan, you will be able to repay the loan much faster. This amounts to months that you can get back for your life and it’s not a bad transition if you get paid every two weeks.

Round Up

Instead of just paying your payment, round up to the nearest $50 to help repay the loan quicker. This can also help you save money on your auto loan. For example, if you have a $10,000 loan with a 10% interest rate for 60 months, the monthly payment is about $412. If you round up and pay $450 then you will have paid the loan in 47 months instead of 60 and can save over $2,000 in interest.

Make One Large Payment Every Year

This is a similar version to rounding up. It doesn’t matter when you make the payment and it can help you save money on your auto loan.

Make at Least One Large Payment on the Loan

If you make at least one large extra payment each year, you can save even more on interest and save money on your auto loan. The earlier you make a big payment, the sooner you will be able to pay off the car loan.

Never Skip Payments

Even though some lenders may let you skip a payment once or twice a year, it’s best to resist the temptation. Skipping payments doesn’t save you money on your auto loan. It instead lengthens the term of the loan and will cost you more in interest.

Refinance the Loan

You can negotiate a new monthly payment and pay off date when you refinance your loan. In order to save money on your auto loan, you should only do this if you actually get a lower monthly payment and a sooner pay off date. Refinancing may sometimes not make sense. You don’t want to just lower your monthly payment and lengthen the loan term since you will end up paying the same principal and then more in interest.

Have to Save Money to Buy a Car

Even though you can get an auto loan, it’s still get a good idea to start saving money for a car. By having some saved for a down payment, you can save money on your auto loan since you will be paying less principal and interest. Having lower monthly payments on your auto loan can allow you to put money into other obligations, such as your credit card debt, mortgage, or student loan payments. A larger payment can also make it harder to afford if you have a financial emergency. If you skip your car payment then you fall behind on the loan and this can lead to repossession and default. Defaulting on the loan can hurt your credit and the ability to take out any loans in the future.

1. Set a Budget

It can be hard to determine what you can afford if you haven’t looked at the numbers. Go over your monthly financial obligations and your income. Keep track of your expenses so you can get an idea of what you are spending on eating out, shopping, and groceries. Then calculate how much room you would have in your budget for a car payment. This can also help you decide how much you should save for a down payment. A rule of thumb is that you don’t want to spend more than 15% of your monthly income on a car payment.

2. Save Automatically

If you don’t already have a savings account then now is the time to start. When setting up a savings account, look for a high-yield one that has low fees and competitive interest rates. When you have a savings account that is separate from your checking account, it can help you keep track of how much money you have to put toward a down payment on a car. If you have everything in one account then it can be hard to track your savings. When you set up a savings account, set up an automatic contributions for every time you get paid.

3. Get a Side Job

If your current full-time job just pays for your existing bills then you may need to find some extra income in order to save for a car. Getting a side job or hustle can help you save some extra and faster. Side jobs can include working as a virtual assistant, selling goods online, or delivering groceries. Earning some extra cash can go a long way. It allows you to put more toward a car so you can borrow less and save money on your auto loan.

4. Cut Out Any Extra Expenses

If you find that your current budget doesn’t allow you to save much for a car then you need to lower some expenses. You don’t have to permanently go without something but trim some costs for a set period of time. If you aren’t using your gym membership then cancel it for now and find free ways to workout instead.

5. Sell or Trade in Your Old Car

When you trade in a vehicle, it can help fund the next car purchase. It can be a good idea to lower the amount you owe on your next vehicle. In order to get the most out of this, you want to see what other dealers are offering for your car. Research what the vehicle is likely worth and then see if the trade-in offer seems reasonable. Be careful about negative equity on your current car before you decide to do a trade in. This means that you owe more on the car loan than what your car is worth. You can also research selling the car yourself to a private party. This can help you get more money from the sale.

Final Thoughts

When you want to save money on your auto loan, there are different things you can do. First, look at ways to pay off your car early. Since this will lessen the amount of interest you are paying. Having a down payment can lessen how much you have to borrow so it helps to know how to save for a car. Know the steps to shopping for an auto loan so you can get the best deal possible. Refinancing may be an option to save money on your auto loan. But you need to make sure the situation will make sense for you. Also know what common mistakes you could be making so you don’t get stuck in a financing trap.

5 Things to Know When Financing a Car

The number of Americans borrowing money to purchase cars and trucks is on the rise, with 27 million new auto loans originated in 2018. The reality in the modern world is that most people need a car. But buying a vehicle makes for a considerable investment. Today, a good number of people cannot afford to pay for the car or truck they need upfront, a factor that forces them to turn to vehicle finance. There are some important things to know when financing a car. The loans allow consumers to make such big purchases and repay over a period of time. But they can result in financial troubles if not handled properly.  This is why it is important for consumers to familiarize themselves with this type of personal loan. So they can make informed decisions and wise choices.

One of the most important decisions that consumers have to make when looking for a car loan relates to the lender they should work with. With the numerous auto finance options available, the process can be confusing and overwhelming. The good news is that prospective car owners can work with a third party that is not in the loan business to find a lender. We make it easy for consumers to identify and find lenders so they can enjoy a hassle-free borrowing experience. In addition, we strive to ensure that you have the information you need to help you make the right decisions. In order to ensure proper financial management, here are a few things to know when financing a car.

What is an Auto Loan?

There is no doubt that purchasing a car is a big and important financial decision. So it requires a little planning ahead. During the process, understanding what is financing a car is just as important as shopping around for financing. Simply put, an auto loan is a type of loan that an individual takes out in order to purchase a motor vehicle.

There are two main types of auto finance: direct lending and dealership financing. Direct lending refers to a situation where an individual takes out a loan with their local bank, credit union, or an auto lender of their choice. This presents a chance for the consumer to shop ahead of time and compare the interest rates and terms offered by various lenders. On the other hand, dealership finance is done through the dealership. While some dealerships will have their own finance departments, others work with external finance companies. One of the advantages of dealership financing is that the consumer enjoys the convenience of choosing the car they want before setting up the loan.

Borrowers who familiarize themselves with what an auto loan is are in a better position to understand the different things to know when financing a car. Below is part of the information that can be invaluable when looking to purchase a motor vehicle.

5 Things to Know When Financing a Car

The prospect of buying a new car can be exciting. But it is important for consumers to prepare themselves before heading to the dealership. This will help them save both money and time. Also, they will avoid the frustrations that come with a stressful car buying process. Adequate preparation means putting finances in order as well as familiarizing themselves with the important things to know when financing a car. Here is part of the information that can be of help when it comes to vehicle finance.

1. The Rate You Are Approved for

One of the decisions prospective car buyers have to make has a lot to do with how they will finance the car. To ensure a seamless process, consumers should consider doing this in good time. That is before they select the car they wish to buy. When exploring financing options, borrowers should be aware of the loan terms offered by different lenders. This means looking at the financial institution that offers, among others, the lowest interest rate. Although the rate you are approved for is one of the most crucial things to know when financing a car, borrowers should also be aware of factors that affect the interest rate.

Just as with other types of loans, the better the credit history, the better the interest rate that borrowers are likely to get on their auto loan. Another point to remember is that although an annual percentage rate of zero percent may be enticing, the terms of the loan could translate to higher monthly payments.

2. Factors That Impact Your Payment

Before taking out a loan, borrowers should always determine how much they will be paying monthly as well as the cost of the loan. These two factors are necessary for helping to establish whether the individual will afford the loan. However, borrowers should go further to understand the inputs that will influence their payment.

Taking a large loan amount will mean high interest in the long run. This may also be accompanied by high monthly installment payments. The down payment made will also have an impact on how much the borrower pays back. Generally, borrowers will have lower monthly payments when they make a higher down payment. Borrowers should remember that while longer loan terms will lower monthly payments, they will end up paying more over the life of the loan.

Since some borrowers may find these factors to be confusing, they should consider seeking the advice and guidance of financial experts. The professional can help consumers make the right choices and manage their debt better.

3. Determine Whether New or Used is Right for You

This is one of the most commonly overlooked but essential things to know when financing a car. A good number of people tend to make their decision based mainly on cost. But there are several other factors to take into account. Some of the issues you may have to think about include repair costs, the condition of the vehicle, the cost of maintenance, and depreciation.

In most cases, new vehicles will attract lower interest rates on auto loans. The vehicles are also associated with lower repair and maintenance costs. This is particularly critical to bear in mind. Because the borrower will be repaying their loan while at the same time running the car. Failure to calculate these costs may result in huge expenses. They could affect the borrower’s ability to repay the auto loan.

There is no right answer when it comes to making the decision between new and used. This will depend on the purpose for which you wish to buy the motor vehicle as well as your budget.

4. Accurate and Complete Documentation

Apart from credit score, there is a set of documentation that needs to be completed and submitted for verification. Making the process seamless will require that consumers ensure the information is accurate. Being aware of the documentation required will help to fulfill the approval for the auto loan. Since requirements vary depending on the lender, borrowers can consider talking to a financing officer from their lender of choice. This enables them to prepare the documents prior to shopping for a car. This will hasten the process of buying the car. It will also provide leverage when it comes to negotiating with the car dealership. Some of the other documents that the lender may require include proof of income, identification proof, proof of residence, bank statements, and vehicle information.

5. EMI, Processing Fees and Foreclosure Charges

Some of the auto loans available in the market come with numerous charges and conditions. This is why it’s necessary for borrowers to go through the details. In addition to the above factors, borrowers should have a clear understanding of what they are getting themselves into when they decide to take out an auto loan. Calculating the equal monthly installment, commonly known as EMI, will help them plan their payments. Financial experts also recommend looking at processing fees to determine the total cost of borrowing. In the event that the borrower cannot pay back the loan, they should know of the kind of foreclosure charges they will be required to pay. Knowledge of all these important factors will enable the consumer to play their finances in such a way that they will meet their obligations as required.

There are many more things to know when financing a car. For instance, borrowers should look out for any hidden extras in the bill of the vehicle they intend to purchase. In addition to shopping around for the best interest rates and checking their creditworthiness, consumers have to consider choosing their loan tenure wisely and scrutinize for offers.

The Impact of Credit Score

Just like with other types of loans, one of the essential things to know when financing a car is the impact of credit score. The borrower’s credit score plays a major role in determining whether they qualify for financing as well as the terms they will enjoy.

Credit scores affect many aspects of consumers’ lives. Apart from impacting loan eligibility, the credit score also influences how much the borrower will pay in interest charges. This means that a lower credit score will see the borrower pay more in interest. It is critical for consumers to obtain relevant information regarding their credit score to enable them to protect their credit score and obtain good auto loans.

The credit score is displayed on an individual’s credit report, a detailed listing that also shows how much debt they have and how they used the money. The credit report also shows the payment history and the loans the borrower may have defaulted on. In order for borrowers to increase their chances of qualifying for an auto loan and enjoying lower interest rates, they should consider building their creditworthiness.

Personal Loans versus Credit Card

When it comes to auto finance, there are numerous options that consumers can explore. However, before making a decision, the individual must understand what works for them. This will make it easier to settle on the option that will not only meet their needs but also ensure they repay the loan without much straining. Even as you seek to learn the important things to know when financing a car, you should also take time to compare personal loans and credit cards.

With personal loans, borrowers have many options open to them. In case a borrower can get a loan at a low-interest rate, they will enjoy significant savings and pay less money per month. Similarly, it is easier for borrowers to find a personal loan that fits their budget. Personal loans have fixed monthly installments, allowing borrowers to plan properly. At the same time, taking out a personal loan does not impact the balances on the borrower’s credit card, allowing them to use the card for emergency purposes and other uses.

Consumers can also consider using their credit card to purchase a car. One of the advantages associated with this decision is that the user will pay back only the amount that they used. Credit cards also have revolving credit, meaning that credit will be available to the user once they pay what they used. Choosing the best credit card and using it responsibly may also see the consumer enjoying the reward programs and special promotions offered by most of these cards.

Ways to Increase Your Chances of Getting Approved

Once a borrower knows what is financing a car, they should work on increasing their chances of getting approved. Although improving the credit score is important, there are several other ways through which consumers can ensure lenders will be willing to finance.

  • Borrow what you will afford to repay. Borrowers who apply for loan amounts that they can comfortably pay back have a higher chance of being approved for financing. This is why it is necessary to consider the income level as well as current debts before making the financial commitment.
  • Put up collateral. Another way to increase the likelihood of being approved is to put up collateral. This will serve as a guarantee to the bank that the borrower will pay back the loan. Collateral should be a tangible asset that can cover the loan amount.
  • Raise income. Almost every lender will look at the borrower’s income to determine whether they are eligible and how much they qualify for. Raising income by asking for a raise, doing a part-time job or a freelance business will give lenders the assurance that the loan will be repaid.
  • Request a loan officer meeting. A one-on-one meeting with the loan officer will give the borrower an opportunity to show important personal and financial information that is not captured in the credit report.

Once a borrower is familiar with the things to know when financing a car, it will be easier for them to secure the funding they need and manage their debt better.

Where to Shop for a Car Loan

Shopping around for a car loan gives borrowers the opportunity to choose the most suitable auto finance option for their needs. As such, consumers should know where and how to shop for a car loan so that they can make great choices.

In the past, most people would check with their bank or credit union when looking to take out a car loan. Although consumers can still use this method to shop for loans, things have changed remarkably, with new ways of shopping being introduced. Today, there are numerous lenders that offer these types of loans, making it critical to invest both time and effort to identify reliable lenders.

Borrowers can ask for recommendations from trusted friends and family members. Going through online reviews from previous customers could also help to choose the right lender to work with. This is because the borrower will get to know what the experience of these customers was.

However, with the advent of technology, among the most important things to know when financing a car is that the internet can help borrowers find reputable auto lenders. While the internet is a magical place, borrowers should be careful when relying on search engine results. Every individual should ensure that they do not fall victim to online scams.

Factors to Consider Before Taking out an Auto Loan

Choosing vehicle finance means huge financial commitment and responsibility. This is why prospective car owners should consider the option carefully before taking out the loans. Below are a few things to know when financing a car.

  • The need for a car. If one cannot afford a car at the time, they should carefully think about whether they actually need to buy one. Consumers can also consider alternative options such as walking to work, cycling, or carpooling. This will not only help them avoid paying interest on the loan but will also be good for their health.
  • How much is required to buy a car. Most lenders will offer borrowers more than they actually need. While the numbers may look good on paper, borrowers should only go for what they can afford. It is important to ensure that the loan amount is such that they will comfortably make all payments on time.
  • Comparing different options. The need to compare the different options available cannot be emphasized enough. Loan terms and interest rates vary widely from one lender to the other. Getting the best deal will require that borrowers compare these options.
  • Choose a car that meets your needs. When going through the things to know when financing a car, borrowers should ensure that the car they buy will meet their needs. This is particularly important when they choose dealership financing.

Getting a Car Loan with Bad Credit

loan or credit card for car infographic

Although credit scores impact loan eligibility, it is still possible to access vehicle finance with bad credit. There is no down that a good number of lenders will turn down applications from people with bad credit. The good news is that are a number of steps that such borrowers can take to increase their odds when it comes to obtaining car loans for bad credit.

  • Make a down payment.
    Saving money, whether to pay for a car in full or make a down payment, is not easy. However, it will make a huge interest in terms of interest rates, monthly payments, and the willingness of lenders to give you the money you need.
  • Get a co-signer.
    Getting someone with a stronger credit score to be a co-signer can also help borrowers with low credit scores to get a loan. In the event that the borrower repays the loan as scheduled, their credit score will improve without changing that of the co-signer.
  • Look over the credit report.
    It is important to check whether there are any errors and oversights on the credit score that could lower the credit score and limit the finance opportunities available.
  • Do not be fixated on monthly payments.
    Rather than focusing only on the monthly payments, borrowers should look at the overall loan terms. Other factors to consider include the duration of the loan and interest rates.

In addition to these things to know when financing a car, borrowers should consider researching financing options before shopping for the vehicle. This will entail using online calculators to understand the factors that affect loan payments.

What do Car Dealerships Prefer?

Depending on an individual’s capacity, they can choose to purchase a motor vehicle either through auto finance or paying cash. It is necessary to understand what car dealerships prefer and for what reasons. But they won’t force consumers to take any option.

Generally, auto dealers prefer financing. It provides them with extra finance charges and interest in addition to the profit they make. Even in cases where they sell the loan to an outside lender, the car dealer will still make extra money when a customer finances through them. However, the fact that dealerships prefer financing does not mean that consumers have to go that route. They can still choose their preferred lender. Or pay the full amount to avoid committing on a repayment plan.

Every dealer knows that consumers have different options that they can choose from. Car buyers do not have to do everything as suggested by the dealer. But the dealer will ask whether the consumer intends to choose to finance, pay cash, or trade anything in, car buyers do not have to do everything as suggested by the dealer. In any case, what is important for consumers is going for the option that works best for them. This is one of the most invaluable things to know when financing a car or paying the full amount upfront.

How to ensure you make payments on time

The borrower has a duty to pay back the loan once they have received it. Failure to do that will not only have a negative impact on the individual’s credit score but could also result in additional charges and interest. Here are some tips to ensure that you make all payments on time.

  • Set up auto-pay – borrowers who are paid regularly from their jobs can consider setting up auto-pay. This will minimize the chances of falling behind on payments, especially when they are busy or out of town.
  • Put it on the calendar – life in the modern equals busy schedules. Similarly, there are other bills that one has to pay every month. To ensure that you do not forget to make the monthly payments, you can rely on calendars and planners to remind you of the event.
  • Control spending – buying a car through a loan comes with a serious financial commitment. If a consumer is to ensure that they make payments on time, they should not only control payments but also prioritize purchases. This will include making the most important payments before spending on other things.
  • Debt consolidation – there may be times when a borrower will have trouble paying their bills consistently. Consolidating or restructuring debt can help to lower the amount that is repaid monthly. In that way the loan is paid back comfortably.

An understanding of the things to know when financing a car will go a long way in helping consumers to manage both their finances and debt. Prospective car owners should try to ensure that the decisions they make will not lead to financial stress and troubles. Creating a budget is a must whenever you take out any loans, simply because this is the best way to organize your finances.

Conclusion

Financial education and literacy can help consumers to understand the things to know when financing a car. Such consumers will also have the skills and knowledge required to handle money in a better way. They can also manage debt in a manner that will help them reduce it over time. However, prospective car owners should not forget the importance of shopping around when looking for auto finance.

Doing a little research enables consumers to know the various options available and understand what each option means for them. Today, third parties make it easier for consumers to find lenders through online platforms. This simplifies the process of borrowing and minimizes the hassles that consumers experience. The next time you are looking to buy a car, kindly consider working with us to find a lender.

Should You Use a Personal Loan to Buy a Used Car?

Most of us live in places where we need a car to live. There are some cities, like New York City, where the public transportation system is amazing and the best mode of transit. It gets you where you want to go much faster than a car. Unfortunately, not all cities follow their lead. I live in a city where the public transportation system is seriously lacking. If I did not have a car, I would not be able to go anywhere. Most of us cannot afford to pay for a car in cash, so that means we need auto finance, usually in the form of a personal loan. Let’s dig a little deeper into what it means to get vehicle finance and if you really should.

What Is A Personal Loan?

A personal loan is when a lender of some type allows you to borrow a certain amount of money. You promise to repay the money in regular monthly increments for a set length of time. A personal loan has interest attached to it. Interest is what the lender charges you to borrow the money from them. The amount of interest is based on your credit score and other factors like income. A personal loan can be used for any purpose that you would like. There are some loans called out for special purposes, but in reality, you can use it as you choose.

Can I Use A Personal Loan to Buy A Car?

Yes, you get use a personal loan for just about any use. There are some personal loans specifically for purchasing cars. There is a major difference between a personal loan and an auto loan. An auto loan requires the borrower to use the vehicle as collateral. If you default on the loan, the lender can take possession of the car. A personal loan is an unsecured loan. That means, if you use a personal loan to buy a used car, the lender does not use the car as collateral. When you are buying a car from an individual, it makes sense to use a personal loan. If you do not want full coverage car insurance, you should get a personal loan instead of an auto loan. When using a loan to auto finance using a traditional auto dealer financing, the lender makes you have full coverage insurance.

Personal Loan Shopping

Should I Buy A Car?

Obtaining a personal loan to buy a used car, or even a new car is a big deal. Cars are expensive and the cost only continues to rise. It is also expensive to maintain an older car that needs constant repair work. When considering if you should buy a car, there are some questions you should answer. Why do you want to purchase a car? Can you afford to purchase a car? I am going to focus on the first question here. We will talk about the second one further in the post.

In some cases, you need a car no matter what. Other times, maybe you just want something new, or you are tired of fixing your current car. The costs of car repair can easily creep into the thousands. Your current car may not even be worth the cost of the repairs. You really need to weigh the cost of the repair against the value, monetary and emotional, of the car. You should consider how often are you repairing the car. Is this a once every couple of years cost? Or are you sinking hundreds to thousands of dollars into it every few months? Only you can determine the best course of action but answering those questions can provide guidance.

What Are The Advantages To Getting A Loan to Pay For A Car?

There are some advantages to obtaining a personal loan to buy a used car. If you live in a place where public transportation is limited, you need a car. A loan can help you purchase a car when you do not have the cash. Let’s face it, few of us have the cash to pay for a car. If we did not take out a loan, we would not be able to afford a car. If you obtain a personal loan to pay for a car, you are not subjected to the same parameters as when you get an auto loan. When you get credit for a used car, the lender wants you to have full coverage auto insurance. You also must use the car you are purchasing as collateral.

What Are The Disadvantages To Getting A Loan to Pay For A Car?

So, let’s be honest here. The major disadvantage of a personal loan to buy a used car is more debt. Americans are drowning in auto and other debt and it continues to rise each year. The reality of a car is that as soon as you drive it off the car lot, the value goes down. With a few exceptions, cars do not retain value and will never be worth what you pay for them again. As mentioned above, they are expensive. Your loan payment could be anywhere from $300 to over $1000. That is a large chunk out of your budget. It may not be one you can afford. You may find yourself in a position of just buying the cheapest car you can afford. You may get stuck paying hundreds of dollars per month for a car you do not even like.

If I Do Not Pay Back My Loan, Can I Lose My Car?

When you use a personal loan to buy a used car, it is an unsecured loan. That means that you do not have to use your car as collateral. If you do not pay a personal loan, the lender will find ways to collect on the loan. However, they will not take your car as a result. If you obtain an auto loan, the car you purchase becomes collateral. That means, if you do not pay the loan, the lender had the right to take you a car. Believe me, they will. Lenders do not mess around when it comes to getting their money.

If you do not pay your bill, they will repossess your car. Often times, it happens in the middle of the night. If you know you are not able to pay the loan, the best thing to do is contact the lender and try to work with them to make different payment arrangements.

Does My Budget Really Matter?

Yes, your budget is one of the major factors in deciding on a personal loan to buy a used car. You need to be able to fit a personal loan into your budget before you decide to use one for anything. You should take a hard look at your budget to make sure a car payment fits. Considering to buy a car is not a decision that should be made lightly. If you cannot afford to pay the car payments each month, you are setting yourself up for failure.

You could lose the car. You could impact your credit. You may not be able to get another loan. That is a situation you do not want. The first thing you should do is use a budget app to determine how your finances look. Determine how much money you bring home each month and how much you pay out in expenses. The amount that is left is what you might be able to pay for a car payment.

How Can I Budget For A Car?

Once you see your monthly expenses listed, you can begin to make adjustments. Often times, we do not even realize how much money we spend in a month until we write it down. Begin to eliminate unnecessary expenses, such as that gym membership that you are not using. You can also see some habits that you might be able to cut down. For example, do you eat out often? It can be expensive and when it is listed for you, you can see just how expensive. Perhaps, you decide to eat out only two nights instead of five. That could be a significant savings for you each month, without much impact. Look for other ways to reduce spending to hit your budget for a car. These savings could add up to the money to pay for a personal loan to buy a used car.

What Does My Credit Have To Do With It?

Your credit score has everything to do with it. Ultimately, it will decide how much you pay per month for a personal loan to buy a used car. Your credit score is an indicator to lenders about your credit worthiness. It also gives them insight as to whether or not you will pay back your loan. The lower your credit score is, the higher your interest will be. Interest is what a lender charges you to borrow money. When your credit is low, the lender feels it is risky to lend you money. They charge you a higher interest because they are taking a risk by lending you money.

Can I Improve My Credit?

It is possible to improve your credit score. It takes consistent and hard work. The first thing you need to do is make all of your payments in full and on time. Late or missed payments are the leading cause of bad credit. Start by making all payments on time. Then you need to begin to decrease the amount of debt you have. When you have a high amount of debt, it also decreases your credit score. You have a debt to income ratio. The higher your debt is by comparison to your income negatively impacts your credit score. Therefore, the more you are able to decrease your debt, the more positively it impacts your credit.

How Do I Know Which Loan Is Right For Me?

When you decide you want a personal loan to buy a used car, you should find the best one for you. To do that, you need to know how to shop for a car loan. It is helpful if you have some understanding of how a loan works to find the one for you. All lenders attach interest to any loan they give you. The interest rate changes from lender to lender, so you can look for the best interest rate for your needs. You can also look online for a loan. Online loans have an easier and faster application process. Often times, online lenders do tend to have a higher interest rate.

Are There Other Options Besides A Personal Loan?

There are some options available to you besides obtaining a personal loan to buy a used car. You have the option to save the money to buy a car before you actually buy it. This allows you to have the money you need to buy the car without adding additional debt. You do not have to worry about making a monthly payment. This also means that you do not have to worry about not having the money to pay the loan. You could borrow money from family or friends. They may be able to loan you the money without having interest added. They may be able to offer you better loan terms which makes it easier to pay back.

Auto Loan Basics Spelled Out: Lending 101

Conclusion

The real question here is, should you buy a car? You are the only one who can answer that question. You need to understand that cars are expensive. No matter what route you go, you are going to put out a significant amount of money. However, most of us need cars to get through everyday life. We need transportation to get to work, school, appointments, and attending to basic needs like grocery shopping.

You may currently have a car that is sucking money in repair costs. That may not be the best way to spend that money. You may be able to get a car payment that is less than paying for constant repairs. You have to be smart with your car and loan shopping. Loans with high interest will cost you more in the long run, too. You need to take a look at your budget and make sure you can afford a car payment.

Taking on a car payment that you cannot afford sets you up for failure. You can hurt your credit. You can lose your car. You will lose a lot of money. Be honest with yourself and what you can afford before taking on another loan payment.

Auto Loan Statistical Overview: By the Numbers

The data show not all Americans are benefiting from the strong labor market… The share of subprime borrowers who fell well behind on car payments the last three months of the year was the highest since the second quarter of 2010.
~ Bloomberg.com (February 12th, 2019)

I told a girl I can start right away, and she said, “Listen babe I got something to say. I got no car and it’s breaking my heart, but I’ve found a driver and that’s a start.”

~ The Beatles (1965)

Auto Loan Statistics Overview:

  • The number of Americans borrowing money to purchase a car or truck is going up. Americans originated 27 million new auto loans in 2018. In first quarter of 2019 this accounted for nearly 10% of outstanding consumer debt and that includes mortgages
  • The average debt for that car or truck (new OR used) is going up – enough to be noticeable. The average loan size in December 2018 was $23,438, 6.4% higher than in December 2015.
  • The total amount owed by Americans on their personal vehicles is$1.16 trillion as of March 2019
  • The total amount of debt the average American is carrying overall is rising –9% of American’s total debt.
  • The number of Americans falling behind on their car or truck payments is going up. That number is 4.7% of outstanding auto debt is “seriously delinquent” (90 days or more)
  • The credit scores demanded by auto lenders and the interest rates they’re charging are going up. A higher credit score means a higher loan amount usually. People in the 2nd highest credit tier borrowed on average more: $34,061 for new cars and $21,795 for used.

Sorry to sound so negative right out of the gate, but I wanted to prepare you for what’s ahead. Some of it… well, some of it’s not very pretty. (You, on the other hand, look GREAT today – have you done something different with your hair?)

I long ago gave up trying to predict what the economy was likely to do on a grand scale next week, next month, or next year. I still believe, however, in paying enough attention to what it’s already doing to make better choices for ourselves right now. Let’s dig into a few auto loan statistics – not just because we love charts, graphs, and economic trends, but because we care about OUR auto loans, OUR personal debt, and OUR credit ratings.

Those other folks will just have to figure it out for themselves. Guess they should have been reading these blogs like you, right?

Auto Loan Statistics: Borrowing Ourselves To Death

I’ve written before about the basics of auto loan financing and the processes behind it. Let’s take a moment, though, and zoom in a bit on what’s going on “big picture”:

Auto loan debt

The most recent data from the Federal Reserve Bank of New York (they have a whole department dedicated to research and statistics) shows auto loan debt on the rise, along with every other sort of debt. Home mortgages are the biggest chunk of personal debt, which isn’t particularly surprising. As of the first quarter of 2019, mortgages account for 68% of the money we owe others – just over two-thirds of our total obligations.

Student loans are clocking in at around 11%. If you pay attention to the news or politics at all, you know this is a whole other topic itself. While most Americans, whatever their social status or political leanings, would agree on the potential value of owning a home, we’re not nearly as unified in our thoughts on going into debt in order to attend college. It’s a fascinating argument, full of controversy and hurt feelings and maybe even yelling and personal attacks. Still, we’ll save that one for next time. Auto loan statistics give us more than enough to think about at the moment.

As you can see on the graph, auto loans (the olive green segments) account for about 9% of our total debt. That’s nearly a dime out of every dollar we make going to pay for our cars and trucks, and if trends continue, they’ll pass that within a year or two. That’s more than our total credit card debt or any other sort of loans other than the two we’ve already discussed.

Auto Loans and Credit Scores

Here’s a personal challenge for you. Take a few minutes to examine the graph below from that same Federal Reserve Bank of New York I told you about above. What do you notice about it? What patterns or trends seem to be emerging? It’s always good to pay attention when people throw these sorts of graphs at us. This particular source is legit, but you’d be surprised how often less-reliable players bury us in stats presented in unforgivably deceptive ways.

Or maybe you wouldn’t.

Take a look. I’ll see you below in 2- 3 minutes.

Well, what did you notice?

The horizontal axis (the part along the bottom) indicates that these stats are drawn from the first quarter of each year from 2004 through 2019. In other words, January through March. Economic statistics often distinguish this sort of thing because our buying habits reflect an annual cycle as well as whatever long-term patterns emerge. For example, every year just before Christmas there’s a surge in retail spending (for obvious reasons). Comparing consumer spending in October of 2012 with consumer spending in March of 2015 might make it look like we’re spending less, when in reality we simply spend less in March than we do in October, no matter what year it is.

Nevertheless, the same trends in this particular graph would emerge whatever quarter they chose to compare. I’m sure you identified a few.

Over the past decade, auto loans for folks with credit scores of 620 or less (the darkest blue along the bottom of the graph) have risen, but seem to have plateaued a bit more recently. There’s a similar trend for scores in the 620 – 659 range (the orangish-yellow) and those between 660 – 719 (the light gray). Borrowers with a credit score between 720 – 759 (dark gray), however, continue to grow as a percentage of total borrowing, as do those at the top of the credit history food chain with scores of 760 or above (light blue).

In other words, our auto loan statistics are telling us that either people across the U.S. are improving their overall credit scores, or lenders are demanding better credit scores before making auto loans. Any guess which it is?

It’s both, actually. Despite the fact that the number of people behind on their vehicle loans is increasing, FICO scores are on the rise. (Your FICO score is the three-digit number, usually between 300 – 850, which gives a snapshot of your overall credit history. It will vary depending on which credit reporting agency is consulted.)

According to Experian, one of the Big Three credit reporting agencies used by the vast majority of lenders across the nation,

The average FICO Score has increased over time as the number of Americans with exceptional scores have grown. In 2018, more than 21% of Americans were considered to have an exceptional FICO Score, an increase of 5.6 percentage points from the average in 2005.

At the same time, this trend doesn’t seem to be reflected in how consistently people make their car payments. According to a recent report from the Motley Fool,

If you live in America and you are in debt, you are definitely not alone…

Among the more troubling facts… is the record 7 million Americans who are 90 days or more behind on their auto loan payments. It’s a signal, economists say, that Americans are struggling to pay bills despite other indications of a strong economy and low unemployment. Approximately 6.5% of all auto finance loans are 90-plus days past due.

What This Means For You

Source: Federal Reserve Bank of New York via Finder

OK, great – thanks for the brief but depressing lesson in auto loan statistics, Blaine. But what does this mean for me? Do I need to get used to walking to work? Fix up my bike? Should I start bumming a lift from my brother-in-law? Honestly, he’ll never let me forget the last favor he did for me; I don’t think I can stomach asking another.

In my mind, these numbers suggest a few things we should think through before taking out another auto loan.

  • Most of us need a car. That’s just reality in the modern world. But if you can walk to work part of the year, or bicycle, or carpool, or catch a ride with your brother-in-law, maybe that’s not a bad idea. It might delay how long you have until you need a car, or reduce the wear and tear on the car you already have. Plus, a little walking or cycling is good for you. (As for your bro-in-law, offer to come help him tend that tacky garden of his or watch the kids once in a while in return for that lift to work. It’s the right thing to do and it might help with his attitude.)
  • Be realistic about how much you can spend on a new (or new-to-you) vehicle. Many lenders will approve you for far more than you can realistically pay because the numbers look good on paper. But you don’t live theoretically on paper. You live on a real budget, earning and spending real money each month. You know what you can actually afford. I want you to have a car or truck you like, and which you can rely on. But I also want you to be able to pay for it. On time. Every month.
  • Shop around for auto loans as intently as you shop around for autos. Maybe more so. There’s a wider variety of lender options out there than ever before. Go to your local bank or credit union. See what dealers are offering in-house. Then shop online lenders through a reputable marketplace. Compare interest rates, terms, and other features of each. YOU’RE THE CUSTOMER. They should WANT your business. You can find credible lenders here and see whether they’d want to give you an offer:
  • There are tons of auto loan calculators online. Try a few. Play with the numbers and see what happens. No one’s watching, and you’ll go into the process better-informed and far more comfortable with the various “moving parts” in any auto loan.
  • If a dealer doesn’t have the car or truck you want, or they don’t have the vehicle you want with the right features or at the right price, you walk. It’s not personal (usually); they don’t have what you want and you have every right to look for someone who does. It’s the same when you shop car loan rates. If at any point in the process, you realize you’re not getting the terms you want, or the answers you deserve, politely let them know you’re going to explore other options. It’s not personal. In fact, it’s not a bad idea to keep that door open in case you end up discovering that what they’re offering is as good as you’re going to get. The point is that you always have choices.

  • Once you’ve taken out that auto loan, pay it. On time. Every month. I know this isn’t always possible, but even if there are times you slip a few weeks behind, never let yourself get comfortable with those patterns. Even if the lender doesn’t harass you every time. Your personal vehicle is probably a big deal to you. Some of us have very tight relationships with our cars or trucks. I assume you take care of it – oil changes, checking those filters, maybe even washing it from time to time. Part of auto care is paying for it.
  • Once you’ve taken out that auto loan, pay it on time every month. Oh, did I mention this one already? I did? Hmmm… this one must be pretty important. Take another look at that graph up there about credit scores and auto loan statistics. When you take out that manageable auto loan after negotiating with your local or online lender for the best terms you can, and you make those payments consistently, you quickly work your way up the credit reporting scale to become one of those dark gray or light blue zone people. Plus, you’ll sleep better.

Auto Loan Statistics: What Can You Afford? (And What Can You REALLY Afford?)

Remember those online auto loan calculators I mentioned a few minutes ago? Once you’ve gotten the hang of your favorite auto loan estimator (it doesn’t hurt to try a few different ones), it’s probably a good idea to take a hard look at just how much you can genuinely afford before you get serious about car or truck shopping.

Auto Loan Basics Spelled Out: Lending 101

I’m talking actual math. Looking through the past several months’ mortgage payments, utility bills, credit cards, average amounts spent on groceries, entertainment, etc. I know this can be… unpleasant. I spent many years believing that the less I thought about money and how behind I was on everything, the better I must be doing. I know you’re not nearly the mess I was, but laying out our theoretical budget and comparing it to our actual spending is probably the least-fun part of thinking about getting a new (or new-to-us) vehicle.

Nevertheless, I’m asking you to do it. Not for me – I won’t know if you just keep skimming the article and never give this section another thought. I’m asking you to do it for your own clarity and peace of mind. Even if the news is bad, better to recognize that before you take out the loan.

Honest Money Tip:

Let’s be honest – you’ll probably still be able to get that loan and buy a vehicle. But the best way to be on the right side of next year’s auto loan statistics is to make sure you can make those payments on time by being realistic about how much you’ll spend going in.

How Do I Limit the Size of my Auto Loan?

You know the answer to this one, but perhaps you’ll feel better hearing it from someone else. There’s no point knowing auto loan statistics unless it helps you make good auto finance choices.

  • If you’re looking at new vehicles, consider a used car or truck instead. (It’s still new to you!)
  • Make a list ahead of time of which features are essential for you and which would simply be nice.
  • Be willing to consider a vehicle already on the dealer lot and which they really want to move. Don’t buy a car you don’t want, but if you can live with dark green instead of black or survive without that CD-player that used to be standard until mp3s and satellite radios took over, it could save you serious bucks.
  • It’s the 21st century. Explore your options. Banks are fine. Credit unions are wonderful. But there are plenty of legit online auto lenders who are changing the game. I wouldn’t expect you to throw yourself on the mercy of the first one that pops up in your Yahoo search, but it turns out I know some folks who are shockingly good at hooking folks up to reputable online lenders for things like auto loans.

How Can I Do A Better Job Making Payments On Time? (And Please Don’t Tell Anyone I Asked)

I won’t tell, but you shouldn’t be embarrassed. More people should be asking this question.

One of the most useful, although at times painful, lessons I’ve learned on my way to becoming as old and wise as I am now is that sometimes we need to be reminded of the simplest things. We’re busy people, often with complicated lives. Marriage and family alone can take up more emotional energy than we feel like we have, and by the time you add work and other obligations, it’s honestly a wonder we remember to bathe, let alone keep our financial life in perfect order. There’s no shame in revisiting a few basic ideas for keeping your loan payments timely.

Honestly, while we want you to be happy and everything, we also want you to start nudging next year’s auto loan statistics in a better direction. Here are some things to consider, remember, or try:

  • Set up auto-pay. This is only a good idea if you get paid regularly from your job. It’s particularly handy if you’re paid through some sort of direct deposit. Setting up your mortgage and auto payment(s) to come out automatically the day after payday reduces the chance you’ll get behind opening the mail, let it slide while you’re out of town, etc.
  • Put it on the calendar. I know, I know – it’s due the same time every month! Why would you need to write that down? Friend, I put my wife’s birthday in every new planner I get each January, first thing. It doesn’t change, either, but I value her being happy with me more than I do my ego remaining elevated by the conviction I couldn’t possibly overlook something so important. Ever notice most calendars and planners indicate when it’s Labor Day? Halloween? CHRISTMAS?! Like anyone could forget? But it’s in there. And there’s a reason for the auto loan statistics we’ve already discussed. Besides, I’m betting you have other bills to pay each month as well. I’d organize the whole mess of them if I were you and write them out.
  • Prioritize purchases. When I was a kid, long before I had a job, I always knew when payday had arrived because we went out to eat. In retrospect, the places weren’t that fancy, but it was a big deal to me because my mother – god rest her soul – was a horrible cook. When I had a family of my own, we tended to do the same sort of thing. We’d go eat on payday, go shopping, do fun things, buy new clothes, etc. Then, a few days later, we’d see what was left and start figuring out which bills we could pay this time around and how much cash we needed to withdraw to avoid multiple overdraft fees (we’d usually have at least one, but five or six could really cut into the ol’ budget.) I’m not proud of this, you understand. I’m just trying to be honest with you. By all means, have fun with the family. Splurge and eat sit-down from time-to-time. But do it with eyes wide and mind clear. Have a plan. One that includes making the most important payments first. Don’t become another alarming pattern in auto loan statistics.
  • Consider a debt consolidation loan. If you’re having trouble each month consistently not just paying your bills but even keeping track of them, it might be beneficial to pay off the majority of them with a new, hopefully lower-interest, debt consolidation loan. It probably won’t include your mortgage and might not include your car payment, but if a half-dozen credit cards, medical bills, department store charges, and the like, can be reduced to one monthly bill, life just got easier. Your odds of keeping track of three payments are way better than those of keeping up with twelve. If you do this, however, DO NOT NOT NOT NOT NOT start running up new debt because wow-look-at-the-freedom-we’ve-found! That’s missing the point entirely, grasshopper. Just like with an auto loan or any other sort of loan, borrowing isn’t inherently “good” or “bad.” It’s not automatically “wise” or “foolish.” It’s about looking at your needs, examining your options, asking the right questions, and then doing your best to stay on course with whatever you decide. Anyone who promises you more than that is not being honest with you.

Let’s Talk About Credit Scores

If you remember the bullet list we started with above, we’ve addressed most of the things I warned you about while trying to focus on what it all means for YOU in YOUR situation. Auto loan statistics are fascinating and all (well, I think they are – maybe I’m just weird), but not nearly as essential as figuring out your own situation and whether or not you should consider the wonderful array of online lenders, clean up and try your local banks, find some way to drop a few clues in front of rich Uncle Herschwilder, or a little of all of the above.

As I’m sure you recall from the intro, the sorts of credit scores demanded by auto lenders and the interest rates being charged are both going up. That can be a nerve-racking for those of us looking at auto loans with bad credit or any sort of personal loans with a less-than-perfect credit history. I’m not going to lie to you. It will be harder to get a great rate with shaky credit. It may be impossible to get any kind of auto loan from some traditional banks or credit unions.

 

You should still ask, even if you feel uncomfortable about it. You’ve come this far plowing through auto loan statistics; you can handle anything! Besides, there’s no reason to let embarrassment limit you on this one. This is America – we eat too much and spend too much and watch trashy TV and vote for all the wrong people. It’s not like you’re the black sheep of the family. If you have iffy credit, you fit right in! That doesn’t make it easy, but it does mean you should be confident and methodical in your search for your best auto loan options.

Still, it’s useful to have slightly better credit. It’s also possible. Whether you’re hovering around average, dangerously close to pretty good, or sunk deep at the low end of the credit swamp, the best time to start improving is now. The best way to start improving is to start.

Keep in mind that your credit score and even your full credit report may looks slightly different from reporting agency to reporting agency. It’s kinda like movie reviews – one guy may care more about the writing and another the acting, but in general, most great movies get great reviews, mediocre movies get mediocre reviews, and so on. You may not even want to look, but you really should. Don’t worry, I’ll stay right here until you get back. I’ll even be prepared with tissues, just in case.

Improving Your Credit Score

Alright. Good news or bad, it is what it is. Auto loan statistics say every little nudge of that FICO score matters, so I’m going to wrap up by pointing you to some good advice on ways to nudge. I would NOT pay someone to “fix” your credit score or get too excited about anything claiming to immediately game the system in some way. You got into debt over time, probably through a long series of choices. Get out of it the same way. Think healthy living vs. crash diet fads… which one actually works most effectively over time?

  • Your friendly local American government has a rather handy little site about credit scores, what they are, how they work, and related issues. It’s about as comprehensive and neutral as you could hope while still being, you know, our government hard at work.
  • Experian is one of the ‘Big Three’ credit reporting agencies, and by far the most helpful in terms of website content. This piece explains how scores are calculated and has a nice list of practical ways to improve your credit rating.
  • Finally, there’s extensive advice on your FICO score and tons of related articles at MyFICO.com. This site is new to me, but they sure seem to have everything there is to know about this topic – more even than ME, and that’s impressive.

I know we’ve covered a lot in one burst. Auto loan statistics can be a bit sobering. Take a breath, and don’t sweat it if you don’t remember it all the first time. It will still be here when you open your computer or phone tomorrow and you can refresh yourself on anything you missed. Or, if you’re ready to go a little deeper, we’re always happy to help connect you to online lenders who can answer your questions in more detail. It’s up to you what happens from there.

Still, I have a good feeling about you on this one. Go make good things happen.