A Simple Overview of How Auto Loan Interest is Calculated


Buying a car is exciting and challenging, and it can be quite overwhelming. It is, however, something that the average American will face numerous times throughout their lives.  Regardless of if you need a two door car or a car for your family, you have to think things through and have a strategy when you are car shopping. It is best to have as much planned as possible before you even begin your search, especially when it comes to your method of payment.

Very few of us ever have enough cash to just walk in and plop down on the counter to buy a car outright. Instead, most of us have to get an auto loan to purchase a car, and that means dealing with auto loan interest. The loans and interest rates are often the most complicated part of the process, so let’s try to make them a little easier to understand.

Different Ways to Buy a Car

When you decide to purchase a new car, there are a couple of ways to go about it. The first is by paying cash outright. Like I said above, we do not all have it like that, so this can usually only happen if you have your eyes set on a lower priced used car. There is no reason to avoid used cars as a whole, but you should be sure you check out the seller and the car to make sure they are worth what you are paying.

The second way to purchase a car is through vehicle finance. It simply means that you borrow the money to pay for the car, then repay like you would any other loan. The differences come in with the availability of the loans, the interest rates, the repayment terms, and, of course, the amount you can borrow.

Types of Auto Loans

There are two basic types of auto loans that can greatly affect your auto loan interest rate:

Dealership

Most dealerships, both used and new, offer financing. Used dealerships usually provide their own financing, which just means that the owner of the used car lot is letting you make payments to him. New dealerships offer financing through institutions, usually one bank or lender that they have a deal with though sometimes they have connections with two or more.

Financial Institution

You also have the option to get the financing from an external institution. For instance, if you have good credit with your bank, you might be able to get a better auto loan interest rate through it than you would through the dealership’s lender. Also, if you take cash to a used car lot, you can often get an even better deal on the used car. It may be better for you to go to a lender yourself, get a personal installment loan, and go find a used car within the amount you borrow.

Calculating Auto Loan Interest

Auto loan interest can seem a bit complicated but it does not really have to be. The interest will most likely be calculated upfront and fixed into your monthly payments. This ratio of interest to principle might mean any of the following depending on the lender:

  • You might find yourself paying all of the auto loan interest long before you even touch the principle. This means that if you owe a total of $3000 in interest and your monthly payments are $500, you will make the first six payments to nothing but interest. After that, however, you start paying strictly on the principle.
  • Another option is that the auto loan interest gets paid by fixed percentage. For instance, perhaps 20% goes to interest while the other 80% goes to the principle every month.
  • You might also get charged auto loan interest that is calculated according to the balance each month. This would mean that if the interest is 20%, then- just like a credit card- 20% is charged on the balance you owe every month.

The way you are charged auto loan interest and the way that auto loan interest is applied to your loan should be disclosed upfront. If there is any confusion about it, be sure you ask for clarification before you sign any paperwork. It is important to understand all the terms of your loan.

It is also very important that you shop car loan rates. Call around to different lenders to find the best possible auto loan interest rate. It is also important to know that your credit score will affect the type of loan and auto loan interest rate you are able to get.

Using an Estimator

If you are looking for a way to determine what your payment will be, you can use an auto loan estimator before you even begin your search. With this estimator, you can input things like your credit score, the price of the car (if you don’t know it yet for certain, just estimate), interest rate, number of payments, and down payment or trade in amount.

These factors can give you a good idea of what your monthly payments will look like. What I really love about these estimators is that you can actually play with them to figure out your perfect conditions- well, as close to perfect as you can get. Let’s say you know that you can only afford a $300 monthly payment. You can hop onto an auto loan estimator and change all of the factors until you get to that $300 monthly payment.

This will tell you the amount you can afford to borrow for a car, the number of payments you should aim for, how much you should come up with for a down payment, and the interest rate that you need to look for. Though you may not be able to control every single factor, using an estimator for auto loans to figure out the best conditions for you and your wallet puts you in the most control you can be in. Try one out for yourself to see just how helpful they can be.

Making Payments

It is very important to make every single payment on an auto loan. If you do not, it can destroy your credit. If you miss too many payments, you might also lose the vehicle that you have worked so hard to obtain. With that, you will lose any money you have paid into it up to that point. Then you will have to start over. Make every payment you can on time.

If you will be late, talk to your lender. Often, they will attempt to work with you as opposed to going through the trouble of taking the car back. You should also keep in mind that, unless you pay your payments on time, you will end up paying more interest than you signed on for. In order to make timely payments, you have to prioritize them in your budget- which means adding them to your budget in the first place.

If you are like many Americans, that means either squeezing another bill into the tight space in between other bills or replacing some things you currently spend money on with the new bill. Below I share some ways to make some extra cash, but here are some ways to make space in your budget:

  • Replace cable with Netflix and Hulu subscriptions or simply decrease the amount of channels you get
  • Replace Starbucks with coffee from home at least a couple of times a week
  • Skip fast food as much as possible
  • Brown bag your lunch and snacks
  • Find ways to cut down on the power and water usage in your home
  • Check for a cheaper cell phone plan
  • Try carpooling, if it is possible
  • Workout at home instead of paying for a gym membership
  • Find creative ways to cut down on your grocery budget, including using apps like Ibotta
  • Fill out surveys on the side for gift cards that you can use at places you regularly shop
  • Find a cheaper place to stay
  • Try date night at home at least half of the time, or make it a game to come up with free dates
  • Learn how to make homemade pizza instead of ordering- it’s more fun and usually a lot more tasty
  • Learn how to make homemade cleaners instead of buying them all the time- natural ones are more healthy anyway
  • If you wash your clothes with hot water, turn it down to warm. When I did this, I made a huge drop in my power bill.

Deciding on the Repayment Term

Most often, you will find that three repayment terms will be offered, though you may run across more. The most common ones are 48 months, 60 months, and 72 months. How do you decide which to choose?

You have to understand what this means. You will most likely find that the higher the repayment term, the lower the monthly payment. Sure, it is tempting to take those lower payments- trust me, I know. The trouble is that the longer the repayment term, the more you pay in total overall thanks to the interest.

Choose the shortest repayment term with the monthly payments you can afford without giving up necessities. But avoid taking the longest repayment term just because you do not want to pay a higher monthly payment. This will save you a lot of money down the line.

Can I Pay It Off Early?

In almost every case, yes, you can. Occasionally, you will run across lenders who do not want you to. They can get the full amount of interest. So they will charge a prepayment penalty if you try. This is not with every lender, though, and more often than not, that penalty will not be anywhere near the amount of interest you will save.

Every single extra penny you pay on your car payment will help you pay it off quicker, but there are a couple of ways to really expedite the process:

  • Increase your monthly payment. If it is the least bit possible, double your monthly payment, even if you can only do it once. If you cannot double it, try just paying an extra $50, $100, or any other extra amount you can.
  • Separate your monthly payment. If your car payment is $500 per month, do not pay it all at once. Instead, pay $250 twice each month. Why? This actually adds up to one full extra payment each year. Think about it: monthly = 12 payments, twice a month= 26 payments. This means that you are paying an entire extra payment without really doing anything extra.

Refinancing an Auto Loan

Many times, people will realize that they cannot afford their car payments with the high auto loan interest that they first agreed to. If you find yourself in this situation, it is an excellent time to refinance your auto loan, but what exactly does that mean and how can it help?

Refinancing your auto loan very simply means taking out another loan to pay off your first one. How does a new loan help anything? Well, because the new loan should have a lower auto loan interest rate than the first one. Often, after you have been paying your first loan on time, you can get a much lower interest rate.

How to Decrease the Amount of the Loan

Paying auto loan interest can increase the length of time you pay on an auto loan, so it is a good step to decrease the amount of the loan you have to get. There are a few ways to go about this:

Car Shop

It is never a good idea to go with the very first car you find without at least looking at some other ones. Shop around for different vehicle makes and models. There is a chance that the fifth car you look at will be much better than the first one. Also, if you find one car model you love, look for the same one on other car lots. You might find that dream car somewhere else that is running some type of special at the moment or just has a lower price tag. Always shop around.

Consider Used Cars

I mentioned before that there is no reason to totally avoid used cars. That is true. In fact, used cars can save you a ton of money. Even purchasing a car one to two years old can save you thousands of dollars. Cars depreciate as soon as you drive them off the lot, so taking a look at older cars can get you one that is just as good- basically- as a new one, if you know how to shop used.

Talk to Rental Car Companies

Rental car companies like Enterprise usually replace their cars pretty often, enough so that the cars they rent are not more than a year or two old, though this can vary. Talk to these companies about purchasing when they are getting rid of cars. The good thing about buying from these types of places is that those cars have been cared for. Oil changes are completed regularly, problems are taken care of by mechanics quickly, and so on.

Talk to Dealerships

A lot of dealerships have used options, as well. There are three dealerships within two miles of my house. When I called around to check about the process to buy through the dealership, each of them asked me if I wanted new or used.

Get a Report on the Car

If you have heard of Car Fax, you know that you can get reports on specific vehicles. I personally have never used Car Fax, but I know some people who have. I hear good reports about finding out all that they needed to make a good purchasing decision.

Look for Bank Repos

Often, people will get a loan for a vehicle through banks and be unwilling or unable to make the payments, so the bank repos those vehicles. Some of them are still very new and in excellent shape. Finding a bank repo can be a great step towards purchasing a good used vehicle. Just call around to the banks in your area and ask if they have anything available.

Save As Much As You Can

Another way to decrease the loan amount is to save up as much money as you can to pay down on the car. If your auto loan interest is 20%, then every $100 you can pay out of pocket is $20 in interest you do not have to pay. That may not seem like too much, but it does add up. Also, the more you borrow, the higher the likelihood of a long repayment term. That, of course, can lead to even greater interest.

So how do you save up for a down payment? With some hard work and creativity. Here is a lesson that I Iearned a long time ago and teach my kids often: It is very rare that things will just be handed to you, so you have two choices to make. You can work hard now or work hard later, and more often than not, it takes less hard work when you do it upfront. In other words, it will be easier to work harder to save up some money now than it will to have to work hard to pay off a car payment. If you are willing to put in the work, here are my go-tos for extra cash:

Extra shifts

This is the tried and true method. Picking up some extra shifts at your job will always bring in some extra cash. This is even more true when you get paid extra on your hourly rate. Many jobs frown upon having to pay overtime pay, but some are happy to do it if it means getting things done that need to be done. Check with your boss about whether or not you can get some overtime pay.

Start a side hustle

It does not have to be anything elaborate or even permanent. Are you a gifted baker? Bake birthday and wedding cakes for people in your community for three or four months. Are you good at organizing? Advertise your skills as a home organizer around your neighborhood. Clean houses, fix lawnmowers, cut grass, babysit or pet sit, paint a house or room. Do some sewing, manage a social media account for a local business, or anything else that you can pull off. You will have better success if you can combine the cash from a few avenues.

Sell some stuff

Have your grandpa’s old records in the attic that you have no clue what to do with? Try selling them on eBay. Have a pair of shoes or jeans that no longer fit? Put them for sale on Facebook or Craigslist. Or carry it all out to your front yard and have a yard sale.

Trade ins

Many car lots will take your old car as a down payment on your new one. Not every lot will do this, but it is worth looking into. And if your old car is not in good shape, that does not necessarily mean you cannot trade it in. In fact, there is a car lot in my area that advertises you can trade anything “you can push, pull, or drag” to their lot.

The fact is that even cars in horrible shape are worth something. Even if it is just scrap metal or for extra parts. If you cannot move the car from your yard, there are people who will come around to pick up old cars and give you some cash for it. These are people who know how to either fix these cars. Or take them apart for the maximum amount of money. These steps could make you anywhere from a few hundred to a couple thousand. Both of which can help out tremendously when it comes to saving on auto loan interest.

A few years ago, we had an old car just taking up space in the drive. But we had absolutely no way to move it or even any idea what to do with it. It just sat there, rusting away and getting soaked on the inside because a window had been busted out for years.

Out of nowhere, we had a knock on our door. Some guy had a tow truck and offered us $400 for the car. I explained that it was in awful shape. And he explained that he could double or triple the money he paid us just by taking it apart. He sold it for scrap metal and a few parts that were still in working order. Even when a car seems worthless, it is still worth something.

Conclusion

When it is time to purchase a new car, you need to be sure that you have a plan in mind. It should consist of how much you can afford to pay and how long you are willing to make payments. If you go to a dealership, either used or new, do not jump on their financing option until you look into external options as well. Be sure you try out an auto loan estimator to get a good idea of what you can afford. Dealerships may not offer you the loan rates and terms you need, so always look into your own bank and other personal installment loan companies for the best deal. Loanry can get you offers from online lenders instantly. And we do mean instantly, right now.

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.

Bad Credit Auto Loans To Get Driving Fast

Unless you live in a major city like Chicago, New York City or Tokyo, you’ll need a car, truck, motorcycle or moped to get around. The alternatives are constant Lyfts and Ubers or taking the bus or subway. While both options, vehicle ownership and mass transit, cost money, owning a vehicle of your own has convenience advantages.

Purchasing one’s first car also stands as a rite of passage into adulthood. When you buy a car, you negotiate with the salesperson and arrange your financing. It is a show of your adulting skills. So, what do you do if you have little to no savings, no credit or bad credit, but need the convenience of a vehicle? You apply for Bad Credit Auto Loans and motorcycle loans designed specifically for those with bad credit.

Get an Auto Loan Fast

Avoid jumping into bad credit auto loans without doing your research. Read on to know more about the process.

Just because an institution says it offers auto loans for those with bad credit, does not mean that loan will work great for you. It may have a short pay back term or an exceedingly high interest rate. Take all of the following steps to get your finances ready for loan applications before you try to apply for a loan. You’ll save yourself time and money. Then shop for bad credit auto loans online.

Loan application may even require an application fee that accompanies it. These range from $20 to $50. That can add up. It is best to wait until you know you and your credit score are ready to apply.

“Know your budget, check your credit score, and review your existing credit accounts to ensure they are reported accurately,” said Joe Pendergast, the vice president of consumer lending for Navy Federal Credit Union in an interview with Credit.com.

Get Your Credit Score Ready

First, your definition of bad credit probably does not match that of a financial institution. Credit scores can range from 300 to 900. Banks and credit unions tend to think of bad credit risks beginning at about a score 640 or less. You might think that your score of 540 is pretty good, but banks see it differently. Banks know that you do not have to be rich to have a terrific credit score. You simply have to manage money really well. Many people of normal means have high credit scores. So, when they see a lower credit score, they see a person who does not manage money well. You can change their perception of you by changing how you manage things. You may still only qualify for bad credit auto loans, but you’ll get a better interest rate. Errors on a credit report negatively impact score, which is a big disadvantage when trying to secure an auto loan interest rate

Here are a few things you can do, starting today, to increase your credit score and achieve a better perception of yourself by financial institutions. After completing all of these steps you may qualify for more than just bad credit auto loans.

1. Check Your Credit Report

You can quickly increase your credit score by checking your credit reports. It’s free to do this once per year. Obtain a report from each of the three major credit reporting agencies.

a. Check each credit report for inconsistencies or errors. Not every agency will have the same data points. Some agencies collect more data than others because they include aspects the others do not in their report. For instance, Experian lets individuals opt into a collection of data

from their utility payments and cell phone payments. The credit reporting agency then includes this in the calculation of the score.

b. Address report inconsistencies and errors to the credit reporting agency. Include proof of the correct information, such as payment, credit card or bank statements showing the payment dates and accounts. It will take a few weeks for the agency to correct the data, but once they do, your score will be recalculated.

2. Pay Your Bills on Time

Pay your bills on time. It sounds so simple, but it raises your score so quickly. You can increase your credit score after only six months of timely payments.

You can make this easier by consolidating your loans, either by taking out a consolidation loan that lets you pay off each of the smaller loans fully or by using a non-profit agency like CareOne that helps you contact each creditor and restructure your debt. This reduces your monthly payment to each creditor. It also results in a single payment you make to the non-profit that it then distributes to each creditor, for you. This method can quickly reduce your overall debt. Since another party makes the payment distribution and is legally required to distribute the funds in a timely manner, it means your payments are never late. This quickly raises your credit score by making on time payments.

3. Raise Your Income

You can do this by asking for a raise at your existing job or by adding another stream of income. If you have been with your current employer for a while, ask for a raise. You can typically obtain a raise if you have been employed there for a substantial amount of time and have performed well.

You could add another income stream by getting a second job or starting a freelance business. Get a part-time job and work at it for a few months before applying for the loan. Six months is a good length before applying for a loan. You will need about six months of paystubs to show a loan officer.

Either bank the money you earn from your second job or use it to pay off existing credit cards and loans. This reduces your debt-to-loan ratio so long as you keep the credit card open after paying it off and that raises your credit score. If you choose the savings account option, you should take the account statements to the loan officer to show that if you did lose your job for a few months, you’d have means to still pay the loan payments.

You can earn money by freelancing as an appointment setter, personal assistant, blogger on a topic you know well, Lyft or Uber driver or some other pursuit. While you will not have traditional pay stubs, you can take print outs of your PayPal reports that show your earnings. You can also show the results of your labor by banking everything in a savings account.

4. How Budgets and Loan Calculators Help

You can find out what you need your income level to be to obtain a loan for a specific amount. Look at your current budget. Your total loan repayments including the bad credit auto loan or motorcycle loan you want to obtain, should equal less than 30 percent of your monthly income. If it would all require more than 30 percent, you have three options:

  1. get a second job or freelance to increase your income,
  2. pay off existing debts before applying for the new loan,
  3. apply for a smaller loan.

Use a Loan Calculator

You can also use an auto loan estimator to help find the affordable options for you. You can calculate your monthly payments using various options for down payment and loan term, plus interest rate. This lets you see how easily certain options fit into your budget.

While you may have your heart set on a brand new, $30,000 car, you may be able to reasonably afford a $15,000 used car. It can be the same model car, but a different year. Perhaps you have Norton or Harley-Davidson dreams, but a used Yamaha budget. Find vehicle options that fit your budget, not vehicles that kill your budget.

Once you are ready to apply for bad credit auto loans or motorcycle loans, you can do a few things to increase your chances of getting a “yes” from the lending institution. Instead of traipsing around town trying to speak to each bank and credit union, use Loanry to go auto loan shopping. It offers much more than bad credit auto loans and simplifies your process.

Motorcycle and Auto Loan Shopping with Loanry

Loanry provides individuals and businesses with a simple process for vetting financial lenders. Its participating institutions offer a plethora of loan types, including no credit or Bad Credit Auto Loans. Follow these quick steps to use this loan mall that makes finding a loan a breeze.

  1. Visit Loanry Auto Loans
  2. Choose the loan type you need at the top of the screen.
  3. Complete the short form with your basic information.
  4. Loanry sorts through its database of financial institutions.
  5. Loanry may help you find a lender
  6. You complete each lender’s long application.
  7. A lender work with you directly.

Shopping for an Auto Loan: What You Should Know

Loanry does not make loans. It simply helps you find a lender. These lenders work with Loanry’s site to offer auto loans products  including bad credit auto loans. That cuts down on the research you have to do. Using Loanry helps you determine which institutions offer loan products who may be willing to work for your need situation. It also saves you unneeded application fees to banks or financial lenders whose qualifications you did not meet.

The Loanry tool cuts your research time, so can determine the appropriate lenders to approach more quickly.

Using it also may reduce the number of requests on your credit report. These report requests happen every time you apply for credit, no matter what type. Each application for bad credit auto loans or motorcycle loans creates a request that lowers your credit score just a little. If you apply for many credit cards and loans, you will reduce your score, even if you did not take any out or were refused for each one.

While Loanry is not a lending institution, it does offer educational articles and tools to search for auto loan lender for bad credit – to help its users make better decisions about money. It offers these financial educational articles for free.

Once you are ready to apply for loans, you may find that your bad credit offers you limited opportunities. Before you go to a loan shark, explore your other options. While you will still end up paying higher interest than someone who could afford a prime interest rate loan, you do not have to resort to that high of an interest rate. You do have alternate options though since the Internet has spawned the peer-to-peer craze.

Try a Different Kind of Legitimate Lender

You have new legitimate bad credit auto loan opportunities besides banks and credit unions. Approach peer-to-peer lending services. This uses a one-to-one concept similar to that of an angel investor, except, you pay back the funds in full with interest.

Also, approach online lenders. Some offer smaller loans, some offer no credit or Bad Credit Auto Loans.

Either way, conduct extensive research on any lending institution of any type before you apply or provide any identifying information such as your Social Security number. Have an accountant look at the loan product of any non-traditional lender, before you apply and definitely before you sign any papers. Once you find a few options you’d like to pursue, you are ready to make your applications. Here are a few tips to help you obtain the best results from your bad credit auto loans applications.

Request a Loan Officer Meeting

If you have bad credit, you can help yourself by requesting a meeting with a loan officer. Even your local bank may have an online application, but you can request a loan meeting at the local branch of their organization. These meetings improve your chances of a “yes” from the bank or credit union by showing them your personage – presentation and demeanor – and important finance information that does not appear in your credit report or go into your credit score.

Paperwork to Take With You

Your credit score reflects your repayment of credit cards and loans. What it does not include is your monthly mortgage or rent, bills or private loan payments. Experian, Equifax and TransUnion do not get these items reported to them nor do they always have accurate information on your employer or salary. Take your pay stubs from all jobs you maintain with you to the meeting proving you have regular employment. This also establishes your amount of regular income on a regular time cycle, such as weekly or monthly.

Take with you statements from your checking accounts, savings accounts, Certificate of Deposits, stocks and bonds and/or retirement fund or annuity. If you receive any type of supplemental income, such as alimony, child support, veteran’s benefits, etc. you should include documentation of this. All of these income streams document your ability to continue payments if your employer reduces your hours or terminates your employment.

Present this documentation to the financial lender to strengthen your application. You can also take in proof of your timely payment of monthly bills to utilities, your phone company and your landlord. These items show that you pay on time and in full.

Sometimes, no matter what you do, the bank determines that it cannot offer bad credit auto loans to you unless it has evidence you can pay it back immediately if needed. They do this by requiring you to have either a cosigner or collateral.

The Cosigner Option

This is common for teenagers or college students buying their first car. These two groups rarely have credit established, so they can only qualify for bad credit auto loans. You use a cosigner to boost your credit worthiness.

The term cosigner refers to an individual who applies for the loan with you. They add their awesome credit score to yours to help you obtain the loan, but in the process, they accept absolute responsibility for the repayment of the auto loan. While you actually make the payments, if you miss one, it hurts their credit, too. If you default on the loan, the bank expects them to pay for it. This risk transfer takes the pressure off of the lender but means it takes special person to step up as your cosigner. In many cases, a parent will cosign a loan for their teenager.

Put Up Collateral

You can put up collateral for a loan. This provides a guarantee to the bank that you will pay back the loan. Collateral refers to a tangible asset that the bank could claim, then sell, to cover the amount of your loan. Examples include a boat, houseboat, vehicle, land or stocks and bonds.

Save Up for a Big Down Payment

You can improve your ability to qualify for a loan easily. Save your money up for a large down payment. This reduces the amount of money you need to borrow. It can also help you get a “yes” from the lending institution. Another plus is it can net you a lower interest rate to put down a larger down payment.

Smart Money Tip!

“Know the price other dealerships in the area are offering so you can make an informed purchase,” Joe Pendergast, the vice president of consumer lending for Navy Federal Credit Union in an interview with Credit.com.

Research the Autos or Motorcycles

Do a bit of local research before you apply for a loan. You need to find out the car or motorcycle you want and how much it will cost you locally. The prices you see online do not relate to what you’ll find locally. So, as Shutt advises, start your research online to broadly determine vehicles you can afford. This also prepares you for visiting local car lots.

At the local lots, the salespeople will try to do their job – to get you to spend as much money as possible. Remember that the car you choose determines the loan you need. Choose a reasonable car to borrow less and pay less interest.

Show what a tough negotiator you are by pitting one dealer’s price against the other’s. Many dealers will match or beat the price of the other’s and that could get you a rebate, discount or other special savings. It’s your job to get yourself the best deal on a car.

It’s Loan Application Time

You have done your research and you think you are ready to buy. You’ve also researched various loan options and have looked at the cars. You have priced them. You are ready to obtain your financing so you can make your big purchase.

Car Lot Financing

Beware of using the car lot’s financing. Some car dealers mark up the interest rate from the one the actual bank rate, then the two split the excess interest fifty-fifty. Carefully read any offers from car lots partnered with credit unions, too, because they often do the same thing. Apply directly to the credit union to get the best rate.

Loanry Listings

Revisit your interaction you received from a lender who use Loanry. Read their terms carefully. Choose from them one and make your application. If they extend a loan to you, you can go purchase your car quickly. Some lenders that use Loanry deliver the funds electronically and will deposit the funds into your bank account within a couple of days. You then make your purchase.

If you get turned down, you can keep auto loan shopping. They may have a slightly higher interest rate or some other terms that made you rank them lower than others, but you may get a “yes” from them when you got a “no” from the first bank.

However, remember that each application could create a hit on your credit report. Using Loanry may reduce these hits, but if you apply directly to local banks or credit unions, each of those application creates a unique hit to your credit report which lowers your score a little bit. An application through the car lot does the same thing.

Even if you do not get a yes, you need to stop applying if you get three “nos” in a row so that you do not damage your newly re-built credit score excessively. It could be time to ask for a private loan from a parent or guardian to fund your car, truck, moped or motorcycle purchase. You can borrow the money from family and create a monthly or weekly repayment schedule. This gets you on the road without further damage to your credit.

On the Car Lot

When you go to actually make the purchase, the sales person will try to upsell you. Do not fall for it. Stick with the vehicle you have decided to buy in advance.

Stick to the total value of the vehicle you want to buy. Whatever you do, do not let the salesperson trick you into saying what monthly payment you can afford. They will simply manipulate other factors of the loan, such as its duration, to make a more expensive vehicle seem affordable. You are not getting a deal. This is called the “monthly payment scheme” and every car salesperson gets taught this.

If you are approved for a $17,000 loan, then buy the car or motorcycle that you had chosen in the first place. You will end up with the vehicle you researched at the price you planned on paying. You will already know the loan duration since you researched it. Remember, the duration combined with the interest rate of the loan determines how much extra you will pay to the financial lender for the privilege of getting funding for your car purchase.

Buying a car with bad credit can still be done. You simply need to start earlier in the loan process with your research. Loanry can help with that. Let Loanry help you find an auto loan lender for bad credit online today.

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.