Auto Refinancing to Help Save More Money

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.

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.

Original Loan vs Refinanced Loan

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.

The Convenience of Online Auto Refinancing

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.

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.

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.

Did You Know?

The total amount owed by Americans on their personal vehicles is over $1.4 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.

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.

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.

Loanry

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.

A Point to Consider When You Obtain an Auto Loan

You should consider that 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.

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.

An Auto Loan is Considered a Secured Loan

This is 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.

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.

How to save on your car loan.

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.

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.

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.

Vault or Safe box with coin stacks

Should I Save The Money?

Saving money is always a good idea. As a general rule of thumb, you should already be saving money.

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.

Loanry

Auto Loans with Low Income: Ride Here

There are many reasons you might consider getting an auto loan. Are you purchasing a new or used car and do not have enough money in the bank to pay for this vehicle out of pocket? Are you looking for a chance to refinance an auto loan you already have? If either of these situations reflect your own personal situation, then it may be time to consider getting an auto loan? Are you concerned about being able to buy the car you need because you have a low income or bad credit. Don’t worry — it is possible to get auto loans with low income and bad credit. You can even get auto loans for bad credit online.

How to Get an Auto Loan with Low Income

Getting a personal loan is so easy it can be done in three simple steps. If you are looking for auto loans with low income, then you may feel like your task is impossible. Trust me, it’s not. You can do this. Searching for auto loans with low income just requires you to work a little bit harder. For instance, you cannot be afraid to ask for help. There are many companies whose sole purpose is to help consumers find auto loans with low income.

These companies offer their services for free and help consumers find a local dealership in their area that will help you find auto loans with low income. Or they help you find a lender that is right for you. You usually apply by filling out a short form online that can be completed in just a few minutes.

When it comes to getting an auto loan with low income, patience is the key. You may stumble upon several obstacles, and surely getting a loan will not be as easy. But it is far from impossible. With the right help, you may find great auto lenders and get approved for a loan.

Excited Black Guy Shaking Fists Standing On Knees Near Auto In Dealership Store.

How to Get an Auto Loan with Bad Credit

While we’re at it, let’s talk about another unfavorable situation – bad credit. Same as with low income, bad credit is an obstacle to getting a loan. It will not stop you from getting a loan, but it can hurt your chances of getting a loan with a low-interest rate. In fact, if you are looking for an auto loan with bad credit, then there are auto loans out there made just for you.

In order to get auto loans with bad credit, you should consider requesting a meeting with a loan officer. At this meeting, you can show the loan officer who you are, with a positive presentation and demeanor, as well as explain what your personal situation is. This meeting can give you a leg up in your chances of getting an auto loan.

In addition to meeting with a loan officer, consider the cosigner or collateral option. If you have bad credit, then you may still be able to get an auto loan if you have someone cosign with you. This other cosigner is agreeing to the absolute responsibility of repaying the auto loan, so that if you do not pay, then the lender knows that someone will. If you are not comfortable asking someone to cosign with you, then you can consider putting up collateral for an auto loan. This means that if you do not make the payments on your auto loan, you could lose the collateral you put up for the loan, such as your car or house.

Auto Loan Basics

Auto loan basics are basics for a reason: they’re the basics that everyone should know. This does not mean you should feel bad or uneducated because you do not know something here, but if you don’t know something mentioned below, then it means you are definitely in the right place. If you are considering getting an auto loan, then you need to make yourself familiar with these auto loan basics:

What Is a Car Loan and How Does It Work?

There are two types of auto loans. You can either get direct lending or dealership financing. If you choose direct lending, then you get to make the arrangements of your auto loan with the financial institution of your choice. If you choose dealership financing, however, you will have to make the arrangements through the dealership. Both options have pros and cons, and in general, the two options are not dramatically different.

When choosing to go with direct lending, you are choosing more freedom. Because you can choose whichever financial institution you most prefer, you have the freedom to comparison shop for auto lenders. Auto loan shopping allows you to find an option that fits your budget, with realistic payment options and better rates and terms. Plus, if you have pre-approved financing, then you are sometimes able to negotiate a better price.

Dealership financing can be a simpler option. You do not have to deal with auto loan comparison shopping, spending a lot of time and effort to find the auto loan with the best terms. If you choose dealership financing, then the dealership will do this for you. They will either do the financing internally — if they have their own financing department — or do the financing externally — through a finance company that they have a prior agreement with.

One benefit of dealership financing is that it means you already know what car you want, which means that you already know how much financing you need before getting your loan. This could save you money in the long run, so that you don’t have to pay back even more — including that compounded interest — in the future.

The Car Loan Process

Getting a car loan isn’t very difficult, but it can be made even easier if you understand the car loan process. The first thing you should do is to use an online auto loan calculator to set a realistic budget for yourself. Once you have your budget, you should check your current credit report, so that you have an idea of what loan options you will have. It is possible to get auto loans for bad credit online, but it is a good idea to inform yourself of your situation early on in the process. This can allow you to set realistic expectations for what your loan options will be.

Before getting a car loan, it is a good idea to know what you are looking for in a car. Research is essential. If there is a specific make or model you prefer, or any special features you know you do not want to go without, then you should keep that in mind when researching the range of prices for similar cars to your preferences. Many people trust and rely on the Kelley Blue Book to see what current average prices of specific cars are.

Once you know what your current financial status — including your credit score — is and what your will be likely to have to pay on average for the kind of car you want to buy, then it is time to do some auto loan shopping online. This can help you find the best auto loan for you and your personal needs.

Auto Loan Statistical Overview

The statistics on US auto loan rates show that, on average, Americans borrow $20,446 for used vehicles and more than 31,000 for new ones.

Source: acorns.com

Types of Loans

Before you make a commitment to getting an auto loan, you should know what your options are. There are many types of loans out there, and there is certainly an option out there that is right for you. An auto loan is just one type of personal loan. Below are some other types of personal loans:

Unsecured Loan

An unsecured loan is a type of personal loan that does not have collateral backing it up. This means that if you do not make your monthly loan payments in full and on time every month, then the lender cannot just take something from you in order to make up for the money you did not pay. This means that an unsecured loan is more risky for lenders. Though very uncommon, it is possible to get an unsecured auto loan.

Secured Loan

A secured loan is a type of personal loan that does have collateral backing it up. Items put up for collateral are typically worth a lot of money, so that they can make up for whatever you decide not to pay on your loan. For instance, if you get a secured auto loan and do not make your payments on the loan on time, then your new car can be taken away. Auto loans are most often secured loans.

Open-End Credit

Open-end credit is a type of credit where you can “withdraw money as you need it, over an extended period of time.” Two common options for open-end credit are lines of credit and credit cards. This is a good option for someone who is, for instance, working on a project where they need to take out multiple smaller sums of money, depending on what individual expenses they have. One advantage of open-end credit is that you typically do not have to pay interest on whatever money you do not withdraw.

Closed-End Credit

This is a type of credit where you get one set lump sum. Closed-end credit is typically done in the format of a traditional loan. You request to borrow a certain amount of money, and you get that amount of money in a lump sum. Then, you must repay this lump sum, plus interest, over an agreed-upon period of time. If you decide to get a single payment loan, then you will be required to pay the entirety of the loan -- what you borrowed plus interest -- in one lump sum.

Auto Loan Rates

It is impossible to say what your auto loan interest rate will be without knowing your exact situation. Rates can vary from lender to lender, and dealers may push special promotions in order to quickly get rid of certain stock. Regardless of these uncertainties, there are some things you can be certain will have an effect on what rate you end up getting.

Your credit history will be sure to affect what interest rate you get. Though it is possible to get auto loans for bad credit online, you are not likely to be able to get an interest rate as low as someone who has good credit. On the other hand, getting a loan — and repaying the full amount due on time every month — could actually help strengthen your credit.

The length of the loan can also have an impact on your interest rate. Generally, though not always, loans that will last longer have higher rates. Sometimes you don’t have a choice; if you cannot afford to take an option with a shorter loan, then get the longer loan that is more realistic for you, however, if you can afford to get a shorter loan, then that is a better option that will allow you to spend less overall in the end.

Not all cars are equal. What you buy will determine how high or low your interest rate is. If you are interested in financing to purchase a new car, then you may be able to take advantage of introductory rates or special financing. If, on the other hand, you are interested in financing to purchase a used car, then you may not be able to find such deals.

This is because “used cars are considered a greater risk for lenders, since their resale value is already lower and the chances are good you’ll owe more than the car is technically worth at some point down the road.” Used cars may come with a lower sale price, but they also come with higher interest rates.

What You Need to Know About Auto Loan Shopping

If you have decided to take part in auto loan shopping, then there are some basics that you need to know before taking action. First of all, you should budget before you shop for auto loans. If you budget before beginning auto loan shopping, then you will be more aware of your realistic expectations in finding an auto loan. For instance, budgeting will help you determine how much you are able to pay up front for a car, as well as how much you will be able to pay in monthly payments after you get the car.

Besides budgeting, it is important to explore all of your options. This is why auto loan shopping is so important. If you take the time to look at multiple auto lenders, then you will see what options are available — with what terms and rates. This could help you get better rates in the end, since you usually do not get the best offer on your first try. Exploring your options will help you find the absolute best auto loan for you.

Average car loan rates by credit score.

Conclusion

Getting auto loans with low income can be stressful, but with the help provided above, the process should be much easier. You can also get help from Loanry and look into our lender recommendations.

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Auto Loan Basics Spelled Out: Lending 101

Ever notice how there are things it feels safe to ask about and other things you feel like you’re supposed to just magically… know?

A friend of mine recently mentioned she’d purchased a car. She told me the color, make, and model. I asked about the engine, its features, and how it felt to drive. These are the polite things one does when someone is excited about a recent purchase, right?

What I really wanted to know, however – but didn’t feel I could ask – was how she financed it. What interest rates are auto lenders offering these days? Also, what sorts of terms can someone with average or even bad credit get? Is the process as painful as I seem to recall from when my parents were doing it a generation ago, or has it gotten any better?

Too many of us feel foolish asking about auto loan basics when there’s really no reason we should. You’re not missing some critical link in your genetic code. You weren’t skipping the day they covered auto financing in Adulting 101. Maybe you’ve simply not financed a vehicle lately. (If it makes you feel any better, I know plenty of people who have financed their cars. Those often still don’t quite know how it works.)

Let’s look at a few auto loan basics.

What Is a Car Loan and How Does It Work?

I know – it sounds so simple, right? But for most of us, purchasing a car is one of the biggest and most important financial decisions we’re going to make. Surely that’s worth a little planning ahead?

There are two basic types of auto loan: direct lending or dealership financing. With direct lending, you make arrangements with a financial institution of your choice. Usually before you buy.

Your local bank, credit union, or other auto lenders are usually happy to share their current rates and terms with you. This gives you the freedom to comparison shop ahead of time. You can figure out your budget and realistic payment options before even talking to a car dealer. Pre-approved financing can sometimes help you negotiate a better price. Especially since your funding is already secured.

Dealership financing is not dramatically different. However – as the name suggests – takes place through the dealership. Some automakers have their own financing departments. It means your loan is actually through them. Most have arrangements with outside finance companies. They transfer your loan to them before your first payment even comes due. Dealership financing offers you additional convenience in that you know exactly what car you want. You also know how much you need to finance before setting up the loan. Plus, it’s available whenever the dealership is open. Either late nights, long weekends, holidays, etc. Dealers also love running promotions with special interest rates or other terms which you might find appealing.

Did You Know?

The average new car loan in 2018 was $30,977, while a used care loan was $19,861. Generally speaking, a higher the credit score results in a higher loan amount. Another interesting stat is those in the 2nd highest credit tier borrowed the most coming in on average at $32,630 for new cars and $21,293 for used ones.

The Car Loan Process

Don’t feel foolish if you’re not sure how to shop for a car loan. Auto loan shopping isn’t difficult, but it is different than it was a generation ago.

The good news is that technology has made it easier than ever to get started. The first thing to do is to figure out a realistic budget using an online auto loan calculator. In the 21st century, this is an essential requirement of Auto Loan Basics 101. Most versions will let you play with interest rates, lengths of the loan, and other factors to figure out what works best for you. Then, check your current credit report. The earlier you begin this part, the easier it will be to address or correct any errors.

It’s also a good idea to research your vehicle options ahead of time. This should be part of everyone’s auto loan basics, but sometimes our emotions take over and we get careless. Make note of what features you consider essential and which would simply be nice to have. Check the range of prices you might be able to negotiate using sites like the National Automobile Dealers Association, Kelley Blue Book, or Edmunds.

Once you’ve got your information together, you’ll find auto loan shopping online to be relatively painless. You’ll probably be surprised how quickly you hear back from multiple auto lenders. Obviously you should consider each offer carefully before committing, but personally, I much prefer having lenders compete for my business over the old way. Maybe our parents were willing to slog from lender to lender, sit in an endless array of hygienically-suspect chairs, and endure suspicious looks and questions from disgruntled loan officers, but you don’t have to.

Unless you’re just into that sort of thing, of course. In that case, have fun.

How Is Auto Loan Interest Calculated?

This is another part of auto loan basics which too often makes us feel foolish when there’s no reason we should. Most auto loans involve simple interest, meaning you pay interest only on the principle of the loan (the actual amount borrowed to pay for the vehicle and related costs like taxes). The alternative is compound interest, in which the borrower pays not only on the principle amount but on any remaining interest owed – interest on interest, as it were. Usually you only want to hear the term “compound interest” when you’re earning money on your savings!

If you want to dive into the nitty gritty details of what interest can look like over the life of your loan, check out this breakdown by IFS. They explain it quite effectively with plenty of visuals.

Who Offers the Best Auto Loan Interest Rates

Source: WalletHub

How Do Car Payments Work?

This is an easy one, right? They send you a bill each month and you mail in your check. Done!

It’s true that once you have the car and have signed the paperwork, the terms are largely set and you should pay what you owe each month. That’s foundational to auto loan basics. But let’s look at those payments and what goes into them ahead of time. Maybe we can avoid a few careless mistakes.

You’ve probably figured out that a lower APR (“annual percentage rate”) means you’ll pay less over the life of the loan. That’s absolutely true, but APR is not the only factor. The length of the loan matters as well.

Make Your Payment…

According to Lending Tree, "Delinquency rates for auto loans trend together including loans 30 days past due, loans 90 days past due and loans at least 90 days past due. All three peaked following the 2008 downturn, with 30-day delinquencies spiking to near 11% in early 2009, but have stayed around 7% since 2011."

Let’s Take an Example!

Let’s say the car you want will cost you $30,000. You’ve managed to save about $3,000 in anticipation of this glorious day, but that’s clearly not enough. You check around and discover one lender who’ll loan you the full amount and let you pay it back over 48 months, another who’ll offer you 60, and a third who starts at 72. That last offer has the lowest payments of any of them and you get to keep your $3,000! Sounds good, right? And if those are the terms you want, there’s nothing wrong with that.

Still, what are you paying in total over 72 months for the same car you could finance for 60, or 48? That should always be something you consider (not just the size of your monthly payments). You’d be surprised at the difference, even if the interest rate is the same for each – and it’s probably not.

The third factor is your ability to make a down payment. Remember that $3,000 you set aside? Applying that upfront would not only make your monthly payments be lower, but the total interest you’ll pay over the life of the loan would be less as well. It might even be enough to help you do 60 months instead of 72, or 48 instead of 60, which then saves you even more.

Don’t let the complex interplay of factors intimidate you. You don’t have to take Algebra II at your local community college before you buy. Just remember those handy online loan calculators we mentioned from Auto Loan Basics 101. Run a few of the options and see what happens. It doesn’t cost you anything to play with it a bit and prepare; it might cost you in the long run if you don’t.

Auto Loan Rates

If you’re wondering what sort of interest rates you’re likely to secure for your auto loan, the solution is pretty straightforward – try several lenders and see. Interest rates vary widely over time and from lender to lender. Add to the mix the various promotional rates offered by dealers anxious to move some stock off the lot and it’s impossible to say ahead of time what a “typical” rate might be.

With that in mind, here are a few auto loan basics which determine that rate, whatever it might be:

I realize this is a bummer for some of us, and believe me – I totally understand. But we might as well acknowledge up front that this is a pretty big factor in determining what we’ll be paying for our loan. On the other hand, a reasonable auto loan is a great way to rebuild or strengthen that same credit history by making sure you’re realistic about what you can afford and making your full payment on time every month.

Generally speaking, longer loans come at higher rates. Even if the rate is the same, you’ll pay more interest over time with longer loan terms. If you gotta do 72 months, do 72 months, but if you can do 60, or 48, consider those instead – even if it means dialing back on a feature or two in order to make it happen. Keep in mind that down payments may or may not reduce your interest rate, but they will reduce how much interest you’ll pay over the life of the loan.

 

New cars are more likely to have introductory rates or special financing. Used cars are considered a greater risk for lenders, since their resale value is already lower and the chances are good you’ll owe more than the car is technically worth at some point down the road. Pre-owned vehicles tend to cost less – which is great – but come with higher interest rates.

Do some auto loan shopping ahead of time by comparing your online options to your favorite banks or credit unions. Scan local ads for dealer promotions and be ready to ask about special financing, then compare it to what you’ve already researched from other lenders. There’s no absolute right or wrong, best or worst on this one – it all depends on who’s offering what, when, and under which conditions.

I realize it’s not as exciting to do loan calculations and compare rates from various auto lenders and look up “blue book” values and all that when we’re buying. There’s a certain thrill to following the spotlights and the inflatable dinosaurs and test driving a few dream cars in candy apple red or adding booming stereo packages before signing on the dotted line in triplicate and cruising home covered in new car smell. It can feel good to leap before we look and figure we’ll worry about the details later.

But those car payments keep coming due every month whether we put in real time and consideration up front or not, and by about month three they’re not particularly thrilling no matter how sexy the paint job or how loud those woofers. Maybe it’s worth sacrificing a little “living on the edge” on this one in order to prioritize auto loan basics? It will reduce your stress and improve your financial security for the remaining years of the loan, which is very much a win – however unexciting it might seem compared to those inflatables.

Do Car Dealerships Prefer Cash or Financing?

Generally, dealers prefer financing, since in addition to whatever profit they make on the actual vehicle, they can count on a little extra from finance charges and the interest you’ll pay. Even if they sell your loan to an outside lender, they net a little extra when you finance through them.

That doesn’t mean you have to finance if you want a good deal on a car. If you do walk in pre-approved from an online lender or local financial institution, or with your checkbook ready to simply pay the full amount, however, you might avoid committing on how you plan on paying until after you’ve come to an agreement on the final price.

They’ll ask, of course, just like they want to know if you plan on trading anything in before they start talking specifics with you. That’s auto loan basics from the dealer’s standpoint. That doesn’t mean you have to do everything their way, however. There’s no need to be dishonest or coy, but these days, dealers realize there’s more information out there than they can control about car values and reasonable pricing. They know you have options. Don’t be afraid to proceed based on what you want to know and how you want to handle things. They’ll either work with you on those terms or they won’t, and you can try somewhere else.

“Be willing to walk away” is normally reserved for Auto Loan Basics 201. You’re ahead of the curve already!

How Does Your Credit Score Effect an Auto Loan?

Let’s start with the obvious: a better credit score will usually get you a better interest rate on your auto loan. Anyone who tries to convince you otherwise is either dishonest or delusional. Now that that’s out of the way, let’s talk about a few less-obvious factors when it comes to your credit score and getting a decent auto loan.

First, check your credit report before you get serious about car shopping. It’s a pain to fix errors, but they do happen and it can be done. Pay particular attention to anything your credit report suggests about past vehicle financing.

That brings up a second point. Lenders considering you for an auto loan are primarily concerned with your track record when it comes to auto loans. I realize that sounds a bit silly. However it’s worth considering. Let’s say you’ve done pretty well paying off two previous vehicles – or maybe one used car and one other big-ticket item like a furniture purchase. On the other hand, your credit score is unimpressive due to outstanding medical bills or other uncontrollable expenses. We agree that your overall credit score still matters. Dealerships and online lenders will notice when the issue doesn’t seem to be your ability to pay for planned purchases. Keep in mind they want your business; all they’re worried about is whether or not you’re going to pay them in a timely manner.

Finally, you’ll never get a loan for which you don’t apply. The abundance of local banks, credit unions, and online lenders means financial organizations have to take a few risks if they’re going to do enough business to compete with your other options. The world of credit isn’t what it was a generation ago. Get your information together, then ask.

How To Get A Car Loan With Bad Credit

At the risk of sounding like a broken record (ask your mom what a “record” is if you’re not sure), the most important step towards getting the loan you want, even with your credit, is to apply for the loan you want, even with your credit. Seriously, what’s the worst that could happen? A few lenders might say no, or propose slightly different terms than you’d hoped?

Now that you’re sick of me repeating that point, let’s talk about a few of the many things you can do to increase your odds when it comes to getting the best possible loan (even with your credit):

This should be someone with a strong credit history who trusts you enough to put their credit rating on the line to help you out. If you make your payments as scheduled, your credit record improves without any change to theirs. If you don’t, their credit record is damaged and they may eventually be expected to pay what you’ve promised – so let’s take this one seriously, shall we?

It’s not a surprise that you’re going to need a car someday. Saving money is never the easiest thing in the world, but even a few thousand dollars up front can change the equation in terms of monthly payments, interest rates, and even the willingness of lenders to take a chance on you.

Address any errors or fix any oversights on your part if possible. (You notice we keep returning to this theme? It’s like it’s important or something and yet many people simply don’t do it ahead of time. Hmph!)

Know what sort of APR (annual percentage rate) is being offered through various lenders and the typical prices negotiated for several of your top choices. Play with some online loan calculators so you understand the way various factors shape potential loan payments. Compare local banks, credit unions, and online lenders, even if it means delaying your car-shopping for few days while you do. Don’t be demanding or obnoxious, but there’s nothing like knowing what you’re talking about when you’re trying to secure financing.

Research vehicles, typical selling prices in your area, and other logistics before walking onto that lot.
Know what features are essential to you and what you can live without, and be ready to compromise a bit if the dealer has something pretty close in stock that they’re ready to move. And for goodness sake, don’t get fixated ahead of time; have several options so you can honestly walk away if you’re not happy with the terms. Know your non-negotiables and on what points you can be flexible going in – that’s Auto Loan Basics: The Prequel, my friend!

Look at overall loan terms. We talked about this above, remember? I’m only mentioning it again because the whole process can sometimes leave us feeling a bit glazed over and I figure a little reminder wouldn’t hurt. You’d do the same for me, wouldn’t you?

Sometimes we think more clearly if we bounce things off that colleague from work who always asks the right questions or that sister who isn’t afraid to be irritating when she knows we’re about to do something we’ll regret. Anyone familiar with auto loan basics and willing to be a second set of eyes and ears in the process. (Your spouse or significant other doesn’t count. They’re probably not really a “neutral outsider” when it comes to major purchases – at least I hope not. If they are, you’re doing relationships wrong, my friend.)

Where To Shop To Get A Car Loan

I assume at this point you’re tired of me telling you to check with your local bank and credit union. Besides, you probably know how to shop for a car loan this way – walk in, sign the list, and talk to whoever calls your name, right?

If you thought to yourself,

“But first I should check my credit report, estimate what I can reasonably afford, narrow down my vehicle options, and experiment with an online loan calculator…” then YOU GET A STICKER and ONE THOUSAND BONUS POINTS! You are officially gifted and talented when it comes to auto loan basics.

What you may be less certain about is finding reputable online auto lenders. The internet is a magical place, but you’d be foolish to stake all your hopes and dreams at the first search engine result that comes up (which was probably a paid advertisement anyway). That’s where we come in.

Conclusion

We use our expertise to connect buyers with online auto lenders. This flips the traditional dynamic associated with getting an auto loan or any other kind of financing. There’s no reason you should be overwhelmed or frustrated, going from desk to desk like Oliver Twist wanting more warm mush. What you are is a client, empowered to choose from numerous marketplace lenders who compete for your business by putting together their best solutions and hoping you’ll consider giving them your business.

These are experts in creative financial solutions who understand your situation. They exist to help people like us figure out how to figure out situations like this. Some even specialize in helping you rebuild your credit if things haven’t gone, you know… perfectly in years past.

You’re probably wondering about the catch. What are we selling you? Nothing – nothing at all. Loanry gathers some basic information and offers a few tools to help better determine your needs, then helps you find a participating lender to secure a solution both of you decide is best. We don’t charge you any fees or take any payments from you. Period. Once you’ve found a lender that meets your needs, the rest is between you and them.

Good luck, happy driving, and be safe. You’re now an expert in auto loan basics and ready to share your wisdom with others.

After you get that car, of course.

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