Tag: Auto Loans

How to Drive into No Credit Score Car Finance Options

Posted on | by Carlie Lawson
Young woman holding car keys. Car loan.

You have a few options when you need to buy a car, but with no credit score car finance can be a little tricky. You have no credit history or even a bad credit history. Some may seem like a no-brainer, while others you may not have known about until reading this article.

Some of these methods take a little while, so if you need the vehicle this minute, you won’t be able to use the cheapest methods. If you have six months to a year to prepare for the purchase, you can use any method. Great news, right?

A Little Truth About Buying a Car

Car dealerships want to sell you cars, trucks, SUVs, motorcycles, trikes, etc. This makes them money. That’s because unless the dealership genuinely finances the loan internally, they already got paid. When you buy the vehicle, you typically take out a car loan. You give all the money from the car loan to the car dealer who gives you a nice, shiny new vehicle. The car payment you make each month goes to the bank that holds your loan.

I know, I know. You see those commercials on TV that talk about their financing department. They tell you how you can sit down with their finance rep and hash out a payment plan. You do go through them to get the loan, but the car dealership usually sells the loan to a bank. Huh. They do not want to have to deal with the money collection and handling the repossession if you default on the loan. Many times, they might have a deal with an online lender or a local bank that they will “share” the finance rep. The rep actually works at the car lot, but they have permission to approve the loan applications. The car lot does not make the loan; the bank with which they make the agreement does.

This might seem hinky, but it works to your advantage. The deal between the bank and car lot often lets the dealership accept some loan apps that would typically have gotten turned down at the bank. You could have fair credit and still get approved.

How To Buy A Car With No Credit History

The truth is, every person starts out with no credit, so we all had to find an option for no credit score car finance. We all had to grow, get that first job and apply for that first loan or credit card. Every one of us has been there and so has the credit bureaus. They know that every person starts out with no credit history.

You do begin your adult life with a credit score though, sort of. When you turn 18, you can legally sign contracts. You start out with a credit score of about 300. You have to start somewhere.

The scale ranges from 250 to 900. The idea is to only go up. This is quick and easy to do. According to Credit Sesame, the average 18-year-old has a credit score of 631.

In less than a year of having credit, most 18-year-old adults build it quickly. They do this with a credit card and a car loan. So, how did they get the car loan with no credit?

☛ Use a Co-signer

Using a co-signer provides the most common way to get a car loan without a credit history. Maybe you aren’t in your teens, and you have no person to co-sign for you. You might need to re-establish credit for some reason. You can visit an auto dealership that specializes in sales to individuals with bad credit or no credit. These auto dealerships typically work with a financial lender to offer to finance on the lot. You will pay pretty steep finance charges by using this route, but it gets you the car.

Most teens have their parents co-sign for their first auto loan to get around the no credit score car finance problem. This gets them the help they need to build credit. They make all the payments themselves. The parent simply co-signs to guarantee the bank that they will assume repayments if their child does not make the payments, or something happens to them that they cannot do so.

☛Build Credit Score With a Secured Credit Card

Qualify for a secured credit card and you can build your credit history easily. In just six months of paying your bills on time and always making at least the minimum payment, typically more than that, you can establish a terrific credit score and at least a short history. It only takes six months to build your score up. Conversely, you can ruin it that quickly, too, so you need to carefully pay for everything quickly.

☛Borrow the Money from Family Members

Instead of taking out a loan from a financial institution, you can borrow the money from your parents or another relative. This lets you avoid finance charges, but you do not get to build credit. That part is a bit of a bummer, and it can hurt you down the line. If you just need a small loan though because you plan to purchase a used vehicle, you can probably easily borrow it from your mom or dad if you’re just starting out.

Young man getting the new car. He hugged his car and was very happy.

☛Take Out a Bad Credit or No Credit Loan

Shop around for bad credit loans and/or no credit loans. This can get scary when you read the interest rates you will pay. If this is your first loan, you probably do not know the difference between a prime interest rate and a subprime interest rate, but when you have no credit history, you will probably feel like you had to take out a loan at loan shark interest rates.

You can find some online lenders that will willingly extend a loan to someone with no credit history. They charge a lot though. Think in terms of 25 percent or more. You could end up with a loan for $10,000, but at 25 percent interest, you end up paying back $12,500. You bought a car and a quarter of another car, essentially. These options also require you to make a specific amount of money. Many of them mandate a $1,500 per month income to qualify for the loan. These make a good choice for those re-establishing credit after a bankruptcy though.

☛Buy a Used Car

Purchase a used car instead of a new vehicle. You can save thousands of dollars by purchasing a used vehicle. You might also look at program cars, certified used cars, and rental car sales.

If you have a few thousand in the bank, but you want a car quickly, you can use that money to buy a used or program car outright. Many dealerships offer certified used cars through a program with the manufacturer. This gets you a vehicle with a warranty for much less than a new car. Purchasing a vehicle that is just two or three years old can result in a savings of about $5,000. It will still have the new bells and whistles, so you enjoy the latest tech, but you won’t pay nearly as much for that.

☛Shop Smaller Auto Dealers for Better Deals

Shop at smaller car lots. Instead of shopping in the city, travel to a rural-ish area. You can shop in the suburbs, too. If you can find a small car lot, especially one that is unaffiliated with a specific manufacturer, you can usually land a better deal.

These may not have many off-of-the-line cars, but they probably have quite a few newer, used cars. Another plus is that they will often loan to you when a city dealer would not.

☛Make a Larger Down Payment

Make a larger down payment, so the car lot gets more of its money outright. You do not have to save the entire price of the vehicle. If you can save up a large down payment, you can often sway the dealership into providing you with a loan. That is because they get that money outright without waiting for the loan to get approved and processed. The larger a down payment you can make, the better.

☛Gen an Extra Job

If you are in high school, get a weekends or nights job. If you already have a job, get a second job. You can instantly increase your income.

When you increase your income, the bank or credit union looks more favorably at you. They think more highly of you when they see how much you work, and you earn. Bonus points if you put a lot of what you earn into a savings account. They love that! The US minimum wage pays $7.25. Many retail locations pay more than that though. Let’s use that for our math though.

We’ll say you landed a night and weekend job. You work eight hours on Saturday and on Sunday. During the week, you pick up just two half shifts. You might still be in high school, and you need a few nights for homework and a date night. You work 24 hours each week at minimum wage and you make $174 per week. Since there are five weeks in a month, you clean up, making $870 per month. Not bad for a 15-year-old. Your work will pay out your Social Security taxes and other federal taxes from your check, so you will get a bit less than that.

About one-third of your income usually goes to various taxes, but you get back a chunk of it at tax time, so let’s say $261 of that went to various taxes and your take-home pay is $609. In six months, you have a little more than $3,600. You could buy an older used car outright or keep saving for a full year. Then, you would have $7,308. Wow! You have two-thirds of the cost of a new car.

☛Combine a Few Options

You can combine a few options for no credit score car finance. Perhaps you need a car more quickly than six months to a year from now. Combine the job idea with saving for a larger down payment, take out the no credit loan or ask your parents to co-sign (even if you already live outside of their home on your own). If you do have a few months, get a second job and a secured credit card. Increasing your income while building just six months of credit can help you get the loan you need.

Register with Goalry

You can learn which secured credit cards you would most likely qualify for by reading the blogs at Goalry and its affiliated sites. When you sign up for a Member Key, which is free, you get access to all of the financial education articles on all of their sites – the ones I authored, plus the ones by some of their superb credit and finance experts from other fields like Katherine Davis and Kevin Strauss. You can bone up on all things financial and find the best banks with high-yield savings accounts and the top cryptocurrency exchanges. Learn how to save money and make your money make money for you at Goalry.

Loanry

The 7 Best Auto Loan Companies in America

Posted on | by Brandy Woodfolk
New cars at sunlit dealer showroom close view.

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

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

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

Do not let your car payment exceed 20 percent of your take home pay and aim to have a down payment of at least 20 percent of the vehicle's purchase price.

7 of the Best Auto Loan Companies in America

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

1. 5K Funds

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

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

  • Loan Range: $1,000 - $35,000
  • Minimum Income: Unspecified
  • Interest Rate: 5.99% - 35.99%
  • Terms of 2 months to 72 months
  • Must be a citizen of the USA or a permanent resident
  • Good for those with poor credit to excellent credit

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

Pros
  • Very quick application and approval process
  • Quick access to fund after approval
  • The complete and secure online process
  • No fees
Cons
  • Maximum loan of $35,000
  • Some short repayment terms

2. CarsDirect

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

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

  • Loan Range: $1,000 - $35,000
  • Minimum Income: $18,000 annually
  • Interest Rate: 10% - 13%
  • Term lengths: 24 to 84 months
  • Good For: People who want to build their credit
  • There is no minimum credit score

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

Pros
  • Find car and loan in one place
  • Accepts bad credit
  • Prequalification and fast application
  • No fees
Cons
  • The potential need for a down payment
  • Broker- not a direct lender

3. Monevo

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

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

  • Loan Range: $500 - $100,000
  • Minimum Income: Unspecified
  • Interest Rate: 2.49% - 35.99%
  • Term lengths: 3 to 144 months
  • Good for those with poor credit to excellent credit
  • Minimum credit score is 450
  • Must be a citizen of the USA or a permanent resident

You can apply for loans up to $100,000 with terms all the way up to 12 years. The interest rates start very low at 2.49 percent but they can get high depending on your credit.

Pros
  • Soft credit hit first
  • Works with all credit types
  • Repayment terms up to 12 years
  • Borrow up to $100,000
Cons
  • Fairly new to the U.S.
  • Smaller network than some other auto loan companies

4. Auto Credit Express

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

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

  • Loan Range: $1,000 - $35,000
  • Minimum Income: $1,500 pre-tax monthly income
  • Interest Rate: 3.99% - 29.99%
  • Term lengths: 3 to 144 months
  • Good for: People with bad and good credit,
    military personnel

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

Pros
  • Great for all credit
  • Works with even open bankruptcies
  • The network of over 1,200 auto loan companies and auto dealerships
Cons
  • Can only purchase through a partner dealership
  • Might require down payment

5. Capital One Auto Finance

Capital One is pretty well known for being open to those with less than perfect credit. Their auto loans are no different. Even those with a score as low as 500 have a chance of being approved if they meet the income and citizenship requirements. Interest starts very low at only 3.59 percent, but lower credit scores do move closer to 24.99 percent. Capital One auto loans typically range from $4,000 to $50,000, and you can get up to 72 months to repay the loan.

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

  • Loan Range: $4,000 - $50,000
  • Minimum Income: $1500 to $1800 depending on credit
  • Interest Rate: 3.59% - 24.99%
  • Term lengths: 24 to 72 months
  • Minimum credit score: 500

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

Pros
  • Provides an auto search tool
  • 12,000 partner dealerships
  • Up to 72 months for repayment
Cons
  • Not available in Hawaii or Alaska
  • Can only shop with their partners
  • Rules about the vehicles you choose

6. Lending Tree

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

  • Loan Range: Up to $300,000
  • Minimum Income: Varies
  • Interest Rate: 3.97% - 4.99%
  • Term lengths: Up to 60 months
  • Good for: People with no credit history,
    have a repossession or with bankruptcies

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

Lending Tree is connected with auto lenders that offer loans up to $300,000, and you can get up to 60 months to repay the loan. Interest rates start as low as 3.97 percent and often top out around 4.99 percent, though your income and credit score may affect this amount. You can use the loan for new and used cars as well as refinancing and lease buyouts.

Pros
  • New and used cars
  • Refinancing and lease buyout
  • Up to 60 months to repay
  • The large network of lenders
  • No minimum credit score
Cons
  • Terms vary between lenders
  • Hard credit hit

7. CarLoan.com

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

  • Loan Range: $1,000 to $45,000
  • Minimum Income: $1,500
  • Interest Rate: 13.97% - 25%
  • Term lengths: 12 months to 84 months
  • Minimum credit score: 300

CarLoan.com has access to loans ranging from $1,000 up to $45,000. Interest rates start as low as 13.97 percent but- like all other auto loan companies- your interest will depend on your credit score. Repayment terms go all the way up to 84 months for qualifying loans. The only real downside is that the process is not completely online. An agent will contact you to finish up the application. This kind of takes away the convenience factor, but it is still a good option to consider.

Pros
  • Up to 84 months to repay
  • Fast approval process
  • Works with all credit types
  • Low interest for good credit
Cons
  • Some dealings with an agent
  • Interest can get high

Before You Apply

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

Granted, that down payment may be a bit steep for some people with low income and little time to save, but you should still try to have a good down payment to minimize what you need to borrow.

Making and living by a budget is the key to all financial goals. With a car budget, you can determine how much you have available for monthly auto loan payments. The amount you have available will depend on your bills and income.

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

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

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

Conclusion

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

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

Loanry

How to Drive Off With A Pre-Approved Car Loan

Posted on | by Brandy Woodfolk
Successful businessman offering a car key with contract.

Choosing a new car is hassle enough itself. Getting financing in order does not have to be. Before you start shopping for a car, have your financing lined up with a pre-approved car loan.

You have probably heard the terms “prequalified” and “preapproved”. Both are helpful steps but which one should you go for? Well, let’s take a look.

Getting prequalified is a simpler process but it gives you a more vague answer. Basically, a lender will take a quick look at your credit- a soft credit pull- and tell you what you might qualify for based on the limited information. Sure, it can be helpful, but it might change when they do the hard credit pull. Getting prequalified is like saying “Maybe you can get this loan”.

Getting a pre-approved car loan is a bit different.

Steps to Get a Pre-approved Car Loan

In this case, the car loan process is a bit more complicated. The lender does a hard pull on your credit. There is a deep dive into your credit score and report, giving them a good look at how you handle your finances. If you do get a pre-approved car loan, it is basically saying, “According to your current information, we should be able to loan you X amount at X percent interest.” Of course, if anything changes in the meantime, it can change your preapproval, but as long as it stays the same, you should get the pre-approved car loan amount at the offered interest rate.

Now, let’s take a look at how to get an auto loan.

Assess Your Finances

Before you even begin to look for a loan, you need to take a look at your current financial situation. Answer the following questions:

These are just a few things to look at to determine if getting a new car auto loan is a good idea at the time. As you look at your finances, you may notice things I have not yet mentioned. Just be sure you take it all into account.

What Does My Credit Look Like?

If your credit is too low, you will either get rejected for the loan or get some really unfavorable terms. The closer to 700 your score is, the better chance of getting a pre-approved car loan and a good interest rate. However, 600 to 650 is good enough for some lenders. If your score is under 600, try to wait a little longer and improve your credit first.

Can I Afford Another Payment Each Month?

Be honest with yourself here. Are you already struggling to make ends meet? If so, getting a new loan is probably not a good idea. Additionally, the lender will not approve you for a loan if you do not have the money to cover it. If that is the case, try increasing your income before applying for a pre-approved car loan.

How Much Do I Have in Savings?

Can you put any money towards your car? If you can, not only will you have to borrow less but you also have a better chance of getting a pre-approved car loan.

Do I Have Any Collateral?

Many dealerships will let you trade in an old car as a down payment. If you can do this, that is less you will have to borrow. You might also use your collateral with the lender you are speaking to. By securing your loan with some form of collateral, the lender is more comfortable loaning you money and giving you a good rate since you are less of a risk.

Make a Budget

Next, you need to make a budget for a new car. Compare your incoming to your outgoing money. How much can you afford to pay each month on a loan payment?

It is important that you figure this out before speaking to a lender for a very important reason: They do not take your entire situation into account. When a lender determines how much to loan you, they are going by what they think you can afford.

The problem is that they are only looking at your regular documented bills. If you pay out $100 to charity each month or $50 for your daughter’s dance class, those numbers likely will not be factored in. Vacation money, date night cash, and birthdays are not typically factored in either.

This is why you have to look at everything yourself. You need to calculate everything you payout on a weekly, monthly, and yearly basis. Try not to leave anything out, no matter how insignificant it may seem. Only after you cannot think of another thing, then determine what you can spend out each month. Have this number in mind when you speak to lenders so you are not talked into borrowing more than you can afford.

Shop Rates

This is a biggie: You have to shop around for the best interest rates. Even one or two percent difference in rates can add up to a large amount. You want to find the absolute lowest rate that you can get.

Shop Cars

I am not yet talking about actually shopping for the car. I mean you should go ahead and figure out what kind of car you want. What does this have to do with getting a pre-approved car loan? Well, a couple of things.

First of all, the type of car you want determines the amount you need to borrow. By having two or three cars that you like in mind, you will know when you apply for a preapproval whether or not that lender can offer you enough to cover the car. If not, you will either know you need to find a new car or that you need to work on your financial situation before buying.

Another thing is that some lenders only work with certain types of cars. Some will not work with certain makes and models- mostly because they want to know the car will be valuable enough to sell should you not make your payments. Some only work with cars made after a certain year. Others require the car to have under a specific amount of miles. Having all of this information cleared up beforehand will help you narrow down lenders to apply with.

Shop Dealerships

While this is a little rarer, it is still important enough to mention: Some lenders will only loan money for automobiles from certain dealerships in the area. This may seem a little crazy, but you have to remember that if you decide not to make your payments, the lender is stuck figuring out what to do with the car to get their money back. They want to know that the dealer you are purchasing the car from does not have a history of selling cars in bad shape or something equally horrible. You might not run into this issue, but it is still something to ask different lenders before applying with them.

Apply

Your next step is to apply at the lenders you have chosen- preferably at least two or three, but more gives you a better comparison. By getting multiple pre-approved car loans, you can make sure that you are choosing the best one. Never settle for a loan until you have at least a couple of more to compare it to.

I understand that the idea of filling out several applications is exhausting, but it doesn’t have to be. Thanks to our digital age, you can now apply for loans- including car loans- online. Even better, if you choose a platform that is connected to a network of lenders, you can fill out most of your information just once.

I also want to point out the fact that you should do all of your applications within two weeks. Every time you apply for a loan- even for a pre-approval- it is a hard hit on your credit, which can bring your score down. If you apply for car loans in a spread-out period, each application will be a hard hit. However, if you do all of your applications for one industry- i.e. auto loan, mortgage, and so on- within two weeks, it only puts one hard hit on your credit.

Car loan process.

Benefits of Getting a Pre-approved Car Loan

Most people do not apply for credit for a vehicle until they are at the dealership. Getting a pre-approved car loan before visiting the dealership, though, provides several benefits.

Know What You Can Afford

Your preapproval will give you the amount you will likely be able to borrow. This means that when you begin to shop for a car, you know what price range you should look at. This benefit alone is worth the trouble. It can keep you from overspending or tell you if you will need a secondary source to help cover your vehicle.

Know What Monthly Payments Will Be

When you get a pre-approved car loan, the lender should give you the information you need upfront. That includes what your monthly payments will be. If the payments will be too high for you, you will know to either look for another car loan or not spend the full amount of your pre-approved car loan.

You Can Shop Like a Cash Buyer

You have probably heard the term “Money talks”. This happens to be very true. If you can take cash to purchases for homes, vehicles, and a few other items, you have much stronger negotiation power.

Having a pre-approved car loan lets you do just that. Taking your approval note from your lender is like taking a blank check to the dealership. You can say, “This is my preapproval and this is what I am willing to spend”. Salespeople love when customers come with cash and will work with you to get the car you want.

Choose and Finalize Your Loan Within 30 to 60 Days

Pre-approvals are usually only valid for 30 to 60 days depending on the lender. A lot can change quickly, so just because you get approved now does not necessarily mean you can get approved again. Once you have chosen your lender, you need to find your car and finalize the paperwork as soon as possible.

That is actually another reason I said you should already have an idea of what car you want and where you are thinking of purchasing it. If you have these preliminary decisions out of the way, you can finalize your loan in plenty of time without having to rush.

Before you finalize the loan, though, take a moment to really look it over. Be sure that you know what is expected of you, any fees you could end up paying, how much your monthly payments are and where they need to be paid, and anything else that is valid to you successfully repaying the loan. This also gives you one last chance to make sure that everything in the paperwork is what you previously discussed with the lender. You do not want any surprises later.

What to Do If You Cannot Get a Pre-approved Car Loan

Of course, there is always a chance that you do not get a pre-approval. Different factors could prevent a lender from feeling comfortable enough to loan you money. What do you do then?

First off, try to find out why you did not get approved. Sometimes a lender can tell you this immediately. Others usually send out a letter of denial within a week or so pointing out things that might have caused the rejection. If you can figure out what is wrong, you can make a plan to fix it. Most often, you will need to do one of the following:

Work on Your Credit

This is usually the big one. Your credit is the lender’s reference point for whether or not it is safe to loan you money. They look at things like how much debt you are in, what type of debt it is, what your payment history looks like, whether or not you have any bankruptcies or judgments recently, and more.

If you are turned down due to your credit, take a look at those areas. If you need help, websites like Credit Karma can be a great tool. Not only can you check your credit score and look at your credit report, but the website also gives you tips on what needs to be fixed. It breaks down different sections of your credit and tells you where you stand with that section. This is a good place to start if you are rejected.

What makes up a credit score.

Increase Your Income

Another factor that can impact your potential pre-approval is your income. Actually, it is your debt to income ratio (DTI). This is the amount you payout compared to what you bring in. If your debt is too high or your income too low, the lender will think you cannot make your payments and reject you.

There are two ways to fix this: Increase your income or decrease your debt. In many people’s cases, it would take a combination of these ways to make it work. The more you can increase your income while decreasing your debt, the quicker you can make a big enough change to get your pre-approval.

Increase Your Savings

it is not always necessary for you to have money that you can put down on a car, but it sure never hurts. If you do not have any money for your car or just do not have enough, try to grow your savings. This can help in three ways:

  • First off, the lender will see that you are serious because you have skin in the game, so to speak.
  • The second reason is that if you can put anything toward the car, it decreases the amount of loan you need. This not only gives you a better chance of getting a loan but also means you owe less back- which is a really good thing since we are talking about adding interest here.
  • The last reason is similar to the others but works a little differently. We talked earlier about secured loans, aka using collateral. You can actually use your savings or an investment account as collateral. So- again- with collateral, you can typically get approved for a larger loan amount with a lower interest rate. And, of course, all of that is good.

If you have been denied credit and you can manage it, try putting away at least $1000 to $2000, but the more, the better.

Conclusion

Getting a pre-approved car loan is not as tough as many think. If you follow these steps, you should find yourself with a pre-approval soon or- at the very least- a plan on how to get that pre-approved car loan. Just remember that if you don’t succeed the first time, don’t give up. Keep pushing forward until you get what you are looking for.

Loanry

Speedy Tips for Buying a Car Out of State

Posted on | by Brandy Woodfolk
Cars For Sale Stock Lot Row

Many people choose to buy a car out of state over buying a car in their state for various reasons. Sometimes, sellers are offering a much lower price than others or maybe someone in another state simply has the vehicle the buyer is looking for. No matter the reason, it is a common occurrence.

It can also be a troubling one if you are not prepared.

Unfortunately, buying a car from out of state can take longer than buying one from down the road. The last thing you want is for it to take even longer because you- or the seller- are not as prepared as you should be. By following the tips in this article, you can speed up the process of buying a car from out of state.

Dealer or Individual?

Are you buying a car out of state from an individual or a dealership? The answer to this question will carry some weight on how you handle things. Buying a car at a dealership is much different than buying one from an individual. Many dealerships can handle all of the paperwork, financing, and everything else you need from afar. There is often no need for you to actually travel to get the car. This does not necessarily mean that you should not, just that you have more options. There are many other ways that things are different between the two, so decide which route you feel safest going before you dig in too far.

Do Your Research

Never, ever go into any purchase without doing some research- especially when the purchase is made out of state. Buying something at a Walmart while you are on vacation is not so risky because there are Walmart’s everywhere at which you can make exchanges and returns. Buying from people in different states is a little different. You may not ever see or speak to that person again, so you really need to do your research long before the sale takes place. Also, if you consider an auto loan, start thinking about where you should go shopping for a car loan.

Here is some basic information on what you need to look into when buying a car out of state:

1. The Seller

The seller- whether it is an individual or a dealership- should be checked out before dealing with them. It is easy to find information on dealerships as they tend to have websites and online reviews. Individuals might be a little trickier but not impossible.

Social media is a great tool for checking out individual sellers. In fact, most individuals that sell vehicles have probably sold something else on Facebook or Craigslist. Look up the seller’s name and see what you can find. There may not be any information if the person does not normally sell items, but it is still worth a look.

2. The Vehicle

You absolutely need to know everything you can about the vehicle- and not just the information given by the seller. In general, people are good and are not looking to get over on you. Still, there are some that are only concerned with themselves. As much as I would love to say that you can trust everyone, we all know that this is not true. You have to watch your own back.

Get the VIN, or the vehicle identification number, from the seller. This is a 17 digit number that is similar to a social security number. Each VIN is only intended for one vehicle, and that VIN keeps up with the history of the vehicle. With the VIN, you can learn about any accidents the car has been involved in, any work that has been registered, and more.

Have the seller take a photo of the VIN on the vehicle and send it to you so that there is no confusion of the numbers or letters of the VIN. It is typically in two places on the vehicle- under the front windshield and on the door jamb. You can then look that VIN up online and learn what you know about the car. You will need to pay for a vehicle report, but the cost is nothing compared to how much you might have to spend out if the car is a lemon. For legitimate reports, go through the National Motor Vehicle Title Information System or Carfax.

You can also check the U.S. Department of Transportation with that VIN to determine if there have been any safety recalls of that vehicle. You can even check for common complaints of that vehicle type. Having the VIN is incredibly important to ensure that you get a good vehicle. Do not skip this step.

VIN number location on a vehicle.

3. State Requirements

One of the biggest mistakes one might make when buying a car out of state is not knowing the state requirements. This includes both the state you are purchasing the vehicle from and your own state as they will likely both have separate requirements. For instance, my state does not require an emissions test. However, a few years back when I lived in a neighboring state, we did have to get an emissions test prior to being able to register it. Although these two states are side by side, the requirements were very different.

For the most part, the requirements from your own state are the most important for you to pay attention to. But knowing the other state’s laws can help protect you. Let’s say the state in which you are purchasing your new car requires the seller to take certain steps, including providing a recent inspection report. That report could tell you many things you need to know about the condition of the car. But if you do not know that the seller is required to provide that, they could easily avoid giving it to you. However, if you know what is required, you know what to ask for.

Knowledge is one of the best ways to prevent someone from scamming you. To gain that information, you can look up both states’ government websites or even call the departments that handle registration. You might also consider having a lawyer ensure everything goes as it should.

Line It Up

You want to make buying a car out of state as easy and as smooth as you possibly can. While you might not be able to prevent all hiccups, there are many steps you can take to minimize difficulties. Before purchasing a vehicle from another state, have the following lined up to the best of your ability:

1. Registration

Just like every vehicle you purchase in state, you will have to register any car you purchase out of state. If you are purchasing the car through a dealership, they should send you all of the paperwork necessary to register the car. Buying a car out of state from an individual, on the other hand, might be different.

It is best to assume that you will be responsible for all paperwork so there are no surprises later. Call your state’s vehicle registration department and explain that you are about to purchase a vehicle from a different state. Ask what all you will need to bring with you to register the vehicle. Then, pass this information onto the seller. Be sure that they have all of the paperwork they are responsible for ready to go for the purchase. Otherwise, you might end up waiting for the sale to be final while you wait on the seller to get everything in order.

Best State to Buy a Car?

New Hampshire is the overall best state to purchase a car.
The average annual cost of car ownership in New Hampshire is around $2,691.

Source: worldpopulationreview.com

2. Taxes

There is a common point of confusion when it comes to the taxes involved when buying a car out of state. People often think that they can avoid paying taxes if they purchase the vehicle from a state that does not charge state taxes. This is simply not true. Any taxes charged go by your own state’s tax rate. This means that unless the state you live in does not charge state taxes, you will be paying taxes on your new vehicle. Be prepared to pay taxes when you register your car.

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3. Emissions and Inspections

  • Will your state require that the vehicle has an emissions test prior to registering it? If so, you need to know where to have this done, how much it will cost, and how long you have to do it. You should be able to easily get this information from your state’s registration office.
  • Has the vehicle had a recent emissions test? If the seller has had a recent emissions test, you should ask to see the results. If the car has passed, you can breathe a little easier as it should pass the one you have to get. However, if it has not had a recent test or it did not pass a recent test, you need to be more careful and understand why it did not pass the test.
  • Has the car recently been inspected? You definitely want to check out any information there is regarding recent inspections. Still, you should plan to have your own done as well- especially if it is a used car. Find a trusted mechanic who is located near the seller. You can have the seller meet you at the mechanic shop before you make a purchase and have this inspection done.

If you cannot make it to the inspection yourself, you can probably pay for the inspection over the phone and have the mechanic’s shop send the results directly to you. Some mechanics will even go to the car. However, you choose to do it, just be sure to get it done so that you are aware of any current or potential issues

4. Transporting the Car

How exactly will you be transporting the car? Are you going to drive it back yourself or will you hire a transportation company to bring it to you? Most dealerships have ways to get the vehicle to you if you need them to. If an individual is really desperate to sell the vehicle or you are willing to pay a little extra, they might deliver it to you themselves. Either way, you need to have all of this worked out before you purchase the car. How you choose to transport it can greatly affect the cost as well as your purchasing timeline.

5. Financing

How will you pay for the car? If it is a used one that you are purchasing from an individual, you might simply have the cash to pay outright. For other vehicles, you might need to get a loan. No matter how you choose to pay, have your financing lined up before you head out.

If it is cash, have it on you- or at least be able to take it out of an ATM close to the seller’s location. If you will need a loan, get your applications in and either get the cash or get a preapproval for the dealership. Most dealerships have their own online auto financing, but some people prefer to have alternate lenders available so that they can compare rates and terms.

If you are unsure of how to shop for a car loan, it is the same as shopping for insurance or even a big screen TV that you want. Check out multiple lenders and compare their rates, the amount you can get approved for, and the repayment term. Choose the one that offers the best overall package.

6. Insurance

While you typically have a few weeks or so to get your registration taken care of, insurance is a completely different story. In fact, you are legally required to have insurance on a vehicle prior to pulling off the lot- or out of the seller’s drive. Waiting until the last minute to get your insurance in order can make the whole process take even longer.

At the same time, though, you do not want to pay for insurance if you are not yet sure you will be buying a car out of state. You do not necessarily have to pre-buy the insurance. Instead, just go ahead and have the insurance lined up. Once you have the VIN of the car, shop around for the best insurance. Most insurance agencies keep quotes in their system for about 30 days. This means that if you get a quote one week and then decide to buy the car the next week, you should be able to simply call the agency back and get the coverage active.

If you choose not to get the car, you should be able to call and cancel the policy easily. Just ask the agency about its cancellation policy before making any payments. You will not be the first person to insure a car out of state, so the agency should have systems in place for catering to your needs.

7. Names on Title

There is something very, very important to pay attention to when buying any used car. The name or names on the title. Imagine that you go through the trouble of buying a car only to find out later that the person who sold it to you had no legal right to do so. As sad as it is, it can happen and it is a headache that no one wants.

Before buying a car out of state- actually, before you even waste your time going to the car- tell the seller that you would like to see the title. You need to verify three basic, important things- though your state may require more:

The Name on the Title

First and foremost, you need to be sure that the person you are discussing the purchase with is actually on the title. You can ask that they send you a picture of the name on the title, a picture of their face, and a picture of their ID. They can black out any pertinent information on the ID, as long as you can see their picture and name.

If they are uncomfortable sending a photo, you can ask them to Skype with you and show you the necessary documents there. Of course, you can verify identity in person. But if you wait until then, you might find out that you have been lied to and have wasted your time.

How the Name or Names are Listed

You also need to check how many names are on the title and how they are listed. If it is just the one name, this step can be skipped. However, if it is more than one name, you need to pay close attention.

Let’s say that you are talking to a Mr. John Smith about purchasing his car. If the car is only in his name, that is the only person you have to deal with. But what if the vehicle is in both Mr. Smith’s name and his wife’s name? The sale may require both parties, depending on how the title reads.

If the title says, “Mr. John Smith & Mrs. Jane Smith”, both parties have to sign the paperwork involved in the sale. If, though, the title says, “Mr. John Smith OR Mrs. Jane Smith”, you should be able to deal with either one. Both parties should not be required. To be safe, though, call the DMV in your state to be sure of their requirements.

Any Liens

Titles also show the names of any companies that have liens on a vehicle. For instance, if Mr. Smith had used his car as collateral for a loan, the lender’s name will be on the title as well. In theory, if there is a lien on the vehicle, the lender should have the actual title in hand. So this should not necessarily be an issue, but it is always best to double-check.

Once a loan is repaid and ownership is reverted back to the individual, the lender signs a line under their name showing that it has been released. Vehicle liens can get complicated. If you see that a lender’s name is on a title, double-check with your state’s registration office to ensure that the seller has the legal right to sell the vehicle.

Pay Attention

Hand holding board.
One final tip when it comes to buying a car out of state: Pay attention. Of course, you definitely need to pay attention to each step you take, how much you are paying, and other things such as that, but I am actually referring to something else. I mean that you should pay close attention to your gut.

If ever something does not feel right, take a breath and step away. Sometimes, we get bad feelings simply because we are confused about something or simply do not have all of the information. If something does not feel right, ask questions. And research more until you feel that you know all that you need to know.

Sometimes, we get bad feelings because something is not right. It means that our subconscious has picked up on something that our conscious brain has not yet. If you get a bad feeling that you cannot shake no matter how much research you have, you should probably let go of the sale completely. Additionally, if your significant other or even a friend tells you they have a bad feeling, stop, and pay attention. They just might have noticed something that you did not.

Conclusion

Buying a car out of state does not have to be too complicated or take too long. Follow the above tips one at a time to prevent overwhelm and to ensure you have everything in place. With the right preparation, you can be driving away in the vehicle you want in no time.

Loanry

Dealer Financing Explained Without The Car Salesman Pitch

Posted on | by Carlie Lawson

Buying a car sounds fun until you start shopping for it. At that point, you realize how much work goes into choosing the make, model and getting the loan for the new or used vehicle.

Once you have done your research on vehicles and have determined what you actually want, you need to shop around to find the best deal on financing unless you have tons of money in the bank.

If you know how to car shop, you know that you need to create a budget. And if you know what you can afford each month as a payment, then you know what you can spend. So, if you can save up a larger down payment, you can reduce your monthly payments. If this is your first car, you probably need to learn how to shop for a car loan.

Financing Your Loan

The time comes when you need to determine how best to finance it. Your choices probably include the bank, credit union, dealer financing or savings. Your first decision is either used car loans or new car loans. You need to know whether you will buy a new or used car.

Banks and Credit Unions

You can get a loan from your bank or credit union with a relatively strong credit score. We’re talking between 600 to 700. Banks like to loan to people who already have established good credit. Most credit score systems top out at 800 or 900. (Yes, there is more than one scoring system.) Regardless of whether it tops out at 800 or 900, realize that 600 to 700 translates to a really good score. The lowest score on any of the scales is 300.

Dealer Financing

So, what if your score drops below 600? You can still get a loan, but you will probably need to go with dealer financing. This option lets you borrow the money although you should be prepared for much higher annual percentage rates. Your interest payments can be remarkably higher with a dealer provided option.

Savings

It is totally wonderful if you happen to have thousands of dollars in the bank that it takes to purchase a car outright. Most people do not have that ability. However, if you do have this option, use it. You can very easily save yourself money by using your savings since you do not pay interest or finance charges on money that you own.

Dealer Financing Explained

You already know what savings are and you probably have some familiarity with bank and/or credit union loans. On the other hand, dealer financing may just be a phrase you have heard on television commercials.

Dealer financing also referred to as special financing, refers to a type of loan called an indirect loan. This loan starts with the retailer which offers it directly to its customers. The retailer then sells the loan to a bank or another third-party financial institution. The financial institution typically purchases the loan at a discount. You still end up making payments of the principle and interest to the bank. payments from the borrower.

The auto dealership usually has an agreement set up with the bank already. If you read the fine print on the loan information at the dealership, you can determine which bank will ultimately own the loan.

Car purchase financing is probably the best-known example of dealer financing although you also see it in appliance dealerships and some major home improvement stores. You should really use it only as a last resort and here’s why.

Although the bank that ultimately buys the loan and the dealership work together to create the program, they do so with their profit in mind. The financial institution offers the dealership an interest rate that fits most consumers, also referred to as the buy rate. The dealer can then add to the interest rate it offers the customers.

Eek, Those Interest Rates

Why would they do that? It better covers their risk. Every entity involved in making loans is risk-averse. They add fees and interest rates to the loan amount to alleviate the risk. You pay them these extras upfront and on a monthly basis as risk rent.

Automotive dealerships want to sell cars. Most have an existing affiliation with an automotive manufacturer. They report their sales up the chain of command to the manufacturer. These dealer financing programs let the dealerships offer loans to people who would not typically qualify. That helps them sell cars to people who could not generally purchase them. These buyers might not normally qualify for bank financing due to a bad credit rating or other reasons.

The bank that buys the loan gets the interest rate they provided to the auto dealer. The auto dealer gets to keep the money from the mark-up on the interest rate. It becomes an extra profit for them.

Automotive dealers face no obligation to offer customers the best available interest rate.

The dealership gets to arbitrarily set higher rates or longer terms. The dealer can keep your loan rather than turn it over to the bank or other financial institution.

The Benefit to the Dealership

Not only can offering loans at the dealership mean that the auto retailer sells more cars, it means they sell them quicker. Rather than wait for a car buyer to arrange their own financing, the dealership can offer the financing so that the customer can purchase that day.

The Benefit to the Customer

Using dealer financing reduces the effort and time to obtain a loan. You can drive off of the lot with the car you like, typically on the same day you see it. It also provides an option for those with bad credit who cannot otherwise afford a bank loan.

Caveats to Dealer Financing

Not only might the interest rate cost more for a dealer loan, but there can also be other tradeoffs. Auto dealers extending financing to high-risk customers may install devices in the auto that disable it from starting if the customer misses payments. This also helps them repossess the vehicle if needed.

Other Terms Regarding Dealer Financing

Buy Here, Pay Here (BHPH): The terminology of dealer financing includes buy here, pay here which refers to automotive dealers that sell and finance vehicles.

In-House Financing: The term in-house financing refers to a seller financing program that provides customers a loan, so they can purchase its goods or services.

Floor Planning: Floor planning refers to a type of financing for large ticket items displayed in showrooms.

Subprime Auto Loan: A subprime auto loan refers to a loan type that features a high-interest rate. People with high credit scores qualify for prime rate loans while people with lower credit scores qualify for subprime loans.

Automobile Seller Showing Luxury Car Consulting Couple Choosing Auto In Dealership Shop.

The Truth About Car Dealerships

Car dealers may lead people to believe that they purchase their vehicles and that ties their money up in inventory. Not at all true. The auto dealers take out loans themselves to amass their inventory. The manufacturers provide the financing, the above-defined floorplan financing. You might think the dealer then loses money on interest, but that is not true either. The manufacturer reimburses dealers for their loan financing through a dealer holdback that typically equals one to three percent of the vehicle’s invoice price.

Here’s How it Works

It might cost the auto dealer $350 a month to finance each vehicle. Let’s say a car takes two months to sell. The interest costs them $700. The car costs $20,000 though with a dealer holdback of three percent. That equals $600. If the auto dealer sells the vehicle in one month or less, they make a $250 profit just off of the holdback. The holdback remains the same regardless of how long the car sits on the lot. The interest accrues though.

That is another reason that car dealerships want to move vehicles off of their lots quickly. They did not sink lots of their own money into the inventory. Sp they did the same thing you will do to buy a car or truck. They took out a loan. Their loan costs them interest, too.

What Automotive Dealers Make Most of They Money From

Automotive dealers make most of their money from the following:

  • the extra money on your car loan interest,
  • selling add-ons,
  • trade-in vehicles

The interest that dealers charge you over and above the bank’s interest rate can net them as much as $3,000.

When it comes to trade-ins, they low-ball the price they give you, then they turn around and sell it for a profit after a little detailing and regular maintenance. The dealer makes about $2,000 on the trade-in once it sells. Then there are the add-ons. These include accessories to the car, maintenance packages, gap insurance, an extended warranty, and much more. Between parts and service plus on-site maintenance, the dealer can add about $3,000 to their profit.

All of that together means the dealership makes about $10,000 off of the sale of a single car. Now, you see why they so badly want to move vehicles off of the lot quickly. The interest rate from their own loans from the manufacturer quickly eats up the profit potential. If a car sits on the lot for six months, it quickly eats into their profit. Six months cost them $2,100 in interest alone.

Getting Ready to Apply for an Auto Loan

Before you jump into the actual car shopping and auto loan applications, plan out your budget and get your credit ready. You typically know ahead of time when you will be car shopping. Start about six months before you want to buy your new or used car getting your credit ready.

While you have moved into credit checking mode, go to Creditry.com to learn how to manage your credit. This part applies whether you have great, so-so, bad, or no credit. Regardless of how you currently manage credit and money, you can always learn something new and improve. Creditry helps you keep on top of all your credit lines and loans. If you have not opened any credit lines yet, you are in luck because it lets you learn how to deftly manage your credit cards and loans.

Check your credit. You can do this for free by visiting the federal government provided free credit report website. Every twelve months you can obtain a copy of your credit report from each of the major credit bureaus. That means you will have three copies to compare and contrast.

You can apply for preapproval online or by visiting your local branch of the bank. You typically need to already know what type of vehicle you want, so the bank can determine if it is willing to assume the risk for you to afford it. When you get the loan directly from the bank or credit union, you will obtain a true interest rate with zero markup.

Final Thoughts

Got your credit in order? Found a loan? Good job. Go vehicle shopping. You may buy whatever you can actually afford. Pick something that gets good gas mileage and has a high safety rating. You’ll save money on your auto insurance.

You probably already budgeted for your auto insurance, but in case you forgot it, such a bonus that you are reading this before you even car shop. Remember that you will either pay for six months of car insurance all at once or it will become a monthly expense. Your good credit score will help you qualify for a lower insurance rate. Your choice of car will help, too. The higher your credit score, the easier you will find everything.

Enjoy your new ride. Hopefully, you can get behind the wheel without having to resort to dealer financing.

Loanry

Drive Away Lease Buyout Auto Loans Explained

Posted on | by Kevin Strauss

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

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

Why Lease a Car in the First Place?

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

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

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

✓
Lower Monthly Payments

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

✓
A New Car Every Few Years

Many people love the feeling of driving away in a brand new vehicle, and if this is you then leasing can be the way to go.

✓
Worry-Free Maintenance

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

✓
Maximize Tax Deductions

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

✓
No Resale Worries

If you are the type of person who hates to haggle then you don’t have to worry about this with a lease.

Buying vs Leasing a car.

How Do Lease Buyout Auto Loans Work?

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

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

Qualifying for Lease Buyout Auto Loans

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

Good Payment History

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

Good Credit

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

Your Lease Terms

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

Down Payment

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

Titles

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

Documentation

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

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

Determining the Market Value for Your Car

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

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

Car value factors

How to Get a Lease Buyout Auto Loan

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

Contact Your Leasing Company

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

Shop Around

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

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

Close on the Loan

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

Customer and salesman with car key outside.

What to Consider with Lease Buyout Auto Loans

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

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

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

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

Calculating Lease Buyout Rates

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

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

When Should You Buy Your Leased Car?

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

You Are Way Over or Under the Mileage Requirements

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

The Car Matches Your Lifestyle

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

The Car Has Excess Wear and Tear

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

You Can Negotiate a Reduced Buyout Price

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

Your Friend Will Want to Buy Your Leased Vehicle

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

You Like the Car

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

When Should You Not Buy Your Leased Vehicle?

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

The Car No Longer Matches Your Needs

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

It’s Not Affordable

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

If It’s Damaged

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

The Vehicle Is Worth Less than What Your Contract Says

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

Higher APR

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

Benefits of Buying Your Leased Vehicle

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

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

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

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

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

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

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

Lease End Versus Early Buyout

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

Early Termination Fees

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

Higher Payments

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

Taxes

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

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

Final Thoughts

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

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

Loanry

How Do Car Payments Work: Follow This Lane

Posted on | by Julia Peoples

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

How to Save Money on Your Auto Loan

Posted on | by Kevin Strauss

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 rate. 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.

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.

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.

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.

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.

Will I Save More Money if I 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.

Buying vs Leasing a car.

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.

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.

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.

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.

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.
  • 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 credit 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 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.

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.

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5 Things to Know When Financing a Car

Posted on | by Cole Lehman | Leave a Comment on 5 Things to Know When Financing a Car

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

5 Things to Know When Financing a Car

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

1.

The Rate You Are Approved for

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

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

Auto Loan Rates in April 2022

Credit Score New Car Loan Used Car Loan Refinance Car Loan
750 or higher 6.33% 6.58% 3.38%
700-749 10.64% 10.89% 4.32%
600-699 14.27% 14.52% 6.74%
451-599 17.52% 17.77% 9.39%
450 or lower n/a n/a n/a
Source: usnews.com
2.

Factors That Impact Your Payment

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

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

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

3.

Determine Whether New or Used is Right for You

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

The average term for auto loans is 69 months, in the case of new vehicles, and 65 months for second-hand cars.

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

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

4.

Accurate and Complete Documentation

Apart from credit score, there is a set of documentation that needs to be completed and submitted for verification. Making the process seamless will require that consumers ensure the information is accurate. Being aware of the documentation required will help to fulfill the approval for the auto loan.

Since requirements vary depending on the lender, borrowers can consider talking to a financing officer from their lender of choice. This enables them to prepare the documents prior to shopping for a car. This will hasten the process of buying the car. It will also provide leverage when it comes to negotiating with the car dealership. Some of the other documents that the lender may require include proof of income, identification proof, proof of residence, bank statements, and vehicle information.

Car dealer businessman signing car insurance document or lease paper.
5.

EMI, Processing Fees and Foreclosure Charges

Some of the auto loans available in the market come with numerous charges and conditions. This is why it’s necessary for borrowers to go through the details. In addition to the above factors, borrowers should have a clear understanding of what they are getting themselves into when they decide to take out an auto loan.

Calculating the equal monthly installment, commonly known as EMI, will help them plan their payments. Financial experts also recommend looking at processing fees to determine the total cost of borrowing. In the event that the borrower cannot pay back the loan, they should know of the kind of foreclosure charges they will be required to pay. Knowledge of all these important factors will enable the consumer to play their finances in such a way that they will meet their obligations as required.

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

The Impact of Credit Score

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

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

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

Average car loan rates by credit score.

Personal Loans versus Credit Card

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

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

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

Ways to Increase Your Chances of Getting Approved

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

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

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

Factors to Consider Before Taking out an Auto Loan

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

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

Getting a Car Loan with Bad Credit

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

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

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

How to Ensure You Make Payments on Time

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

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

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

Conclusion

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

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

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Good Credit Auto Loans Made Speedy

Posted on | by Julia Peoples | Leave a Comment on Good Credit Auto Loans Made Speedy

Buying a car is not something we tend to do often. Well, most of us anyway. We all have that friend that seems to get a new car every year. But, that is not the norm. Many of us dislike shopping for cars. I certainly do. They are expensive and you never feel like you are getting a good deal. We all know that the minute we drive the car off the dealer’s lot, the value begins to decrease. Cars are a necessary evil. We need them to get to work and handle our every day needs, like shopping. When shopping for a car, the price you pay is important. How you finance the vehicle is equally important.

I am going to give you all the information you need about getting money to pay for a car, including good credit auto loans. Keep reading for everything you wanted to know, and probably some things you do not about auto loans.

What Is An Auto Loan?

An auto loan is a bit different from a personal loan. You can get an auto loan from a bank, credit union, or financed through the dealership. Typically, when it’s financed through the dealership, the car maker, Honda for example, is financing the loan. These are considered secure loans as the vehicle you are buying is collateral for the loan. That means if you do not pay the loan, the lender can and will repossess your car. They technically own the car until you pay off the loan.

Another point to consider is when you have an auto loan, the lender makes you have full coverage auto insurance. You do not have a choice on any other type of coverage. They want to ensure the car is fully protected in the even of an accident. After all, they have a stake in what happens to the car as long as you are paying back the loan.

Good credit auto loans tend to have lower interest rates. Since the car you are purchasing becomes collateral, the lender is not taking as big of a risk by lending you money. Auto loan repayment schedules can be longer than a typical personal loan. You can take up to seven years to pay back some auto loans. This can help to reduce the amount you pay back per month. However, that does mean you are paying on the loan for seven years and therefore stuck with the vehicle.

What is an Interest Rate?

The simple answer is interest is the fee the lender charges you to let you borrow money from them. The way interest impacts you is fairly simple, too. The higher the interest rate is for your loan, the more money you ultimately pay. The lower your credit score means the higher your interest is. Some things to know about interest are that the actual amount you want to borrow is called the principle.

The interest rate is added on top of the amount you borrow. Lenders add interest at a higher interest rate to loans they consider high risk, such as to those who have bad credit. Loans that are 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.

Let me Give You an Example to Highlight This

Please keep in mind, these are just examples meant to highlight the difference in interest rates. These are not real world numbers.

You want to borrow $20,000 for a car. You have good credit, so the lender adds 5 percent interest. And you would like the payments to be a little lower, so you opt for a 48 month, or 4 year, repayment period. 5 percent of the $20,000 you borrowed is $1,000.

Remember, the principle amount is $20,000 + $1,000 interest = $21,000 you are borrowing. Your monthly payments are $437.50. That is $21,000 divided by 48 months.

The Same Situation But with Bad Credit

You are borrowing $20,000 but your credit is bad, so the lender adds 15 percent interest to your loan. 15 percent interest equals $3,000. So, you have a principle of $20,000 + $3,000 interest = $23,000 total. Your monthly payments are $479.16. That increases your monthly payment by about $50 per month. That may not seem significant to you, but keep in mind the more the car cost, the more that difference is per month.

Does My Credit Make A Difference For An Auto Loan?

It sure does. I highlighted above how a lower credit score costs you more in interest charges. There are other ways your credit score impacts your ability to obtain loans. Your credit score impacts a lot more than just loan eligibility. It can stand in the way of you getting insurance, a house, and even a job. Your credit score directly impacts so many things in your life. As a result, it is important that you understand what it is and how it works. Obtaining all the information you can helps you protect your credit score and allows you to find good credit auto loans.

A typical credit score range from 350 to 850. Most people have a credit score somewhere between 600 to 750. Good credit falls somewhere between 670 to 800. Anything below 570 falls into the danger zone of bad credit. When you have bad credit, it is much harder to get a good interest rate. You may find it is difficult to be approved for a loan. Lenders feel those with bad credit scores may not be the best candidates for loaning money.

Average car loan rates by credit score.

Consider an Online Loan

These types of auto loans are much faster because the application is completely online and it takes only minutes to fill out. Anything documents that are needed, you can upload in the same space where you filled out the application. Typically, you find out if you have been approved in about 24 hours. The money is in your bank account within 24 hours of your approval.

Online loans have really simplified and sped up the loan process. The slight downside to online loans is that they tend to have higher interest rates. In the past, they were considered loans for those with bad credit, but that thought is beginning to change. One thing to which you should pay attention when it comes to online lenders is shady lenders. There are always people looking to scam others, so be careful. Find out everything you can about any online lender you are considering. Make sure they are certified to lend in your state.

Can I Use A Credit Card To Buy A Car?

Yes, typically you can use a credit card to buy a car. There are some restrictions based on the particular dealership or car. Some dealers may not allow you to use a credit card for the purpose of buying a car. When a credit card is used, the merchant or dealer, in this case, has to be a fee. That fee is typically about 1 to 3 percent of the purchase cost. Many dealers do not want to pay that fee on the sale of a vehicle. A dealership can make more money when you finance a car through them instead of paying for it in full.

You should also consider that just because you can use a credit card to buy a car does not mean that you should. A car is expensive, so you are putting a lot of debt on your credit card. If your credit card has an interest rate and you cannot afford to pay the balance in full, you could be hit with hefty interest charges. Those interest charges may be higher than if you applied for good credit auto loans. If you have a credit card that is offering 0 percent interest and you have a high enough available credit available, it may make sense to use a credit card.

However, if you are not able to pay off the credit card before the special interest ends, you could be hit with all of those interest charges anyway. It could be a hit to your credit initially, if you use a credit card to pay for a car. And it will increase the balance you are carrying on your card. It increases your debt to income ratio. This things can negatively impact your credit.

Client Give Credit Card to Auto Sales Consultant.

How Does My Credit Card Work?

Before you seriously consider using a credit card to pay for a car, you should understand how credit cards work. I am going to run down some basic credit card information for you. A credit card is a plastic card that has your name and credit card number on it. It has a magnetic strip on the back and a chip on the front. You can either swipe the card, or insert it so the chip can be read. When you swipe or insert the card into a merchant’s machine, it can read your name, account information, and other pertinent information to determine if your purchase is approved.

The bank gives you a credit limit and you cannot borrow beyond that limit. You can pay off the amount you borrow by a specific date each month. If you cannot pay the full amount, there is a minimum payment you must make. Any amount that you do not pay is subject to interest charges. If you do not make the minimum payment or make the payment late, the bank assess a fee. Only paying the minimum amount or getting hit with a lot of fees puts you in a dangerous place. You may run the risk of drowning in debt and need credit card refinancing. You may hear terms such as simple credit card or apr credit card. They really are the same thing.

When you use the credit card, that decreases the amount available to you. As you pay off the amount you owe, that increases the amount available to you.

I Will Give You an Example to Illustrate How it Works

Your credit limit is $2,000.

You purchased $500 worth of items. Your credit limit is currently $1,500. Your minimum monthly payment is $25. You owe $500, but can choose to only pay $25.

If you only pay $25, you still owe $475 and will pay interest on that amount. But if you pay $500, you owe $0 interest. If you pay $500, your available credit goes up to $2,000. If you only pay $25, your available credit is $1,575.

Which Is A Better Option: Personal Loan or Credit Card?

We have talked a lot about different ways you can purchase a car. So what is the best way to get good credit auto loans? Should you even get an auto loan? It comes down to what is best for you at this moment in time. That answer could change for you as time progresses. Since you cannot predict the future, you have to do what is best for you at this time.

One of the major differences between and credit card and a loan is the variable payment. When you obtain a loan, you know what your payment amount is for each month. The interest rate is set and the amount of time you have to pay back the loan is set. As a result, your monthly payment is set. You know exactly what you have to pay. You can pay more each month to pay off the loan early, but you do not have to.

When it comes to credit cards, the amount you owe each month is directly related to the amount you spend. The upside to this is you are only paying for exactly what you use. The down side to this is it is hard to budget how much you must pay each month when it is constantly changing. Often the interest charges on a credit card are higher than that of a personal loan. There are some exceptions, such as a credit card with a special 0 percent interest program.

Advantages of A Personal Loan

As I have mentioned a few times above, there are many options available to you. I want to highlight the benefits to good credit auto loans. When you have good credit, there are many more options open to you. You can obtain a personal loan with a lower interest rate. This translates to major savings to you. You pay less money per month when you pay back the loan. It is easier for you to find a loan that has terms that fit into your budget. You are better able to budget your loan payment because the payment amount stays the same each month. There is no fluctuation to the amount of money you pay from month to month. If you take out a personal loan, it does not impact the balances on your credit card. You can still keep that available to your for emergency purposes or other uses.

Advantages To A Credit Card

In addition to good credit auto loans, you can also consider using a credit card to purchase a car. Some of the advantages to using a credit card are you only pay back the exact amount you use. Instead of taking out a loan for a set amount, your credit card has revolving credit. When you pay off what you used, the credit is available to you again. This mean flexibility in how you use the card, but it also means that your payment amount is variable also. Since you pay only what you use, when you spend more money on your credit card, it increases your payment.

Another positive to credit card is that many of them offer special promotions and reward programs. You may be able to find a credit card that is offering 0 percent interest on all purchases for a certain period of time. Other cards offer money back or points on certain purchases. Some of those points can be used for discounted airline tickets, or savings on other types of purchases. When you use a credit card to purchase a car, you are not technically taking on more debt. You already have the revolving debt from the credit card. You are not applying for additional debt on top of that current debt.

Which Is The Best Credit Card?

As noted above, good credit auto loans are not your only option. There are many credit card options available to you. With so many options, how do you know which is the right one?

There are a few things to consider when deciding on which credit card is right for you. Spending a little bit of time up front can save you a lot of money in the long run. Credit limit is important to you. If you have a low credit limit, it may not be useful to you. If you plan to make large ticket item purchases, it will not be long before you are maxed out. So, if you know what you plan to do with your credit card, that can help indicate how much credit you need.

Interest rate is also important. This is especially important if you carry a balance. When you do not pay off the balance of your credit card each month, you pay interest charges. The lower your interest, the less you have to pay. It may not seem like the interest is a big deal but that extra money adds up when you are trying to pay off a credit card. Try to find a card that offers an introductory period of 0 percent interest.

Pay Attention to Any Fees the Credit Card has

Most credit cards will charge you for paying late, or missing payments. You should know up front how much that will cost you.

Also, some credit cards have annual fees, but many do not. This is a fee you are charged every year simply to be allowed to use this credit card. Look for a credit card that does not have an annual fee.

Many credit cards offer rewards, so pay attention to that. If the credit card offers a reward, make sure it is one that makes sense for you. If you are afraid to fly and have never been on a plane, a credit card that offers discounts on place tickets probably is not the best one for you.

Conclusion

I have given you a lot of information about good credit auto loans and your options. At the end of the day, you have to do what is best for you. That might mean waiting a little while for a car. Maybe that means adjusting your budget and saving some money. Or it might mean going out and finding good credit auto loans to get that new car you want.

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