Change has to start somewhere, and for many people that change is easier to make if the starting point has some meaning. It can be a birthday, an anniversary, or any other date with some symbolic weight. Most commonly, people choose the beginning of the new year.
If you’re looking for some New Year’s resolutions that will truly change your life, consider adjusting your financial strategy. Here are five things you can do in 2021 to take your money game to the next level.
Interest rates are at near-historic lows, which makes this the perfect time to refinance your debt. Refinancing means switching your loans from your current lender to a new lender in order to take advantage of a lower interest rate. Refinancing can save you thousands of dollars, depending on the original interest rate and total balance.
Â For example, letâs say you have a $200,000 30-year mortgage with a 5% interest rate, and you refinance to a 3% interest rate. Your monthly payment will be $244 lower, and youâll save $31,173 in total interest over the life of the loan.Â
You can refinance auto loans, personal loans, and even student loans. However, if you have federal student loans, you may want to hold off on refinancing. Refinancing a federal student loan converts it into a private student loan. This means youâll give up extra perks and benefits like income-driven repayment plans and deferment and forbearance options.
Transfer Credit Card Debt
If you have credit card debt, you can pay less interest by transferring the balance to a new card with 0% APR on balance transfers. These special discounts usually last between 12 to 18 months, during which time you wonât be charged interest on the credit card balance.
For instance, letâs say you have a $5,000 balance on a card with a 17% APR. If you only make the minimum payments, youâll pay $1,223.61 in total interest. If you transfer that balance to a card with 0% APR for 12 months and repay the balance in that time, you wonât pay any interest.
There is often a small fee associated with balance transfers, around 3% of balance transfers. For example, if you transfer $5,000, youâll pay a $150 fee. That still leaves a net savings of $1,073.61 in the scenario outlined above.
Decrease Your Fixed Expenses
One of the best things to do for your budget in 2021 is to decrease fixed expenses like your car insurance, internet, cable, and cell phone. Call those providers and try to negotiate a lower rate.
Â Go through your transactions for the past few months and write down all the recurring subscriptions like Netflix, Amazon Prime, and DoorDash. Then, group them into categories like âfrequently use,â âsporadically useâ and ârarely useâ. Consider canceling anything you rarely use.
Â See if you can get a better deal on your most popular subscriptions. For example, if you and your significant other both pay for Spotify Premium, get a Spotify Duo account instead, and save yourself $83.88 a year.
Open a Better Bank Account
Most people are missing out on an easy way to earn money through your bank account. You could be leaving hundreds of dollars on the table if you still have a traditional savings account.
According to the FDIC, the current average interest rate on a savings account is 0.05%. Many high-yield savings accounts offer rates between .40% and .60%.Â
Letâs say you have $10,000 in a savings account with .05% interest. After one year, youâll have earned $5.04 in interest. If you moved that amount to a high-yield savings account with .5% interest, you would earn $49.92 in interest over that same time period.
If you’re not investing for retirement yet, this might be the most important financial resolution you can make. Thanks to the power of compound interest, you can start investing now and see huge growth by the time youâre ready to retire.
IRAs and 401(k)s are the two main retirement accounts. Anyone can open an IRA, while only those who have access to an employer-sponsored 401(k) can open one.
Â If you’re not sure how to invest in your retirement account, consider hiring a qualified financial planner through the National Association of Personal Financial Advisors (NAPFA).
If youâre not ready to work with a financial planner, you can use a robo advisor like Betterment or Wealthfront, which will create a portfolio based on your age, income, and expected retirement age. Robo advisors have low fees and are designed to help beginner investors.
How to Keep Financial Resolutions
First, start small. Pick one habit to change at a time. If you try to accomplish five goals at once, you’ll burn out quickly and give up.Â
When you decide on a resolution, break it up into smaller, more manageable tasks. For example, if your goal is to talk to a financial planner about investing, break it down into the following steps:
1) Research financial planners through NAPFA
2) Send introductory emails to three financial planners
3) Choose the one that seems like the best fit
4) Schedule a consultation
Give yourself a deadline to accomplish each of these tasks, and ask a friend to hold you accountable.
Another tip is to tie your resolutions to a bigger goal. Like dieting or starting a new exercise plan, changing your financial habits is hard. If you’re used to grabbing lunch with your co-workers every day, bringing leftovers from home instead will seem like a huge change.
The key is to imagine the future version of yourself who will benefit from the changes you make today. If your goal is to open and contribute to a retirement account, imagine yourself as a senior citizen living comfortably.
When youâre tempted to skip this monthâs retirement contribution to buy concert tickets, think about your future self, what youâd want for them and how they would appreciate your sacrifice. It can also help to remember some of the financial mistakes you’ve made in the past, and how much easier your life would be right now if you had made a different choice.
The post The 5 Best Financial New Year’s Resolutions appeared first on MintLife Blog.
Due to financial consequences of COVID-19 â and the broader impact on our economy â now is an excellent time to consider refinancing most loans you have. This can include mortgage debt you have that may be converted to a new loan with a lower interest rate, as well as auto loans, personal loans, and more.
Refinancing student loans can also make sense if youâre willing to transition student loans you currently have into a new loan with a private lender. Make sure to take time to compare rates toÂ see how you could save money on interest, potentially pay down student loans faster, or even both if you took the steps to refinance.
Get Started and Compare Rates Now
Still, itâs important to keep a close eye on policies and changes from the federal government that have already taken place, as well as changes that might come to fruition in the next weeks or months. Currently, all federal student loans are locked in at a 0% APR and payments are suspended during that time. This change started on March 13, 2020 and lasts for 60 days, so borrowers with federal loans can skip payments and avoid interest charges until the middle of May 2020.
Itâs hard to say what will happen after that, but itâs smart to start figuring out your next steps and determining if student loan refinancing makes sense for your situation. Note that, in addition to lower interest rates than you can get with federal student loans, many private student lenders offer signup bonuses as well. With the help of a lower rate and an initial bonus, you could end up far âaheadâ by refinancing in a financial sense.
Still, there are definitely some negatives to consider when it comes to refinancing your student loans, and weâll go over those disadvantages below.
Should You Refinance Now?
Do you have student loan debt at a higher APR than you want to pay?
If no: You shouldnât refinance.
If yes: Go to next question.
Do you have good credit or a cosigner?Â
If no: You shouldnât refinance.
If yes:Â Go to next question.
Do you have federal student loans?
If no: You can consider refinancing
If yes: Go to next question
Are you willing to give up federal protections like deferment, forbearance, and income-driven repayment plans?
If no: You shouldnât refinance
If yes: Consider refinancing your loans.
Reasons to Refinance
There are many reasons student borrowers ultimately refinance their student loans, although they can vary from person to person. Here are the main situations where it can make sense to refinance along with the benefits you can expect to receive:
Secure a lower monthly payment on your student loans. You may want to consider refinancing your student loans if your ultimate goal is reducing your monthly payment so it fits in better with your budget and your goals. A lower interest rate could help you lower your payment each month, but so could extending your repayment timeline.
Save money on interest over the long haul. If you plan to refinance your loans into a similar repayment timeline with a lower APR, you will definitely save money on interest over the life of your loan.
Change up your repayment timeline. Most private lenders let you refinance your student loans into a new loan product that lasts 5 to 20 years. If you want to expedite your loan repayment or extend your repayment timeline, private lenders offer that option.
Pay down debt faster. Also, keep in mind that reducing your interest rate or repayment timeline can help you get out of student loan debt considerably faster. If youâre someone who wants to get out of debt as soon as you can, this is one of the best reasons to refinance with a private lender.
Why You Might Not Want to Refinance Right Now
While the reasons to refinance above are good ones, there are plenty of reasons you may want to pause on your refinancing plans. Here are the most common:
You want to wait and see if the federal government will offer 0% APR or forbearance beyond May 2020 due to COVID-19. The federal government has only extended forbearance through the middle of May right now, but they might lengthen the timeline of this benefit if you wait it out. Since this perk only applies to federal student loans, you would likely want to keep those loans at 0% APR for as long as the federal government allows.
You may want to take advantage of income-driven repayment plans. Income-driven repayment plans like Pay As You Earn (PAYE) and Income-Based Repayment let you pay a percentage of your discretionary income each month then have your loans forgiven after 20 to 25 years. These plans only apply to federal student loans, so you shouldnât refinance with a private lender if you are hoping to sign up.
Youâre worried you wonât be able to keep up with your student loan payments due to your job or economic conditions. Federal student loans come with deferment and forbearance that can buy you time if youâre struggling to make the payments on your student loans. With that in mind, you may not want to give up these protections if youâre unsure about your future and how your finances might be.
Your credit score is low and you donât have a cosigner. Finally, you should probably stick with federal student loans if your credit score is poor and you donât have a cosigner. Federal student loans come with fairly low rates and most donât require a credit check, so theyâre a great deal if your credit is imperfect.
Important Things to Note
Before you move forward with student loan refinancing, there are some details you should know and understand. Here are our top tips and some important factors to keep in mind.
Compare Rates and Loan Terms
Because student loan refinancing is such a competitive industry, shopping around for loans based on their rates and terms can help you find out which lenders are offering the most lucrative refinancing options for someone with your credit profile and income.
We suggest using Credible to shop for student loan refinancing since this loan platform lets you compare offers from multiple lenders in one place. You can even get prequalified for student loan refinancing and âcheck your rateâ without a hard inquiry on your credit score.
Check for Signup Bonuses
Some student loan refinancing companies let you score a bonus of $100 to $750 just for clicking through a specific link to start the process. This money is free money if youâre able to take advantage, and you can still qualify for low rates and fair loan terms that can help you get ahead.
We definitely suggest checking with lenders that offer bonuses provided you can also score the most competitive rates and terms.
Consider Your Personal Eligibility
Also keep your personal eligibility in mind, including factors beyond your credit score. Most applicants who are turned down for student loan refinancing are turned away based on their debt-to-income ratio and not their credit score. Generally speaking, this means they owe too much money on all their debts when you compare their liabilities to their income.
Credible also notes that adding a creditworthy cosigner can improve your chances of prequalifying for a loan. They also state that âmany lenders offer cosigner release once borrowers have made a minimum number of on-time payments and can demonstrate they are ready to assume full responsibility for repayment of the loan on their own.â
Itâs Not âAll or Nothingâ
Also, remember that you donât have to refinance all of your student loans. You can just refinance the loans at the highest interest rates, or any particular loans you believe could benefit from a different repayment term.
4 Steps to Refinance Your Student Loans
Once youâre ready to pull the trigger, there are four simple steps involved in refinancing your student loans.
Step 1: Gather all your loan information.
Before you start the refinancing process, it helps to have all your loan information, including your student loan pay stubs, in one place. This can help you determine the total amount you want to refinance as well as the interest rates and payments you currently have on your loans.
Step 2: Compare lenders and the rates they offer.
From there, take the time to compare lenders in terms of the rates they can offer. You can use this tool to get the process started.
Step 3: Choose the best loan offer you can qualify for.
Once youâve filled out basic information, you can choose among multiple loan offers. Make sure to check for signup bonus offers as well as interest rates, loan repayment terms, and interest rates you can qualify for.
Step 4: Complete your loan application.
Once you decide on a lender that offers the best rates and terms, you can move forward with your full student loan refinancing application. Your student loan company will ask for more personal information and details on your existing student loans, which they will combine into your new loan with a new repayment term and monthly payment.
The Bottom Line
Whether it makes sense to refinance your student loans is a huge question that only you can answer after careful thought and consideration. Make sure you weigh all the pros and cons, including what you may be giving up if youâre refinancing federal loans with a private lender.
Refinancing your student loans can make sense if you have a plan to pay them off, but this strategy works best if you create a debt repayment plan you can stick with for the long-term.
The post Should You Refinance Your Student Loans? appeared first on Good Financial CentsÂ®.
Behind every diploma bestowed at high school and college graduations is a lot of hard work. And for some lucky grads, that hard work gets rewarded with a milestone gift: their own car. If you’re planning to buy a car for the new grad in your life, we’ve got some advice on making the right choice. And if you’re the recipient, we’ll share a few tips to help you drive into the future with confidence.
What to Consider If Youâre Giving a Car to a New Grad
You’re so proud of your new grad for all their hard work that youâve decided to shell out for a set of wheels to carry them on to their next adventures. Whether youâre getting your grad started with a well-loved (read: used) older car you bought from a neighbor or youâre splurging for a brand-new ride with all the bells and whistles, itâs important for you, the buyer, to take a moment to consider the realities of this major purchase â and of the needs of its soon-to-be owner.
1. Consider Total Cost of Ownership When Choosing a Car
First, let’s talk money. The car you buy should fit into your own budget, of course. But you also have to consider the total cost â including ongoing costs â of the car. Here are some things to think about.
Gas: If, for example, your child will be driving the car back and forth between home and an out-of-state university, would they (or you, if you’re footing the gas bill) be burdened by the costs of a gas-guzzling vehicle? If so, a fuel-efficient car might be a better option.
Insurance: This is the most expensive consideration after the vehicle itself. Neil Richardson, licensed insurance agent and adviser for The Zebra, says to keep insurance in mind right from the start as you shop for cars. If insurance is an afterthought when you’ve already purchased the car, you could be in for some unpleasant surprises. Further, the car you select will affect your insurance premium if your grad will be on your insurance policy (more on this below).
Maintenance: Consider the expenses related to repairing or replacing parts on the vehicle if itâs damaged in some way. Foreign car repairs may be much more expensive than domestic, but thatâs not a hard-and-fast rule. Further, new cars may include manufacturer warranties or maintenance as part of your package, but if your grad is savvy with tools or has an interest in cars, they can take care of plenty of at-home car maintenance issues.
2. Prioritize Safety &Â Utility
When car shopping, safety should stay top of mind. The Insurance Institute for Highway Safety ranks the safest cars in different categories, from minis to large pickup trucks.
Also think about where and how much your recipient will be driving. If they’re headed for college or a new job in a crowded city, they’ll need a car that fits cramped streets and narrow parking spaces. A new college grad with a quick commute will appreciate a different kind of car than one whose new job requires them to be a road warrior.
3. Insure it
If your gift recipient is a high school grad who lives at your residence, they may get lower premiums if they stay on your policy, but whether that’s possible depends on your situation. If they’re headed to an in-state college or university, they can stay on your insurance policy as long as their primary residence is still your home address, Richardson says. Students leaving the state for college, though, may have to get coverage on their own, as rates are dependent on where the driver lives and âgaragesâ the vehicle.
Remember that if your new grad is on your insurance policy, you could be held liable for damage they cause in an accident. For this reason, Richardson says it’s generally a good idea to go beyond the state-required minimums in liability coverage.
4. Get Your Paperwork in Order
Getting close to a decision? Before you seal the deal, prepare for some extra paperwork. Whether youâre heading to the dealer or buying a car privately, youâll need to be prepared with the right documentation, such as the recipient’s driver’s license and current insurance, an IRS cash-reporting form and a security report. (Questions? Read more details about each of these documents.)
If Youâre a New Grad Whoâs Been Gifted a Car
So now you’re the proud owner of a new diploma and a car. Sweet! Take a moment to savor the payoffs for your hard work and generosity of your gift giver.
Once you’ve posted lots of photos of your new ride, you might be thinking about all the new freedom your car gives you or how you’re going to upgrade the stereo system. But there are some other things you need to keep in mind when it comes to how this car will affect your life. Nail down these details and you’ll be well on your way to acing this whole “#adulting” thing.
1. Know the Impact on Your Wallet
Even if you arenât making payments on your new vehicle, a car can still have a huge impact on your wallet. (Hereâs how car insurance affects your credit.) How much will you need to budget for gas, parking, insurance, registration and regular maintenance? Your folks or your generous benefactor may be picking up some of these expenses for you, at least in the short term. Be sure to establish clearly with others about who’s paying what and check in regularly to make sure necessary expenses related to your car are taken care of.
2. Your Insurance History Starts Now
We know that dealing with auto insurance for the first time is complicated, so it’s extra important to be clear on how your policy works, whether it’s in your name or you are on your parents’ policy for now. If youâre a registered driver of a registered vehicle, your insurance history starts now (even if youâre not paying for it), and a clean driving record and demonstrated history of continuous insurance coverage will mean huge savings on your insurance in the future.
If youâre in college, you can start building your insurance record by staying on your parentsâ or legal guardiansâ policies if they OK it. According to Richardson, as long as the parents’ address is still the primary residence of the student, on-campus housing is considered temporary since students have to leave at the end of each semester, so students can still be covered on their parents’ policy. Once they move off campus to a more permanent situation, i.e., a house or apartment, then they will need their own coverage. (Here are the states where your credit score really matters for car insurance coverage. No matter where you live, it’s a good idea to know where your credit stands â you canÂ find out for free on Credit.com.)
If youâre not in college and youâve moved away from your parents or guardians altogether and no longer share an address, youâll have to have your own policy.
3. Keep That Car in Tip-Top Shape
Finally, regular preventive car maintenance will probably be the last thing on your mind as you adjust to college life or settle into a new job. So go ahead and set some reminders in your calendar to take care of oil changes, wiper fluid and other routine maintenance for your car. You’ll prolong the life of the car and make it less likely that problems will pop up just when you don’t need them â like on your Spring Break trip or on the way to a job interview.
There are over 25 million auto loans every year in the United States, with the majority of drivers using finance to pay for new and used vehicles. Car loans are some of the most common secured loans in the country and for many Americans, a car is the second most expensive purchase they will make in their lifetime.
But shopping for a new car and applying for a suitable car loan is a stressful experience filled with uncertainty and difficult decisions. One of the most difficult decisions is whether to opt for a new car or a used one. In this guide, weâll showcase some of the pros and cons of both options, pointing you in the right direction and helping you to make the right choice.
Reasons to Buy Used
It is satisfying to own something that is brand-new. Itâs fresh out of the factoryâyouâre the first to use it, the first to experience it.Â
Consumers are prepared to pay a premium just to be the first owner. iPhones and other tech are great examples of this. You could save 30% on the price of a new phone by opting for a refurbished model. The screen and case will be near-perfect, the hardware and software will be fully functional, and everything will be backed by a warranty. However, you donât get the satisfaction of peeling back the protective stickers and being the first to open the box.
Itâs a similar story with cars. There are no stickers to peel and boxes to open, but you canât beat the new car smell or the way the steering wheel feels in your palms.
Thatâs not all, either. There are many other benefits to owning a brand-new car and using your auto loan to acquire one.
New Cars Depreciate Fast
A $200,000 mortgage acquired today might cost you $300,000 or more over the lifetime of the loan. However, in a couple decades, when that mortgage is in the final stretch and you own a sizeable chunk of home equity, youâll likely have something worth $250,000, $300,000, or more.
If you get an auto loan on a new car, itâs a different story. As your interest increases and your payments exceed the original value, the current value nose-dives. At the end of the term, you could have something that is worth a small fraction of what you paid for it.
As an example, letâs assume that you purchase a $40,000 car with a $10,000 down payment and a $30,000 loan. With an interest rate of 6% and a term of 60 months, youâll repay just under $35,000 over the lifetime of the loan.
However, as soon as you drive that car out of the lot, the price will plummet. At the end of the first year, it will have lost between 20% and 30% of its value. If we assume a 20% loss, that car is now worth just $32,000. The irony here is that you will have paid just under $7,000 in that year, and as the years progress, you fall into a pattern where the more you pay, the less itâs worth.
In the next 4 years, the car will experience an average deprecation of between 15% and 18%. Again, letâs assume a conservative estimate of 15%. That $40.000 purchase will be worth $27,200 at the end of year 2; $23,120 at the end of year 3; $19,653 in year 4, and $16,705 at the end of the loan.
And donât forget, that vehicle cost you $45,000 in total.
Unless youâre buying a rare car that will become a collectible, all cars will depreciate, and that depreciation will be pretty rapid. However, used cars donât suffer such rapid deprecation because they donât have that inflated sticker price. If you take good care of them and pay a good price, you wonât stand to lose as much money.
Used Cars are Cheaper
As stated above, all cars depreciate, but if the first year suffers the biggest drop then why not buy a car that is just a year or two old?
Itâs the same car and offers many of the same benefits, but youâre getting it for up to 30% less on average. For a $40,000 car, thatâs a saving of $8,000. Once you add a 20% down payment, your loan only needs to cover $25,600. For a 6% loan, thatâs just $495 a month, compared to the $619 youâd pay on a $40,000 new car with the same 20% down payment.
That puts more money in your pocket and less debt on your credit report. Thatâs a double-whammy well worth sacrificing a new car smell for.
Itâs Still Nearly New
If you buy a used car that is just a couple of years old, you can still get something that has been well maintained and is just as impressive as it was the day it rolled off the lot.Â
Think about the last time you bought a brand-new car, computer, phone, musical instrumentâor anything else that came with a premium price tag. You probably kept it in perfect condition soon after buying. Everyone goes through a period of doing their utmost to keep a new purchase immaculate and the more they pay, the longer than period lasts.
Most consumers will keep a car in perfect condition for at least two or three years, but no matter what they do, they are powerless to the depreciation. This means you can get an almost-new, perfect car that is nearly a third cheaper than it was when it was new.
Reasons to Buy New
Î used car doesnât provide you with that enjoyable, tactile experience. You canât enjoy the ubiquitous new car smell and you wonât be the first owner. However, there are numerous benefits to buying used instead of new, not least of which is the amount of money you will save now and in the future.
More Finance Options
You have a few more options at your disposal when it comes to financing a new car. Many dealerships offer low-interest and even no-interest financing to encourage you to sign on the dotted line.Â
These deals often have hidden terms, penalties, and other issues, and if you fail to make a payment, they wonât hesitate to take your car from you. However, if youâre struggling to finance elsewhere and have your heart set on a brand-new car, this could be your only option.
Make sure you read the terms and conditions closely and donât let them bombard you with small print and sales talk. They are there to sell you a car. All they care about is your signature on that contract and if that means glossing over a few of the terms, they wonât hesitate.
More Customization and Better Features
Technology is advancing at a tremendous pace and this can be felt in all industries, including the automotive sector. A lot can happen in a few short years and if you buy a used car as opposed to a new one, you could miss out on a host of electronics, safety features, and more.
Customization is also possible with new cars. You can request colors, fabrics, and other aesthetic changes, as well as additional features relating to the power and performance of the vehicle.
New cars offer bumper-to-bumper warranty cover, which means that youâre covered in the event of an issue. If major repairs are needed, you wonât be out of pocket, and these warranty plans tend to offer roadside assistance as well.
This can be true for used cars as well, with the manufacturerâs warranty being transferred when the car is in the hands of a new owner. However, the warranty is at its longest and most useful when the car is first purchased.
The warranty wonât cover everything, and you will still be responsible for normal wear and tear. However, because the car is new, it should require less maintenance and may take several years before you need to make significant purchases.
Surveys suggest that new car owners pay anywhere from $0 to $300 for maintenance during the first 12 months, with this fee spanning between $300 and $1,100 once the car is a decade old.
Used car purchases take time. You need to find the vehicle, inspect it, negotiate with the seller, and then hope you can agree to a price and payment plan. If you want something specific with regards to colors and features, you may have to search many inventories and individual sellers before you find something that fits.
With a new car, you simply agree to a budget and see whatâs available. If you need any tweaks or changes, you can request them directly from the dealer.
Summary: New vs Old
There are two ways at looking at this. Firstly, there are more advantages for buying a new car and these include some pretty important ones. However, the advantages for buying used are much bigger and if your bank balance or credit score is low, that could be the deciding factor.Â
In any case, itâs important to look closely at the pros and cons, evaluate them based on your personal situation, and donât rush this decision.
Auto Loan: New Car vs Old Pros and Cons is a post from Pocket Your Dollars.
Imagine you’re shopping for a new car and finally find a reasonably priced set of wheels that you like. But when the dealer pulls your credit, that seemingly affordable monthly payment is no longer available to you. Instead, you’re offered a subprime car loan at 10% or even 20% interest because your credit isn’t strong enough to get a better rate.
How much does a cosigner help on auto loans when you’re facing this type of situation? Get more information below to help you decide whether seeking a cosigner is the right option for you.
How Does a Cosigner on a Loan Work?
A cosigner is basically someone who backs the loan. They sign agreeing that if you don’t make the payments as promised, they will step in to pay them.
If you don’t have much of a credit history or your credit is bad or poor, lenders are typically hesitant to give you an auto loan. They perceive you as risky. Will you pay as agreed? There’s not enough data or credit history for them to make that call.
However, a cosigner with a long history of good credit is different. The lender is more likely to believe that this person willpay as agreed. So, if you can get a cosigner to back you, you might have a better chance of getting a loan or getting better terms.
How Much Does a Cosigner Help With an Auto Loan?
How much can you save? Imagine you finance $37,851, the average price for a new light vehicle in the United States as of February 2020.
The average interest rate as of the end of 2019 for new car loans was 5.76%. If you’re able to get that interest rate and a loan term of 72 monthsâthat’s 6 yearsâyou would pay a total of $44,742. That’s $6,891 in interest and a monthly payment of around $621.
If you financed at 10% without a cosigner for the same terms, you’d pay a total of $50,488 for the vehicle. That’s $12,637 in interest and around $701 in monthly payments.
This is obviously just an example, but you can see that a cosigner can save you a lot. In this case, it’s $80 a month and more than $5,700 total.
Cosigner Versus Co-Applicant
It’s important to note that having a cosigner for a car loan is not the same thing as having a co-applicant. A co-applicant buys the vehicle with you. Their credit history and income are used alongside yours to determine if you, together, can afford the vehicle. The co-applicant also has an equal share of ownership in the vehicle purchased with the loan.
A cosigner, on the other hand, doesn’t have an ownership share in the vehicle. Their income may also not be a factor in the approval. Typically, they’re along only to provide a boost in the overall credit outlook.
What Are Some Downsides of Having a Cosigner?
Most of the risks or disadvantages are held by the cosigner. If you don’t pay the loan, they could become responsible for it. They could also suffer from a lower credit score if you’re late with car payments because it might get reported to their credit too.
As a borrower, you might experience a few disadvantages in using a cosigner. First, you have to get someone to agree to this, and you typically want it to be someone with good credit. Trusted family members are the most common cosigners, but that could mean that they might want to have a say in what type of vehicle you get.
And if something happens and you can’t pay the vehicle loan for any reason, you run a personal risk. You could damage your relationship with the cosigner if they do end up having to pay off the loan or face damage to their credit.
So, Should You Get a Cosigner for an Auto Loan?
The decision is personal. Before you do anything, check your credit and understand where you are financially. That helps you know what your chances for getting approved for a loan are on your own and how much loan you might be able to afford.
Then, check out some potential auto loans and consider whether you should apply for them on your own. If you know your credit is too poor or you try to apply for a loan and don’t get favorable terms, talk to a potential cosigner. Be honest about your situation and have a plan to pay the loan on time each month so they feel more confident supporting you as you make this purchase.
Apply for an auto loan today!
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If you have bad credit and need a car loan, there are some challenges when compared to obtaining a standard car loan. However, pick your head up because there are a handful of great lenders that specifically tailor their programs to people with bad credit. We researched the landscape of lenders that can help you get a car loan even if you have a below-average credit score.
Based on our study, OneMain Financial and LightStream are two of the top lenders offering bad credit card loans. This is due to factors including loan options, requirements to qualify, and interest rates offered. Of course, we offer in-depth reviews of all the top lenders who offer bad credit car loans further down in this piece.
Apply now with our top pick: OneMain Financial
In this guide we also help you understand the factors that go into selecting the right auto lender, and how to get the best rate you can.
Most Important Factors for Bad Credit Car Loans
If youâre in the market for a bad credit car loan, there are a plethora of factors to consider and compare. Here are the main loan details we looked at in our study, and the ones you should prioritize as you select the best car loan for your needs.
Check your credit score. And understand what is in your credit report.
FICO scores under 579 is considered ‘poor’. But you may need a bad credit loan with a score as high as 669.
Interest rates and fees matter. These can make a huge difference in how much you pay for an auto loan each month.
Compare loan terms. Consider your repayment timeline and compare lenders with this in mind.
Getting prequalified online can help. Some lenders, including ones that made our ranking, let you get prequalified for a loan online without a hard inquiry on your credit report.
Watch out for loan restrictions. Some lenders impose restrictions on what car you can purchase. Keep this in mind to avoid unpleasant surprises later.
The Best Bad Credit Car Loans of 2021
The best bad credit car loans make it easy for consumers to qualify for the financing they need. The following lenders made our list due to their superior loan offerings, excellent customer service, and reputation in this industry.
Car Loan Company
Best for Flexibility
Best Personal Loan Option
Best Loan for Bad Credit and No Credit
Best Loan Comparison Site
Best Big Bank Loan for Bad Credit
Best for Fast Funding
Why Some Lenders Didn’t Make the Cut
While the lenders we are profiling are the best of the best, there are plenty of bad credit car loans that didnât quite make the cut. We didnât include any lenders that only offer auto loan refinancing, for example, since we know many people need a car loan in order to purchase a new or used car or truck. We also stayed away from bad credit car loans that charge outrageous fees for consumers with the lowest credit scores.
Bad Credit Auto Loan Reviews
We listed the top companies we selected in our study above, but we also aim to provide readers with more insights and details on each. The reviews below highlight the highlights of each lender that made our list, plus our take on who they might be best for.
OneMain Financial: Best for Flexibility
OneMain Financial offers personal loans and auto loans with interest rates that range from 18.00% to 35.99%. You can repay your auto loan in 24, 36, 48, or 60 months, and you can use this lender to borrow up to $20,000 for a new or used car. You can apply for your auto loan online and from the comfort of your own home, and itâs possible to get approved within a matter of minutes.
While OneMain Financial doesnât list a minimum credit score requirement, itâs believed they will approve consumers with scores as low as 600. You should also note that auto loans from OneMain Financial come with an origination fee of up to 5% of your loan amount.
Sign Up With OneMain Financial Today
Why This Lender Made Our List: OneMain Financial offers a lot of flexibility in terms of your loan terms, including the option to repay your auto loan over five years. OneMain Financial also has pretty decent reviews from users for a bad credit lender, and they have an A+ rating with the Better Business Bureau.
Potential Downsides to Be Aware Of: OneMain Financial charges some pretty high rates for its bad credit loans, and donât forget that you may need to pay an origination fee that is up to 5% of your loan amount. Their loans are also capped at $20,000, which means this lender wonât work for everyone.
Who Itâs Best For: This lender is best for consumers with really poor credit who need auto financing but canât get approved for a better loan.
Upgrade: Best Personal Loan Option
Upgrade is an online lender that offers personal loans with fixed interest rates, fixed monthly payments, and a fixed repayment timeline. You can borrow up to $50,000 in an unsecured loan, which means you wonât actually use the car you purchase as collateral for the loan.
You can repay the money you borrow over 36 to 60 months, which makes it possible for you to tweak your loan offer to secure a monthly payment you can afford. Upgrade has a minimum credit score requirement of 620 to qualify, although theyâll consider additional factors such as your income and employment history.
Sign Up With Upgrade Today
Why This Lender Made Our List: Upgrade lets you âcheck your rateâ online without a hard inquiry on your credit report. This makes it easy to shop around and compare this loan offer to others without having to fill out a full loan application. Also note that Upgrade has an A+ rating with the BBB.
Potential Downsides to Be Aware Of: Upgrade charges APRs as high as 35.89% for consumers with the worst credit, and an origination fee of up to 6% of your loan amount might also apply.
Who Itâs Best For: Upgrade is best for consumers with decent credit who need to borrow a larger loan amount. This loan is also best for anyone who wants an auto loan that isnât secured by their vehicle.
AutoCreditExpress.com: Best Loan for Bad Credit and No Credit
AutoCreditExpress.com is an online platform that lets consumers with bad credit and even no credit get the financing they need. Once you fill out some basic loan information, youâll be connected with a lender who can offer you financing as well as a dealership in your area. From there, youâll head to the local dealership and pull the pieces of your auto loan together, including the purchase price of the car you want.
Sign Up With Autocreditexpress.com Today
Why This Lender Made Our List: AutoCreditExpress.com has an A+ rating with the Better Business Bureau. This platform also makes it possible for consumers with no credit at all to finance a car, which is a welcome relief for people who are building credit for the first time.
Potential Downsides to Be Aware Of: This website is a loan platform but they donât offer loans directly to consumers. This means you wonât have any idea on rates and terms until you fill out an application and get connected with a lender.
Who Itâs Best For: This loan is best for consumers with no credit or minimal credit history who cannot get approved for a loan elsewhere.
MyAutoLoan.com: Best Loan Comparison Site
MyAutoLoan.com is a loan comparison site that makes it easy to compare up to four auto loan offers in a matter of minutes. You can use this website to apply for a new auto loan, but you can also utilize it to consider refinancing offers for an auto loan you already have. You can also use funds from this platform to purchase a car from a dealer or from a private seller.
Sign Up With MyAutoLoan.com Today
Why This Lender Made Our List: Comparing auto loans in terms of their terms, rates, and fees is the best way to save money and wind up with the best deal. Since MyAutoLoan.com is a loan comparison site, they make it easy to shop around and compare competing offers.
Potential Downsides to Be Aware Of: Loan comparison sites connect you with other lenders who have their own loan terms and minimum requirements for approval. Make sure you know and understand all the details of loans youâre considering before you sign on the dotted line.
Who Itâs Best For: MyAutoLoan.com is best for consumers who want to do all their auto loan shopping with a single website.
Capital One: Best Big Bank Loan for Bad Credit
Capital One offers online auto loan financing in conjunction with a program called Auto NavigatorÂ®. This program lets you get prequalified for an auto loan online, then work with a participating dealer to coordinate a loan for the car you want. Capital One also lets you search available vehicles at participating dealerships before you apply for financing, making it easy to figure out how much you might need to borrow ahead of time.
Sign Up With Capital One Today
Why This Lender Made Our List: Capital One offers the huge benefit of letting you get prequalified online without a hard inquiry to your credit report. Capital One is also a reputable bank with a long history, which should give borrowers some comfort. They have an A+ rating with the BBB and plenty of decent reviews from consumers.
Potential Downsides to Be Aware Of: You should be aware that Capital One auto loans only work at participating dealers, so you may be limited in terms of available cars to choose from.
Who Itâs Best For: Capital One auto loans are best for consumers who find a car they want to buy at one of the participating lenders that works with this program.
LightStream: Best for Fast Funding
LightStream offers online loans for a variety of purposes, including auto financing. Their auto loans for consumers with excellent credit start at just 3.99% with autopay, and even their loans for consumers with lower credit scores only run as high as 16.79% with autopay.
You can apply for your LightStream loan online and get approved in a matter of minutes. This lender can also send your funds as soon as the same business day you apply.
A minimum credit score of 660 is required for loan approval, although other factors like your work history and income are considered.
Sign Up With LightStream Today
Why This Lender Made Our List: LightStream offers auto loans with exceptional terms, and thatâs even true for consumers with less than perfect credit. You can also get your loan funded as soon as the same business day you apply, which is crucial if you need auto financing so you can get back on the road.
Potential Downsides to Be Aware Of: With a minimum credit score requirement of 660, these loans wonât work for consumers with the lowest credit scores.
Who Itâs Best For: LightStream is best for people with decent credit who need to get auto loan financing as quickly as possible.
What You Need To Know When Applying For A Car Loan With Bad Credit
Interest rates and fees matter.
If you think your interest rate and loan fees wonât make a big difference in your monthly payment, think again. The reality is that rates and fees can make a huge difference in how much you pay for an auto loan each month. Consider this: A $10,000 loan with an APR of 35.89% will require you to pay $361 per month for five years. The same loan amount at 21.99% APR will only set you back $276 per month. At 9.99%, you would pay only $212 per month for five years. The bottom line: Make sure to compare auto loans for bad credit so you wind up with the lowest possible APR you can qualify for.
Take steps to improve your credit score before you apply.
Itâs not always possible to wait to apply for a car loan, but you may be able to secure a lower interest rate and better loan terms if you can improve your credit score before you borrow money. The most important steps you can take to improve your score include paying all your bills early or on time, as well as paying down debt in order to decrease your credit utilization. You should also refrain from opening or closing too many credit card accounts in order to avoid new inquiries on your credit report and maintain the longest average length of your credit history possible.
Compare loan terms.
Some lenders let you borrow money for up to 84 months, while others let you repay your loan over 36 or 60 months at most. If you need to repay your loan over a longer timeline in order to secure an affordable monthly payment, make sure to compare lenders based on this factor. If youâre having trouble figuring out how much can you can afford, gauging affordability based on the monthly payments you can handle can also help in that effort.
Getting prequalified online can help.
Some lenders, including ones that made our ranking, let you get prequalified for a loan online without a hard inquiry on your credit report. This makes it considerably easier to compare rates and shop around without formally applying for an auto loan. Getting prequalified with more than one lender can also help you determine which one might offer the lowest rate without having to fill out a full loan application.
Watch out for loan restrictions.
As you compare the lenders on this list, keep in mind that not all lenders extend loans for any car you want. Some only let you finance cars with participating lenders in their network, which can drastically limit your options and make it impossible to purchase a car from a private seller. If you hope to purchase a car from someone you know or a website like craigslist.org, you may want to consider reaching out to your personal bank or a credit union you have a relationship with.
Bad credit car loans donât have to be forever.
Finally, you should know that a car loan for bad credit doesnât have to last forever. You may need to borrow money for a car right now regardless of the interest rate and terms you can qualify for, but it may be possible to refinance your loan into a better loan product later on. This is especially true if you focus on improving your credit score right away, and if you use your auto loan as an opportunity to prove your creditworthiness.
How to Get the Best Rate
1. Check your credit score.
Your credit score is one of the most important defining factors that dictate loan costs. Before you apply for an auto loan, it can help you check your credit score to see where you stand. Your score may not be as bad as you realize, but it could also be worse than you ever imagined. Either way, it helps to know this important information before you start shopping for an auto loan.
2. Improve your credit over time.
If your credit score needs work, youâll want to take steps to start improving it right away. The most important steps you can take to boost your credit score include paying all your bills early or on time and paying down debt to decrease your credit utilization. Also, make sure youâre not opening or closing too many credit accounts within a short amount of time.
3. Check your credit reports.
Use the website AnnualCreditReport.com to get a free copy of your credit reports from all three credit bureaus. Once you have this information, check over your credit reports for errors. If you find false information that might be hurting your score, take the steps to have the incorrect information removed.
4. Compare loan offers from at least three lenders.
A crucial step to get the best rate involves shopping around and comparing loan offers from at least three different lenders. This is important since lenders with different criteria might offer a lower APR or better terms than others.
5. Be flexible with repayment terms.
Also consider a few different loan terms provided you can afford the monthly payment with each. Some auto lenders offer better rates for shorter terms, which can help you save money if you can afford to repay your loan over 24 or 36 months instead of 60+.
How We Chose the Best Auto Loans
The lenders on our list werenât plucked out of thin air. In fact, the team behind this guide spent hours comparing auto lenders based on a wide range of criteria. Hereâs everything we considered when comparing the best bad credit car loans of 2021:
Interest Rates and Loan Terms: Our team looked for loans that offer reasonable rates and terms for consumers with poor credit. While higher APRs are typically charged to consumers with a low credit score, we only considered lenders that offer sensible rates that donât seem out of line for the auto loan market.
Ratings and Reviews: We gave preference to lenders who have decent reviews online, either through Consumer Affairs, Trustpilot, or another third party website. We also gave higher marks to lenders who have a positive rating with the Better Business Bureau (BBB).
Online Availability: Lenders who offer full loan details online were definitely given top priority in our ranking, and lenders who let you get prequalified online without a hard inquiry on your credit report were given the most points in this category. But since not everyone wants to apply for a loan online, we also included some lenders that let you apply over the phone.
Approval Requirements: Finally, we looked for lenders that extend credit to consumers with low credit scores in the first place. Not all lenders offer specific information on approval requirements, but we did our best to sort out lenders that only accept borrowers with good or excellent credit.
Summary: Best Bad Credit Card Loans of 2021
Best for Flexibility: OneMain Financial
Best Personal Loan Option: Upgrade
Best Loan for Bad Credit and No credit: AutoCreditExpress.com
Best Loan Comparison Site: MyAutoLoan.com
Best Big Bank Loan for Bad Credit: CapitalOne
Best for Fast Funding: LightStream
The post What Are the Best Car Loans When You Have Bad Credit? appeared first on Good Financial CentsÂ®.
The Consumer Financial Protection Bureau ruled that for mortgages made after Jan. 10, 2014, the maximum prepayment penalty a lender can charge is 2% of the loan balance. And prepayment penalties are only allowed in mortgages if all of the following are true:
Prepayment penalties apply for only the first few years of a mortgage â the CFPBâs rule allows for a maximum of three years. But again, check your mortgage agreement for your exact terms.
Credit unions and banks are your best options for avoiding loans that include prepayment penalties, according to Charles Gallagher, a consumer law attorney in St. Petersburg, Florida.
If youâre negotiating the terms â as say, with an auto loan â donât let a salesperson try to pressure you into signing a contract without agreeing to a simple interest contract with no prepayment penalty. Better yet, start by applying for a pre-approved auto loan so you can get a pro to review any contracts before you sign.
If youâll incur a fee for paying off your loan early within the first few years, consider holding onto the money until the penalty period expires.
By using techniques like the debt avalanche, debt snowball and debt lasso methods, you can tackle your other debts while giving yourself time to let a prepayment penalty period expire.
What Is a Loan Prepayment Penalty?
If a loan has a prepayment penalty, the servicer must include information about the penalty on either your monthly statement or in your loan coupon book (the slips of paper you send with your payment every month).
Additionally, although you may get socked with a penalty for paying off the loan balance early, itâs likely you can still make extra payments toward the balance. Review your contract or ask your lender what amount will trigger the penalty, Gallagher said.
A prepayment penalty is a fee lenders charge if you pay off all or part of your loan early. Source: thepennyhoarder.com
What Loans Have Prepayment Penalties?
First, check your contract.
âYou should read the entirety of the loan, as painful as that sounds, because lenders may try to hide it,â Gallagher said. âGenerally, it would be under repayment terms or the language that deals with the payoff of the loan or selling your house.â
However, if there is a prepayment penalty in the contract for a more recent mortgage, there are rules about how long it can be in effect and how much you can owe.
That prepayment penalty can apply if you want to pay off your loan early, sell your house or even refinance, depending on the terms of your mortgage.
Most loans do not include a prepayment penalty. They are typically applied to larger loans, like mortgages and sometimes auto loans â although personal loans can also include this sneaky fee.
Prepayment Penalties for Mortgages
âThey avoid using the word âpenalty,â obviously, because that would give a reader of the note, mortgage or the loan some alarm,â he said.
If youâre paying off multiple types of debt, consider paying off the accounts that do not trigger prepayment penalties â credit cards and federal student loans donât charge prepayment penalties.
If you donât have a loan with a prepayment penalty, contact your lender before sending additional money to ensure your payment is going toward principal â not interest or fees.
âItâs more of private loans â loans for people whoâve maybe had some struggles and canât qualify for a Fannie or Freddie loan,â Gallagher said. âThat block of lending is the one going to be most hit by this.â
The loan has a fixed interest rate.
The loan is considered a âqualified mortgageâ (meaning it canât have features like negative amortization or interest-only payments).
The loanâs annual percentage rate canât be higher than the Average Prime Offer Rate (also known as a higher-priced mortgage).
Well, in some cases, yes.
Unfortunately, if you have bad credit and canât get a loan from traditional lenders, private loan alternatives are the most likely to include the prepayment penalty.
The best way to avoid a prepayment penalty is to read your contract â or better yet, have a professional (like an attorney or CPA) who understands the terminology, review it. Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.
How to Find Out If a Loan Will Have a Prepayment Penalty
You can also ask your lender about the terms regarding your penalty by calling the number on your monthly billing statement or read the documents you signed when you closed the loan â look for the same terms mentioned above.
But you can avoid the trap â or at least a big payout if youâve already signed the loan contract. Weâll explain.
In some cases, a prepayment penalty could apply if you pay off a large amount of your loan all at once.
Sale before a certain timeframe.
Refinance before a term.
Prepayment prior to maturity.
Typically, a prepayment penalty only applies if you pay off the entire balance â for example, because you sold your car or are refinancing your mortgage â within a specific timeframe (usually within three years of when you accepted the loan).
If you do discover that your loan includes a prepayment penalty, you still have some options.
Pro Tip This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
âThe more opportunistic and less fair lenders would be the ones who would probably be assessing [prepayment penalties] as part of their loan terms,â he said, âI wouldnât say loan sharkingâ¦ but you have to search down the list for a less preferable lender.â
How Can You Find Out if Your Current Loan Has a Prepayment Penalty?
Do you have less-than-sterling credit? Watch out for pre-computed loans, in which interest is front-loaded, ensuring the lender collects more in interest no matter how quickly you pay off the loan.
If your lender presents you with a contract that includes a prepayment penalty, request a loan that does not include a prepayment penalty. The new contract may have other terms that make that loan less advantageous (like a higher interest rate), but youâll at least be able to compare your options.
What to Do if Youâre Stuck in a Loan With Prepayment Penalty
Prepayment penalties do not normally apply if you pay extra principal in small chunks at a time, but itâs always a good idea to double check with the lender and your loan agreement.
Good for you! Exceptâ¦ make sure you donât get charged a prepayment penalty.
If your loan includes a prepayment penalty, the contract should state the time period when it may be imposed, the maximum penalty and the lenderâs contact information.
Although youâll find prepayment penalties in auto and personal loans, a more common place to find them is in home loans. Why? Because a lender who agrees to a 30-year mortgage term is banking on earning years worth of interest to make money off the amount itâs loaning you.
The prepayment penalty wonât apply to FHA, VA or USDA loans but can apply to conventional mortgages â although the penalty is much less common than it was before the CFPBâs ruling.
So suppose you bought a house last year and then wanted to sell your home. If your mortgage meets all of the above criteria and has a prepayment penalty clause in the mortgage contract, you could end up paying a penalty of 2% on the remaining balanceÂ â for a loan you still owe 0,000 on, that comes out to an extra ,000.
Look at you, so responsible. You received a financial windfall â stimulus check, tax refund, work bonus, inheritance, whatever â and youâre using it to pay off one of your debts years ahead of schedule.
Gallagher rattled off a list of alternative terms a lender could use in the contract, including:
Now wait just a minute, you say. Iâm paying the money back early â early! â and my lender thanks me by charging me a fee? A prepayment penalty is a fee lenders use to recoup the money theyâll lose when youâre no longer paying interest on the loan. That interest is how they make their money.
Buying a car is almost a rite of passage. Making that first car purchase, negotiating with the seller, and arranging financing (if you need an auto loan) all require a certain amount of savvy.
And, once you successfully achieve the car-buying milestone, another signpost looms in the distance: Refinancing.
Whether youâre getting an auto loan for the first time, or you want to refinance your existing car debt, itâs important to be an informed consumer. Hereâs what you need to know.
Get your finances in order
Before beginning your car search, you need your finances in order, according to Joe Pendergast, the vice president of consumer lending for Navy Federal Credit Union.
âKnow your budget, check your credit score, and review your existing credit accounts to ensure they are reported accurately,â Pendergast said. Your credit situation can directly impact the interest you pay on your auto loan.
Emily Shutt, a certified financial coach who works closely with millennial women to help them manage a variety of money issues, suggested calling around to different dealers and banks or credit unions to see what credit bureau they use to check your score. Then you can check your report for errors and have them fixed before you talk to someone about financing your car purchase.
âHaving errors on a credit report can negatively impact score, which can put you at a huge disadvantage when youâre negotiating for an auto loan interest rate,â Shutt said.
You should also know ahead of time where you stand with your budget. Use an online loan calculator to determine what you can afford in terms of a monthly payment. For example, if you think you can handle a $305 monthly payment, and you have the credit to get an interest rate of 2.9% for a five-year loan, you might feel you can afford to borrow up to $17,000 for a car.
Save up for a down payment
Just because you might be able to borrow so much for a car doesnât mean you necessarily should. In fact, saving for a down payment makes a lot of sense, Shutt said. Not only does having a down payment help you to better negotiate your loan rate, but it also can allow you a shorter loan term and save you money in the long run.
Play around with the numbers a little with an online calculator. If you can put $7,000 down, so that you borrow only $10,000 of that $17,000 car, you could maybe get an interest rate of 2.5% and a loan term of three years. Even better, your monthly payment would only be $289 â and youâd save $1,494 in interest.
The less you borrow, the more money you have in the end. And thatâs money you can put toward investing in your future, rather than paying interest to someone else.
Know what you want â and what it costs
Once your finances are in order and maybe you have a down payment saved up, itâs time to figure out what you can actually buy. Avoid over-borrowing by knowing what you want in a car and having an idea of what it costs, Shutt suggested.
âEverything should already be online so you can get a sense of what all the options are,â said Shutt. A little research can go a long way toward helping you get a sense for which cars will fit into your budget.
Shutt pointed out that the job of salespeople is to get you to spend as much money as possible. The more you spend, the more you have to borrow â and the more youâll pay in interest. âConfidently stand your ground when a salesperson tries to upsell you or steer you in another direction,â she said.
Pendergast agreed on the need to research your car choices ahead of time. âKnow the price other dealerships in the area are offering so you can make an informed purchase,â he said.
Itâs even okay to play one sellerâs price off anotherâs to get the best deal. Donât be afraid to let the other dealerships know youâre shopping around. Theyâll be more inclined to negotiate with you, potentially resulting in a better deal.
Get an auto loan quote from a bank or credit union
Before you ask for dealer financing, suggested Pendergast, talk to a bank or credit union.
âYou should see what type of loans your financial institution has to offer,â said Pendergast. âThis will give you guidance for your budget, but will also increase your purchasing power to help you in negotiations, regardless of the dealerâs proposition being on par with the lenderâs.â
Donald E. Peterson, a consumer lawyer with almost 30 years of experience, warned that dealer financing still often requires the involvement of a bank or credit union. Dealers submit your information to lenders and get interest rates quotes back.
âSometimes dealers mark up the interest rate above the rate banks would buy the loan at,â Peterson said. âThe bank and the car dealer split the excess interest, usually 50-50.â
This practice isnât just limited to banks, either. âSome credit unions have entered into interest-rate kickback agreements with car dealerships,â Peterson said. âYou must apply to the credit union yourself to get the best rate.â
Starting with a financial institution allows you to get an idea of whatâs available to you. Then, youâre in a position where a dealer who wants to finance you has to match the rate youâve already been offered, rather than steer you toward an alternative arrangement.
Consider a cosigner
With my own first auto loan experience, I had to deal with the fact that I had a thin credit file. I didnât have enough credit established to get a car loan without an unacceptably high interest rate.
I went through the steps of creating a budget and deciding how much I could afford, including factoring in my car insurance costs. However, after checking my credit report, I realized that having a credit card for six months wasnât enough for me to establish much of a credit history.
After compiling research about the types of used cars I could afford, and how my earnings from my job were enough to cover an auto loan payment, I approached my parents. My dad was willing to cosign on a modest car loan through his credit union.
My interest rate â and my monthly payment â were lower because I had cosigner with good credit. I made all my payments on time, helping build my credit history so that the next time I bought a car, I was able to get a good interest rate without the need for a cosigner.
As you research your options, donât forget about the possibility of using a cosigner. If you donât have the credit history to get a good auto loan rate on your own, borrowing someone elseâs good name can help you save money â while at the same time allowing you a way to establish your own credit for the future.
Donât fall for the monthly payment scheme
While you do want to figure out what monthly payment youâre comfortable with, you donât want to get caught up in it at the dealership, cautioned Shutt.
âFocus on the all-in price of the car,â said Shutt. âIf the salesperson can get you to verbalize a monthly payment target, theyâll just manipulate other factors like the duration of the loan.â
When that happens, Shutt pointed out, you might end up hitting your targeted monthly payment, but long-term interest charges and other factors could mean that your car ends up being a lot more expensive. She said you should figure out about how much youâll pay each month over a loan term youâre comfortable with, and then buy a car with a final price that fits those parameters.
âTake your time, and donât be manipulated,â Shutt said. âIf youâre not comfortable negotiating, bring a friend or family member who can support you in sticking to your budget.â
What about refinancing?
In some cases, you might discover that you qualify for a lower auto loan interest rate than you currently pay.
âMaybe youâve been making timely payments for a year or two and your credit score has gone up,â said Shutt. âNow you can consider refinancing the loan.â
However, itâs important to be careful moving forward. Just as you shop around for the best auto loan rates on a new loan, it makes sense to shop for refinancing rates. Check with a few banks and credit unions to see if you can get a few quotes for refinancing.
When you refinance, watch out for lengthening the loan term. If you only have three years on your term, it might not make sense to refinance to a five year loan. Instead, only refinance what you have left. You could save on interest charges and still get rid of your car debt in the original time frame.
Shutt also recommended looking online for car loans. Compare the rates you find with online auto loan refinancing platforms to what your local financial institutions offer. By playing different lenders off each other, you could strike a better bargain â especially if you have good credit.
Know your finances and be ready to negotiate
Auto loans are a massive industry, with more than $1 trillion owed to U.S. lenders. Rather than being just another statistic, consider how you can come out on top.
Know your finances and understand what you can expect, Pendergast said. When you know where you stand, and when you research ahead of time, you can call dealers and lenders out. Shop around for the best auto loan rates and terms, and let dealers know youâve done your homework, so that negotiations will go much better, saving you time and, importantly, money.