Would You Share a Car With Friends? A New Ford Program Thinks So

According to Kelley Blue Book, the average price for a light vehicle in the United States was almost $38,000 in March 2020. Of course, the sticker price will depend on whether you want a small economy car, a luxury midsize sedan, an SUV or something in between. But the total you pay for a vehicle also depends on a number of other factors if you’re taking out a car loan.

Get the 4-1-1 on financing a car so you can make the best decision for your next vehicle purchase.

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Decide Whether to Finance a Car

Whether or not you should finance your next vehicle purchase is a personal decision. Most people finance because they don’t have an extra $20,000 to $50,000 they want to part with. But if you have the cash, paying for the car outright is the most economical way to purchase it.

For most people, deciding whether to finance a car comes down to a few considerations:

  • Do you need the vehicle enough to warrant making a monthly payment on it for several years?
  • Does the monthly payment work within your personal budget?
  • Is the deal, including the interest rate, appropriate?

Factors to Consider When Financing a Car

Obviously, the first thing to consider is whether you can afford the vehicle. But to understand that, you need to consider a few factors.

  • Total purchase price. Total purchase price is the biggest impact on how much you’ll pay for the car. It includes the price of the car plus any add-ons that you’re financing. Depending on the state and your own preferences, that might include extra options on the vehicle, taxes and other fees and warranty coverage.
  • Interest rate, or APR. The interest rate is typically the second biggest factor in how much you’ll pay overall for a car you finance. APR sounds complex, but the most important thing is that the higher it is, the more you pay over time. Consider a $30,000 car loan for five years with an interest rate of 6%—you pay a total of $34,799 for the vehicle. That same loan with a rate of 9% means you pay $37,365 for the car.
  • The terms. A loan term refers to the length of time you have to pay off the loan. The longer you extend terms, the less your monthly payment is. But the faster you pay off the loan, the less interest you pay overall. Edmunds notes that the current average for car loans is 72 months, or six years, but it recommends no more than five years for those who can make the payments work.

It’s important to consider the practical side of your vehicle purchase. If you take out a car loan for eight years, is your car going to still be in good working order by the time you get to the last few years? If you’re not careful, you could be making a large monthly payment while you’re also paying for car repairs on an older car.

Buying a Car with No Credit

You can buy a car anytime if you have the cash for the purchase. If you have no credit or bad credit, your options for financing a car might be limited. But that doesn’t mean it’s impossible to get a car loan without credit.

Many banks and lenders are willing to work with people with limited credit histories. Your interest rate will likely be higher than someone with excellent credit can command, though. And you might be limited on how much you can borrow, so you probably shouldn’t start looking at luxury SUVs. One tip for increasing your chances is to put as much cash down as you can when you buy the car.

If you can’t get a car loan on your own, you might consider a cosigner. There are pros and cons to asking someone else to sign on your loan, but it can get you into the credit game when the door is otherwise barred.

Personal Loans v. Car Loans: Which One Is Better?

Many people wonder if they should use a personal loan to buy a car or if there is really any difference between these types of financing. While technically a car loan is a loan you take out personally, it’s not the same thing as a personal loan.

Personal loans are usually unsecured loans offered over relatively short-term periods. The funds you get from a personal loan can typically be used for a variety of purposes and, in some cases, that might include buying a car. There are some great reasons to use a personal loan to buy a car:

  • If you’re buying a car from a private seller, a personal loan can hasten the process.
  • Traditional auto loans typically require full coverage insurance for the vehicle. A personal loan and liability insurance may be less expensive.
  • Lenders typically aren’t interested in financing cars that aren’t in driving shape, so if you’re buying a project car to work on in your garage during your downtime, a personal loan may be the better option.

But personal loans aren’t necessarily tied to the car like an auto loan is. That means the lender doesn’t necessarily have the ability to repossess the car if you stop paying the loan. Since that increases the risk for the lender, they may charge a higher interest rate on the loan than you’d find with a traditional auto loan. Personal loans typically have shorter terms and lower limits than auto loans as well, potentially making it more difficult for you to afford a car using a personal loan.

Steps You Should Follow When Financing a Car

Before you jump in and apply for that car loan, review these six steps you should take first.

1. Check your credit to understand whether you are likely to be approved for a loan. Your credit also plays a huge role in your interest rate. If your credit is too low and your interest rate would be prohibitively high, it might be better to wait until you can build or repair your credit before you get an auto loan. Sign up for ExtraCredit to see 28 of your FICO scores from all three credit bureaus.

2. Research auto loan options to find the ones that are right for you. Avoid applying too many times, as these hard inquiries can drag your credit score down with hard inquiries. The average auto loan interest rate is 27% on 60-month loans (as of April 13, 2020).

3. Get your trade-in appraised. The dealership might give you money toward your trade-in. That reduces the price of the car you purchase, which reduces how much you need to borrow. A few thousand dollars can mean a more affordable loan or even the difference between being approved or not.

4. Get prequalified for a loan online. While most dealers will help you apply for a loan, you’re in a better buying position if you walk into the dealership with funding ready to go. Plus, if you’re prequalified, you have a good idea what you can get approved for, so there are fewer surprises.

5. Buy from a trusted dealer. Unfortunately, there are dealerships and other sellers that prey on people who need a car badly. They may charge high interest or sell you a car that’s not worth the money you pay. No matter your financial situation, always try to work with a dealership that you can trust.

6. Talk to your car insurance company. Different cars will carry different car insurance premiums. Make a call to your insurance company prior to the sale to discuss potential rate changes so you’re not surprised by a higher premium after the fact.

Next to buying a home, buying a car is one of the biggest financial decisions you’ll make in your life, and you’ll likely do it more than once. Make sure you understand the ins and outs of financing a car before you start the process.

Source: credit.com

Can I Get a Car Lease With Bad Credit?

Most people have a gut feeling about their credit – it’s either great, good or bad. But what is a bad credit score really? First, it’s important to understand that there are many different credit scoring models out there and each may use a different scale – or numbers – to convey information.

Still, in the lending world, some assumptions can be made about credit scores that fall into different ranges — and, as such, what score may qualify as “bad.”

For instance, most major credit scoring models follow a 300 to 850 range (the lower the score, the worse for wear, but more on this in a minute), and, while you’re looking at a score measured this way, you can generally assume anything below 600 is a bad credit score.

Here are how the basic credit tiers typically work out:

  • Excellent Credit: 750+
  • Good Credit:700-749
  • Fair Credit:650-699
  • Poor Credit:600-649
  • Bad Credit: below 600

Let’s take a deeper dive into what constitutes a bad credit score.

Who Decides if a Credit Score Is ‘Bad’?

As we mentioned, credit score ranges can vary by model. For example, all FICO scores range between 300 and 850 with 300 being the lowest (or worst) possible score, while 850 is the highest (or best) possible score. The range for VantageScore 2.0 credit scores is between 501 and 990, with the higher number representing the strongest score. But its newer version, VantageScore 3.0, has a range of 300 to 850.

Now, the companies that develop credit scores – FICO and VantageScore, for example – do not decide which credit scores are technically “good” or “bad.” Nor do the credit reporting agencies that supply the credit reports used to create credit scores.

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Instead, it’s up to individual lenders and insurance companies who use these scores to decide which scores demonstrate an acceptable level of risk. They use scores in a variety of ways, too.

These include:

  1. Determining the interest rate they will charge for a loan, or in the case of an insurance company, the discount they may offer on an insurance policy.
  2. Deciding whether to extend credit, how much credit to approve, whether to increase (or lower) a customer’s credit limit or even to close a risky account.

In a way, then, there is no such thing as a “bad credit score,” since the number itself doesn’t mean anything until a lender decides how to use it. In other words, a credit score is only bad when it keeps you from whatever you are trying to accomplish, whether that is to refinance a loan, borrow at a low-interest rate, or get the best deal on your auto insurance.

Moreover, what is considered bad credit by one lender may be perfectly acceptable to another. For example, with many mortgages, the minimum score required may be a 620, while some credit card issuers offering low-rate cards may reject applicants whose scores are lower than say 680.

Find Out Where You Stand

Lots of people are saddled with bad credit scores. According to a 2015 analysis of VantageScore 3.0 data, almost 30% of Americans have poor or bad credit (defined here as a score lower than 601). That 30% amounts to about 68 million of the 220 million score-able people out there, VantageScore says.

Keep in mind; it’s possible to have bad credit and not even know it. That’s why you’ll want to keep a close eye on your credit. You can check your credit score using Credit.com’s free Credit Report Card. Make sure to check your credit at all three of the major credit bureaus.

This completely free tool will break down your credit score into sections and give you a grade for each. You’ll see, for example, how your payment history, debt, and other factors affect your score, and you’ll get recommendations for steps you may want to consider to address problems.

In addition, you’ll also find credit offers from lenders who may be willing to offer you credit. Checking your own credit reports and scores does not affect your credit score in any way.

You can start taking your credit score from “bad” to “good” by disputing errors on your credit report, paying down excessively high debts and limiting new credit inquiries.

Credit Score Factors

If you feel that your credit score is far below where you want it to be and want to see a vast improvement, the following are a few things you should take into consideration when trying to build a good credit score:

Payment History: make sure to pay all your bills on time each month, and you will begin to see a positive impact on your credit score.

Credit Utilization Rate: keep the credit utilization rate below the thirty percent mark. You can improve this ratio by paying down credit card balances.

Credit History: look at the type of debt and type of credit you have and how long you have had them. Make sure you have a good mix of credit rather than just a few credit cards.

Is 620 a Good Credit Score?

As already mentioned, credit scores can be deemed bad, fair, or good directly by the lenders. However, there are still a few things a credit score of 620 might be able to get you even if some lenders consider it “poor.”

  • Can I qualify for any kind of credit card? No
  • Can I get a credit card with no annual fee and 0% financing? Possibly but depends on the lender.
  • Can I get a personal loan with a credit score of 620? Possibly but it depends on the lender.
  • Can I get a store credit card with a credit score of 620? Most likely, you can.
  • Can I find the best and lowest mortgage rates with a 620 score? No.
  • Can I find a credit card with a big sign up bonus? Not likely.

Improving Your 620 Credit Score

If you are not happy with the answers to the above questions, you should consider the different ways you can begin to improve your 620-credit score.

  • Keep your hard inquiries under the mark of three for the past two years
  • Lower your overall credit utilization rate
  • Maintain a 100% on-time payment history
  • Keep a low debt-to-income ratio
  • Have a diverse mix of credit accounts on your credit reports

Side Effects of Bad Credit

When you are saddled with a bad credit score, you will essentially end up paying more in fees and interest and other charges. Remember, the higher the number, the better your credit score will be.

If you do have bad credit, you may find that you are often maxing out your credit cards and you may also find that you are not paying your bills on time. Your payment history accounts for a sizable portion of your credit score and your credit report, and it can have a negative impact on your credit.

With a bad credit score and a score of lower than 620, you will find:

  1. You are getting denied for credit and loan applications. The lenders are looking at you as high risk and will not extend credit to you with a poor credit score.
  2. You will have higher interest rates on any loans you are able to secure. A bad credit score costs you money in the long run.
  3. You may even find it difficult to get approved for an apartment or home. Landlords often check potential tenants credit scores to help them determine if they will pay their rent on time.
  4. You may find that you have to pay higher security deposits on your utility accounts
  5. You may be denied employment in the finance industry or even an upper management position because of your poor credit history. Negative items on your credit report can play a substantial role in your life- especially if there has been a bankruptcy or your debts are in the higher numbers
  6. You may experience higher insurance premiums because some insurance companies link a lower credit score to higher claims being filed

Stuck with No Credit Score and Need a Credit Card?

Scenario—you have no real credit history, so you don’t have much of a credit score or have a bad or fair credit score. But, you also are financially savvy. You just need to build some credit or improve the score you’ve got.
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What do you do? One option is the Petal credit card. It’s a new approach to credit. Petal doesn’t look at your credit score to decide whether to approve you for its card. Instead, it looks at your financial habits and income to approve you. It also offers a higher credit limit than some cards made for those with lower scores. Learn more. [schumerbox api_url=”https://static.ccom-cdn.com/credit/api/creditcard/v2/offer/petal_card-creditcardoffers?af=32806″ button_text=”Apply Now” button_color=”green”]

Bottom Line

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A 620-credit score may be an average score, but many lenders are still considering it on the poor side and with so many credit score ranges, you will find it best to do what you can to get your credit score as high as you can and improve your credit. Don’t settle for minimum credit or average credit.

To combat the effects of poor or bad credit, you should monitor your credit reports, dispute any errors, and find ways to improve your current credit standing. By doing so, you will find that you have much better luck in the future when you try to secure a mortgage loan, auto loan, or any other type of loan or line of credit.

This article was last published October 26, 2018, and has since been updated by another author.

At publishing time, the Petal Visa Credit Card  is offered through Credit.com product pages, and Credit.com is compensated if our users apply and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment. This content is not provided by the card issuer(s). Any opinions expressed are those of Credit.com alone, and have not been reviewed, approved or otherwise endorsed by the issuer(s).

Source: credit.com

The Average New Car Loan Payment Is $499

This Article was Updated July 5, 2018

When you are looking to buy a vehicle, the first thing you should do is apply for a preapproved loan. The loan process can seem daunting, but it’s easier than you think and getting preapproval prior to going to the car dealer may help alleviate a lot of frustration along the way.

Here are five steps for getting a car loan.

  1. Check Your Credit
  2. Know Your Budget
  3. Determine How Much You Can Afford
  4. Get Preapproved
  5. Go Shopping

1. Check Your Credit

Before you shop for a loan, check your credit report. The better your credit, the cheaper it is to borrow money and secure auto financing. With a higher credit score and a better credit history, you may be entitled to lower loan interest rates, and you may also qualify for lower auto insurance premiums.

Review your credit report to look for unusual activity. Dispute errors such as incorrect balances or late payments on your credit report. If you have a lower credit score and would like to give it a bit of a boost before car shopping, pay off credit card balances or smaller loans.

If your credit score is low, don’t fret. A lower score won’t prevent you from getting a loan. But depending on your score, you may end up paying a higher interest rate. If you have a low credit score and want to shoot for lower interest rates, take some time to improve your credit score before you apply for loans or attempt to secure any other auto financing.

2. Know Your Budget

Having a budget and knowing how much of a car payment you can afford is essential. You want to be sure your car payment fits in line with your other financial goals. Yes, you may be able to cover $400 a month, but that amount may take away from your monthly savings goal.

If you don’t already have a budget, start with your monthly income after taxes and subtract your usual monthly expenses and how much you plan to put in savings each month. For bills that don’t come every month, such as Amazon Prime or Xbox Live, take the yearly charge and divide it by 12. Then add the result to your monthly budget. If you’re worried, you spend too much each month, find simple ways to whittle your budget down.

You’ll also want to plan ahead for new car costs, such as vehicle registration and auto insurance, and regular car maintenance, such as oil changes and basic repairs. By knowing your budget and what to expect, you can easily see how much room you have for a car payment.

3. Determine How Much You Can Afford

Once you understand where you are financially, you can decide on a reasonable monthly car payment. For many, a good rule of thumb is to not spend more than 10% of your take-home income on a vehicle. In other words, if you make $60,000 after taxes a year, you shouldn’t spend more than $500 per month on car payments. But depending on your budget, you may be better off with a lower payment.

With a payment in mind, you can use an auto loan calculator to figure out the largest loan you can afford. Simply enter in the monthly payment you’d like, the interest rate, and the loan period. And remember that making a larger down payment can reduce your monthly payment. You can also use an auto loan calculator to break down a total loan amount into monthly payments.

You’ll also want to think about how long you’d like to pay off your loan. Car loan terms are normally three, four, five, or six years long. With a longer loan period, you’ll have lower monthly payments. But beware—a lengthy car loan term can have a negative effect on your finances. First, you’ll spend more on the total price of the vehicle by paying more interest. Second, you may be upside down on the loan for a larger chunk of time, meaning you owe more than the car is actually worth.

4. Get Preapproved

Before you ever set foot on a car lot, you’ll want to be preapproved for a car loan. Research potential loans and then compare the terms, lengths of time, and interest rates to find the best deal. A great place to shop for a car loan is at your local bank or credit union. But don’t stop there—look online too. The loan with the best terms, interest rate, and loan amount will be the one you want to get preapproved for. Just know that preapproved loans only last for a certain amount of time, so it’s best to get preapproved when you’re nearly ready to shop for a car.

However, when you apply, the lender will run a credit check—which will lower your credit score slightly—so you’ll want to keep all your loan applications within a 14-day period. That way, the many credit checks will only show as one inquiry instead of multiple ones.

Get matched with a personal loan that’s right for you today.

Learn more

When you’re preapproved, the lender decides if you’re eligible and how much you’re eligible for. They’ll also tell you what interest rate you qualify for, so you’ll know what you have to work with before you even walk into a dealership. But keep in mind that preapproved loans aren’t the same as final auto loans. Depending on the car you buy, your final loan could be less than what you were preapproved for.

In most cases, if you secure a pre-approved loan, you shouldn’t have any problems getting a final loan. But being preapproved doesn’t mean you’ll automatically receive a loan when the time comes. Factors such as the info you provided or whether or not the lender agrees on the value of the car can affect the final loan approval. It’s never a deal until it’s a done deal.

If you can’t get preapproved, don’t abandon all hope. You could also try making a larger down payment to reduce the amount you are borrowing, or you could ask someone to cosign on the loan. If you ask someone to cosign, take it seriously. By doing so, you are asking them to put their credit on the line for you and repay the loan if you can’t.

When co-signing a car loan, they do not acquire any rights to the vehicle. They are simply stating that they have agreed to become obligated to repay the total amount of the loan if you were to default or found that you were unable to pay.

Co-signing a car loan is more like an additional form of insurance (or reassurance) for the lender that the debt will be paid no matter what.

Usually, a person with bad credit or less-than-perfect credit may require the assistance of a co-signer for their auto financing and loan.

5. Go Shopping

Now you’re ready to look for a new ride. Put in a little time for research and find cars that are known to be reliable and fit into your budget. You’ll also want to consider size, color, gas mileage, and extra features. Use resources like Consumer Reports to read reviews and get an idea of which cars may be best for you.

Once you have narrowed down the car you are interested in, investigate how much it’s worth, so you aren’t accidentally duped. Sites such as Kelley Blue Book or Edmunds can help you figure out the going rate for your ideal car. After you’re armed with this information, compare prices at different car dealerships in your area. And don’t forget to check dealer incentives and rebates to get the best possible price.

By following these steps, you’ll be ready to make the best financial decision when getting a car loan. Even if you aren’t ready to buy a car right now, it doesn’t hurt to be prepared. Start by acquiring a free copy of your credit summary.

It is always a good idea to pull your credit reports each year, so you can make sure they are as accurate as they should be. If you find any mistakes, be sure to dispute them with the proper credit bureau. Remember, each credit report may differ, so it is best to acquire all three.
If you want to know what your credit is before purchasing a car, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get a free credit score updated every 14 days.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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Source: credit.com

How Your Credit Affects the Down Payment You’ll Need for a Car

Free Credit Report Summary - Payment History

See your payment history?

Payment history is the record of when—and if—you pay your bills. And, it’s one of the main things that creditors look at. Payment history makes up 35% of your credit score—the biggest part. Your report card shows your grade, total late payments and more. See your payment history now »

See How You’re Using Available Credit

How you use credit affects your credit score. Use too much and your score goes down. Your credit utilization ratio, or how much of your credit limit you use, makes up 30% of your credit score. Your credit report card shows your ratio, credit card debt, credit limit and how different factors affect your score. Get your debt usage now »

Free Credit Report Summary - Debt Utilization Free Credit Report Summary - Number of Inquiries

Take a Peek at Your Credit’s Age

Credit age, aka credit history, is the age of your oldest account, not how long you’ve used credit. Creditors want older credit histories. And older accounts are better for your score. Credit age makes up 15% of your score. See your credit history and the ages of the oldest and newest account on your credit report card. Know your credit age now »

See Your Account Mix

Revolving credit, installment loans and the mix of the two—student loans, auto loans, mortgages, etc.—make up 10% of your credit score. A good mix shows creditors you can handle different types of debts. See how many revolving credit accounts and loans you have in your free credit report summary. Check your account mix »

Free Credit Report Summary - Age of Accounts Free Credit Report Summary - Account Mix

Know How Many Inquiries You Have

Every time you apply for a new credit card or loan, it can show up as a hard inquiry on your credit report. That’s true even for denied credit. And hard inquiries make up 10% of your score and can cause it to drop. Applying for credit too frequently is a red flag to creditors. When was your last inquiry? See how many inquiries you have and how long you’ve had them on your report card. Check your inquiries now »

See Why—and How—Your Score Changed

If you want the details of why your score changed, it’s all there. Simply select “See details” for “Why did my score change” to see the historical view of your credit score—and what’s changed it.

Free Credit Report Summary - Age of Accounts

Source: credit.com

A Quick Guide to How Much Car You Can Really Afford

This Article was Updated July 5, 2018

When you are looking to buy a vehicle, the first thing you should do is apply for a preapproved loan. The loan process can seem daunting, but it’s easier than you think and getting preapproval prior to going to the car dealer may help alleviate a lot of frustration along the way.

Here are five steps for getting a car loan.

  1. Check Your Credit
  2. Know Your Budget
  3. Determine How Much You Can Afford
  4. Get Preapproved
  5. Go Shopping

1. Check Your Credit

Before you shop for a loan, check your credit report. The better your credit, the cheaper it is to borrow money and secure auto financing. With a higher credit score and a better credit history, you may be entitled to lower loan interest rates, and you may also qualify for lower auto insurance premiums.

Review your credit report to look for unusual activity. Dispute errors such as incorrect balances or late payments on your credit report. If you have a lower credit score and would like to give it a bit of a boost before car shopping, pay off credit card balances or smaller loans.

If your credit score is low, don’t fret. A lower score won’t prevent you from getting a loan. But depending on your score, you may end up paying a higher interest rate. If you have a low credit score and want to shoot for lower interest rates, take some time to improve your credit score before you apply for loans or attempt to secure any other auto financing.

2. Know Your Budget

Having a budget and knowing how much of a car payment you can afford is essential. You want to be sure your car payment fits in line with your other financial goals. Yes, you may be able to cover $400 a month, but that amount may take away from your monthly savings goal.

If you don’t already have a budget, start with your monthly income after taxes and subtract your usual monthly expenses and how much you plan to put in savings each month. For bills that don’t come every month, such as Amazon Prime or Xbox Live, take the yearly charge and divide it by 12. Then add the result to your monthly budget. If you’re worried, you spend too much each month, find simple ways to whittle your budget down.

You’ll also want to plan ahead for new car costs, such as vehicle registration and auto insurance, and regular car maintenance, such as oil changes and basic repairs. By knowing your budget and what to expect, you can easily see how much room you have for a car payment.

3. Determine How Much You Can Afford

Once you understand where you are financially, you can decide on a reasonable monthly car payment. For many, a good rule of thumb is to not spend more than 10% of your take-home income on a vehicle. In other words, if you make $60,000 after taxes a year, you shouldn’t spend more than $500 per month on car payments. But depending on your budget, you may be better off with a lower payment.

With a payment in mind, you can use an auto loan calculator to figure out the largest loan you can afford. Simply enter in the monthly payment you’d like, the interest rate, and the loan period. And remember that making a larger down payment can reduce your monthly payment. You can also use an auto loan calculator to break down a total loan amount into monthly payments.

You’ll also want to think about how long you’d like to pay off your loan. Car loan terms are normally three, four, five, or six years long. With a longer loan period, you’ll have lower monthly payments. But beware—a lengthy car loan term can have a negative effect on your finances. First, you’ll spend more on the total price of the vehicle by paying more interest. Second, you may be upside down on the loan for a larger chunk of time, meaning you owe more than the car is actually worth.

4. Get Preapproved

Before you ever set foot on a car lot, you’ll want to be preapproved for a car loan. Research potential loans and then compare the terms, lengths of time, and interest rates to find the best deal. A great place to shop for a car loan is at your local bank or credit union. But don’t stop there—look online too. The loan with the best terms, interest rate, and loan amount will be the one you want to get preapproved for. Just know that preapproved loans only last for a certain amount of time, so it’s best to get preapproved when you’re nearly ready to shop for a car.

However, when you apply, the lender will run a credit check—which will lower your credit score slightly—so you’ll want to keep all your loan applications within a 14-day period. That way, the many credit checks will only show as one inquiry instead of multiple ones.

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When you’re preapproved, the lender decides if you’re eligible and how much you’re eligible for. They’ll also tell you what interest rate you qualify for, so you’ll know what you have to work with before you even walk into a dealership. But keep in mind that preapproved loans aren’t the same as final auto loans. Depending on the car you buy, your final loan could be less than what you were preapproved for.

In most cases, if you secure a pre-approved loan, you shouldn’t have any problems getting a final loan. But being preapproved doesn’t mean you’ll automatically receive a loan when the time comes. Factors such as the info you provided or whether or not the lender agrees on the value of the car can affect the final loan approval. It’s never a deal until it’s a done deal.

If you can’t get preapproved, don’t abandon all hope. You could also try making a larger down payment to reduce the amount you are borrowing, or you could ask someone to cosign on the loan. If you ask someone to cosign, take it seriously. By doing so, you are asking them to put their credit on the line for you and repay the loan if you can’t.

When co-signing a car loan, they do not acquire any rights to the vehicle. They are simply stating that they have agreed to become obligated to repay the total amount of the loan if you were to default or found that you were unable to pay.

Co-signing a car loan is more like an additional form of insurance (or reassurance) for the lender that the debt will be paid no matter what.

Usually, a person with bad credit or less-than-perfect credit may require the assistance of a co-signer for their auto financing and loan.

5. Go Shopping

Now you’re ready to look for a new ride. Put in a little time for research and find cars that are known to be reliable and fit into your budget. You’ll also want to consider size, color, gas mileage, and extra features. Use resources like Consumer Reports to read reviews and get an idea of which cars may be best for you.

Once you have narrowed down the car you are interested in, investigate how much it’s worth, so you aren’t accidentally duped. Sites such as Kelley Blue Book or Edmunds can help you figure out the going rate for your ideal car. After you’re armed with this information, compare prices at different car dealerships in your area. And don’t forget to check dealer incentives and rebates to get the best possible price.

By following these steps, you’ll be ready to make the best financial decision when getting a car loan. Even if you aren’t ready to buy a car right now, it doesn’t hurt to be prepared. Start by acquiring a free copy of your credit summary.

It is always a good idea to pull your credit reports each year, so you can make sure they are as accurate as they should be. If you find any mistakes, be sure to dispute them with the proper credit bureau. Remember, each credit report may differ, so it is best to acquire all three.
If you want to know what your credit is before purchasing a car, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get a free credit score updated every 14 days.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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Source: credit.com

Should I Buy a Used Rental Car?

Rental cars often get a bad rap. Since drivers are only borrowing the vehicle for a short period of time, conventional wisdom goes that they won’t treat the car very well. So most would think that purchasing a questionably treated rental car is a poor financial decision.

While a privately owned used car might have had to contend with one person’s driving quirks (or at most, one family’s), rental cars are driven by all types of drivers (one a hard braker, the next a fast accelerator, and so on). But some argue those fears are largely unfounded, “Cars are so well engineered these days that it really doesn’t matter,” Philip Reed of Edmunds.com told Kiplinger.

When you’re in the market for a car, and you don’t mind doing a little extra research, you might be surprised to find a former rental car offers savings (even over identical used cars) as well as peace of mind.

Guide for Purchasing a Former Rental Car

Shopping for a used rental car is a lot like shopping for a used car. With rental cars, you’ll still want to remain practical and skeptical, but it’s prudent to take a few additional steps:

  • Determine the fair market value of the car make, model and year and compare it to the rental car company’s price. Kelley Blue Book and Edmunds.com com both have great resources.
  • Before visiting a mechanic, look over the car. Test drive it yourself, look for any signs of body damage both inside and outside the vehicle and listen for unusual noises. And always request a vehicle history report from the seller, or you can choose to run one yourself from places like AutoCheck, Carfax or the federal National Motor Vehicle Title Information System.
  • Be sure to have a pre-purchase inspection done by an independent party so you’ll have an accurate picture of current and future problems. You’ll also want to have a mechanic certify that the car isn’t wearing prematurely.

How to Decide if a Rental Car is Right for You

Here is our take on buying a rental car, with good, old fashioned pros and cons.

Pros:

  • Rental car companies keep close tabs on their fleets, making repairs when necessary and sticking to maintenance schedules.
  • Lower-than-market price options are (usually) available because rental car companies buy vehicles in volume so their resale prices can be lower.
  • Most used rentals for sale are only one or two years old, so most of their warranties are still at least partially in effect.
  • If you’re buying from a rental company, they’ll provide a third-party vehicle history report (usually for free).
  • The purchasing experience should be simple. If you buy from a rental car company, most sales are negotiation-free, which can be a relief for people who don’t like to haggle (something experts recommend doing on every new and used car lot).
  • Certain large rental companies, such as Avis, Enterprise and Hertz, have fixed pricing, financing and a wide inventory listed on their websites.
  • Some rental car companies let you take the car for several days on an extended test drive: “Rent2Buy at Hertz and the Ultimate Test Drive at Avis/Budget let you browse the fleet online, pick the model that you want, and take it for an extended test-drive (up to three days) from many of their rental locations. During the car’s tryout, you can have a mechanic look at it, if you like,” writes Kiplinger. Enterprise, they add, doesn’t let you take it for a multi-day test drive, but they’ll buy it back within seven days if you’re not happy.
  • Not all rental cars finished with their hustling days go on to be sold through the rental company’s sales division: only the best-maintained cars are sold to consumers while the rest, writes Kiplinger, go to auction or elsewhere (good news for buyers).

Cons:

  • While you can find a good range of options, from budget to luxury vehicles, with a rental company, the cars are often base models with fewer amenities and advanced safety features, and you can’t upgrade.
  • The stigma of lots of people having driven your car is real, as is the fear that those strangers didn’t care as well for the vehicle as a private owner might have.
  • Many former rental cars have more scratches and interior damage than privately owned used cars.
  • You can’t know what every driver did with your car, and you might not ever know the full history.

Where You Can Buy A Used Rental Car

The major car rental companies in the U.S. also have sales divisions. You can purchase used rental cars from:

  • Budget
  • Avis
  • Enterprise
  • Hertz

Additionally, CarMax has former rental cars for sale, as does Autotrader.com.

How Much You Can Save

Used rental cars aren’t the absolute lowest prices out there — they aren’t as cheap as what you might find at auction, for instance (though cars bought at auction are definitely riskier buys, on a whole), but you can still get a great deal. Edmunds.com compared prices on a rental agency’s used car lot and found them to be very competitive with dealer retail prices.

“That’s still the case today,” writes Edmunds.com

“We compared prices for that automotive commodity, the Toyota Camry, at Hertz, Avis/Budget and Enterprise,” writes Kiplinger. “As a benchmark, we used the Kelley Blue Book Fair Purchase Price — what you might expect to pay a dealer — for a good-condition 2014 LE model with about 25,000 miles on it, which in late April was $17,716.

The lowest price was at Hertz, where our Camry went for $16,000. It was $17,600 at Avis/Budget and $17,999 at Enterprise. Prices for some other vehicles we checked, including the Hyundai Elantra, Mercedes C250 Sport sedan, Nissan Rogue and Ford Expedition, in a variety of trim levels, also showed savings—sometimes slim, sometimes huge. The Elantra at Hertz had 35,000 miles and was 15% below the KBB Fair Purchase Price.”

True Stories: ‘I Bought a Rental Car’

Deidre Woollard, from Los Angeles, bought a former rental car. It had 30,000 miles on it and opted for the complete extended warranty. “It seemed pricey at the time but turned out to be worth it because approximately six months later the car had a breakdown on the highway. It turned out to be a cracked engine block and was covered by the warranty,” Woollard says. “The car went on to live many more happy years until it was totaled when rear-ended in a crash. I would buy a rental car again, but I would get the warranty too.”

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Nedalee Thomas, from Orange County, California, purchased a car from a dealer a few years ago and was told it had been a rental car. The car was two years old and had 22,000 miles on it. The dealer told Thomas the car would get 19 miles to the gallon, but Thomas never got more than 11, which she found quite disappointing. The biggest issue, though, was with the structure of the car. “The car had apparently been in an accident and would never stay in alignment,” which, she says, caused greater wear on the tires so she had to replace them more frequently.

To really know how much you can save, you’ll have to comparison shop between rental car sellers, used car dealers, and private owners (if you like)–and always get a third-party vehicle report before purchase. While a former rental car might not end up being the best option for everyone, they have a lot of pluses and are certainly worth consideration.

If you’re shopping around for the best auto loan, it’s a good idea to keep your credit score in mind. Many credit scoring models will count all auto-financing inquiries within a specific period, usually about 14 days, as one inquiry, which will have less impact on your credit score (check out how inquiries affect your credit score here). And it’s important to keep on eye on your credit before, during and after you apply. You can view two of your credit scores for free every 30 days on Credit.com.

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How Much Will a Car Repossession Hurt My Credit Score?

In most parts of the country, having a car isn’t optional. Without your own vehicle, it can be extremely difficult to get to work or provide for your family, but at the same time, car ownership can be a challenge.

If you find yourself having trouble making your car payments, you could end up losing your vehicle. That can cause all sorts of other problems, which a Credit.com reader recently asked about:

“How much does a repossession affect your credit?” —kc

Having your car repossessed can certainly cause credit problems, but the actual repossession is only one of them. Car repossessions are reported to the major credit bureaus, and as a result, will impact your credit scores.

“A car repossession is considered a negative payment event by the FICO Score,” Can Arkali, principal scientist at credit scoring company FICO, said in an email. “All else held equal, the impact of a car repossession is comparable to the impact of a collection account.”

Jeff Richardson, a spokesman for credit scoring company VantageScore Solutions, said how much a repossession affects your credit really depends on the scoring model you’re talking about, as well as other factors in an individual’s credit history. In general, a repossession is considered a derogatory event, like collection accounts, civil judgments and tax liens.

Credit Problems Leading Up to Repossession

Of course, repossessions generally don’t happen in a vacuum. Someone’s car is usually repossessed because they haven’t made their auto loan or lease payments on time, which likely would have already hurt their credit.

“Avoid it,” Richardson said, adding that people should avoid any derogatory events “at all costs.” According to VantageScore, it will take longer to recover from a derogatory event like a car repossession than it will to recover from a series of delinquencies. So even if you’re behind on payments, bringing that account to current status and avoiding a repossession may also help you spare your credit from further damage.

The Aftermath of Repossession

A repossession can remain on your credit report for 7 years from the date you initially fell behind on the loan. The loan status will change to “repossession” (it would have previously said how many days delinquent the payments were), and it will have a seriously negative impact on your credit, though that impact will lesson over time.

Rod Griffin, director of public education at Experian, said there’s no specific amount of points your credit score will drop after a repossession. Given that a series of delinquencies tends to precede repossession, someone whose car is taken back likely already has a poor score.

“Typically it’s not a unique element of the history,” Griffin said. There are probably other negative things happening, and that repossession is going to dig them in deeper.”

That’s often not the end of it either. Losing your main mode of transportation could seriously compromise your ability to get to work and make money to pay your other bills. The potential domino effect of a repossession is just one of many reasons to try to avoid it.

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A voluntary repossession — giving the car back rather than having someone come and take it — will hurt your credit score just as much as a forceful repossession, Griffin said, though it could help you in the future to maintain as good a relationship as possible with an auto lender or dealer. But as far as credit goes, it won’t help.

Finally, after the lender repossesses your car, they will sell it in an attempt to recoup their losses. If the sale doesn’t cover the entire balance of the loan, you can expect to get a 1099-C for that tax year. The Internal Revenue Service treats canceled debt as income, and you may need to pay taxes on it, which can further strain your finances.

If you do go through a repossession, Griffin recommends focusing on what you can do to improve your credit while you wait for the repossession to age off your reports. That includes actions like paying down your revolving credit balances (credit card debt) and bringing current any other delinquent accounts you may have, because payment history and debt use have the greatest impact on credit scores. You can see how your score changes as a result of a repossession and your efforts to improve it by getting a free credit score every month on Credit.com.

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What to Do When You Owe More on Your Car Than It’s Worth

A negative equity car loan — also referred to as being “upside down” or “underwater” on a loan — means you owe more on a vehicle than it’s worth, and it’s a more common scenario than you might think.

Nearly one-third (31.4%) of car owners currently have a negative equity car loan, according to a J.D. Power Automotive forum on March 22. And USA Today reported something even more concerning: “The percentage of car owners facing negative equity is expected to hit a 10-year high in 2016.”

How do people get into a negative equity situation with cars? For one, brand new cars lose an average of 11% of their value the minute they’re driven off the lot. So say you take out a loan for $25,000 on a new car valued for the same amount. Just a few minutes after you drive off the lot, your car may only be worth $20,000, meaning you now owe $5,000 more than the car is worth.

Having negative equity isn’t always terrible, but it can mean added expense if you’re looking to sell or trade in your vehicle, and it can cause you a lot of grief in the event of a wreck or a theft. Let’s explore what you can do if you find yourself with a negative equity car loan, and things that may help you get out from underwater.

What a Negative Equity Car Loan Means for You

Barring extenuating financial circumstances (like missed payments), having a negative equity car loan usually just means you’ve purchased a car that’s value depreciated faster than you’ve made payments and you need time to catch up. Cars — especially new ones — depreciate a lot (20-30%) in the first few years, and then depreciation tends to level off, according to Edmunds. If you have no plans to sell or trade in your vehicle, your situation is tenable.

But, if you’re trying to purchase a new car with a new loan and want to trade in or sell your current car, a negative equity loan will be a complication (read: added expense). You’ll either have to roll over the negative equity into your new loan or pay it off (and if you could do that, you probably wouldn’t be underwater in the first place). Purchasing a new car while underwater on your current one is a choice, of course, and individual buyers will have to weigh their options to decide if they want to take on the added financial burden.

Some situations you may find yourself in while underwater on a loan can be quite expensive. Getting into a car wreck that results in a total loss, or having your car stolen, can mean that not only will you not be compensated for vehicle replacement, you might actually owe your lender money.

Using our previous example of the $25,000 car: if you’ve only paid off $2,000 of the vehicle (through either down payment or loan payments), and the vehicle is determined to be worth just $20,000 at the time of a total loss, you’ll owe your lender $3,000. Not a fun situation to find yourself in, to be sure, but this is a time where guaranteed auto protection (GAP) insurance can be helpful.

Ways to Get Out From Underwater

  • Make larger monthly car payments (as your budget allows).
  • Keep the car you’ve got until you’re above water (until the car is worth more than you owe).
  • Roll the negative balance into your new car loan — this costs you nothing out of pocket, but be aware that you’ll likely be making higher monthly payments and you’ll still have to pay off the negative balance.

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If you’re really underwater on a bad loan (the interest payments are quite high) or you’ve missed payments, and your monthly bill is high, but you still won’t pay off the loan for a long time, selling the car and taking the financial hit might be something to consider. Be sure to carefully calculate expenses and get help from a financial advisor if you can. Refinancing your loan is another option, but be sure to use a reputable lender.

Be Wary of Certain Types of Loans

One of the best ways to help you avoid a negative equity auto loan in the first place is to make a large enough down payment. This is why it may be helpful to determine an appropriate down payment before going car shopping and make sure you’re buying a car you can actually afford. (To give you an idea of whether you might qualify for the best rates on your car purchase, take a look at your free credit report summary on Credit.com.)

Be wary of loans with little to no down payment and extended loan lengths (like those reaching 84 months), Michael Harley, chief analyst at Auto Web, explained. If loans like these are all you qualify for, or all you can afford, you may want to consider less expensive options.

Some loan advice to consider:

  • Try to keep car payments less than 20% of your take-home pay.
  • Aim to finance cars for no more than five years.
  • Try to put 20% down.
  • If you’re getting a used car, it may be better to finance it for three years with about 10% down.
  • More financing tips — for both new and used cars — can be found here.

GAP Insurance: How it Can Help

If you have negative equity, for whatever reason, GAP insurance might be a good choice. GAP insurance may be a good option if you’re paying less than 20% down on a new car or rolling over a negative equity loan. This way, if you experience a total loss or a stolen car while you have negative equity on your loan, you’ll have coverage.

Keep in mind: GAP insurance doesn’t cover negative equity in the event that you want to replace your current vehicle with a different one — if you’re underwater in that case, you’ll have to make up the difference with either cash or an even bigger new car loan.

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The bottom line: If you have negative equity on a car loan and you can afford the payments and have an end in sight, the best thing to do may simply be to ride it out: keep making payments and put off trading in or upgrading your car until you’re in a more secure financial position.

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Source: credit.com