Interview with a Car Broker

Buying a car with bad credit is possible—it’s just going to cost you. You’ll probably have a higher interest rate and require a bigger down payment, and you may have a much smaller selection to choose from than someone with a better credit history.

Here’s how to go about buying a car with bad credit and what you’ll need to be aware of to avoid being overcharged.

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1. Check Your Credit
2. Improve Your Score
3. Fix Credit Errors
4. Know What You Can Pay
5. Make a Bigger Down Payment
6. Get a Shorter Loan
7. Work with a Bad Credit Car Dealer
8. Get Preapproved
9. Get a Co-signer
10. Comparison Shop
11. Read the Fine Print
12. Refinance

Buying a Car With Bad Credit

If you have poor or bad credit, buying a vehicle requires some common steps that people with good credit don’t necessarily need to worry about. Consider taking these steps when buying a car with bad credit.

1. Check Your Credit

If your credit is poor, you may be stuck paying a higher interest rate until you can improve your credit scores. Your credit score is a huge factor when it comes to the interest rate and credit financing you will receive for your auto loan—or if you’ll be approved at all. You’ll want to go into this process knowing what your score is and what your options are.

Check your credit from all three major credit bureaus several months before you begin your car shopping journey so you have time to rebuild your credit if possible. Track your credit history to determine the areas where you can most improve before applying for a car loan.

2. Improve Your Score

There is no official minimum credit score you need to buy a car, but a higher score will open up more options and better rates. According to Experian, the average credit score for used car purchases at the end of 2018 was 659.

If your score is below 660, look for ways to improve your score before applying for a car loan. Your free Credit Report Card from Credit.com will help you determine the most efficient ways to improve your score: paying off debt, clearing up errors or taking care of old collection accounts could bump you over that coveted 700 threshold. Delaying the car finance process to improve your poor credit score and rebuild your credit can save you money in the long run.

3. Fix Credit Errors

If you find mistakes on your credit reports, fixing those errors could bring your score up quite a bit. If possible, give yourself at least 30 days to dispute credit report mistakes before you start car shopping and looking for an auto finance company or submit a loan application. If you think this is your best option, you can try DIY credit repair, or work with a credit repair service such as those from Lexington Law.

4. Know What You Can Pay

Whether or not you’re able to improve your credit score, you should know what you can afford to pay before you start shopping—and stay committed to your budget. Auto loan calculators are helpful tools to use when you are trying to determine how much car you can afford. These calculators can also provide you with an estimate of what you will be paying for the entire term of the auto loan, interest included.

〉 Try it now: Auto Loan Calculator

5. Make a Bigger Down Payment

If your score is still on the low side and you don’t have more time to rebuild your credit before purchasing a car, be prepared to put a large chunk of money down. If you’re able to put down more money, you can borrow less money—which will usually mean more savings overall. How much you have to put down on a car with bad credit depends on how low your score is (and why) as well as the price of the car and the dealer you’re working with. In general, at least $1,000 or 10% of the purchase price is recommended.

If you’re unable to put any money down, your options will be severely limited. You may be able to buy a car from a private seller who is willing to take payments, but this scenario is unlikely.

6. Get a Shorter Loan

Longer loans are generally considered a higher risk: there’s more time for you to potentially default on the loan, so the interest rates tend to be higher. The monthly payments will be higher for shorter loans, however, so make sure you are able to fit this into your budget with some room to spare.

7. Work with a Bad Credit Car Dealer

If you need a car now and have a credit score that falls below the 600 range, you may need to go to bad credit car dealerships that specialize in no-credit or poor-credit buyers. These dealerships will work with your credit history to get approval, but interest rates will likely be high and terms may be unfavorable.

8. Get Preapproved

Getting preapproval for auto financing from a bank or credit union could better prepare you for the car shopping process. This preapproval process analyzes your income, expenses, credit score and credit report and determines if you qualify for an auto loan from the lender and how much the lender would be willing to lend. Submitting your paperwork early and learning what obstacles you face could spare you a lot of headaches later when going through the loan approval process.

9. Get a Co-signer

If you have a poor credit score, it may be helpful to get a co-signer for your loan application. Not all lenders offer this option, so consider this carefully before moving forward.

10. Comparison Shop

Always shop around for your loan. You never know what options are available until you look. Look for the best possible terms and make sure that you can actually afford the payments so you don’t end up negatively affecting your credit even more. It’s also a good idea to compare rates from other lenders like banks or credit unions before settling on a loan straight from the dealership.

11. Read the Fine Print

The fine print can make a big difference in the overall purchase price of the vehicle, especially if your credit means a high interest rate. Make sure there’s no prepayment penalty so you’re not fined for paying off a loan quicker than agreed, and avoid pricey add-ons that increase the sales price.

12. Refinance

Auto loan refinancing could help lower your auto loan rates and your monthly payment, which could end up saving you hundreds over the life of the loan. For loan refinancing, you typically want a strong history of making on-time payments for at least 12 months. However, keep in mind that the loan refinancing will also take your credit history and current credit scores into account as well. So, as always, continue working diligently to improve and rebuild your credit rating.

Key Takeaways

Whether or not you can get a car loan with bad credit depends on many factors. If you follow these tips, you may be able to get an auto loan and save money even with poor credit scores.

You can view your credit score and get an easy-to-understand Credit Report Card for free at Credit.com or via the mobile app for iPhone and Android. Start by taking a look at what factors are having the most impact on your scores and credit rating so you know what to address first.

Source: credit.com

Car payment too high

Buying a car with bad credit is possible—it’s just going to cost you. You’ll probably have a higher interest rate and require a bigger down payment, and you may have a much smaller selection to choose from than someone with a better credit history.

Here’s how to go about buying a car with bad credit and what you’ll need to be aware of to avoid being overcharged.

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1. Check Your Credit
2. Improve Your Score
3. Fix Credit Errors
4. Know What You Can Pay
5. Make a Bigger Down Payment
6. Get a Shorter Loan
7. Work with a Bad Credit Car Dealer
8. Get Preapproved
9. Get a Co-signer
10. Comparison Shop
11. Read the Fine Print
12. Refinance

Buying a Car With Bad Credit

If you have poor or bad credit, buying a vehicle requires some common steps that people with good credit don’t necessarily need to worry about. Consider taking these steps when buying a car with bad credit.

1. Check Your Credit

If your credit is poor, you may be stuck paying a higher interest rate until you can improve your credit scores. Your credit score is a huge factor when it comes to the interest rate and credit financing you will receive for your auto loan—or if you’ll be approved at all. You’ll want to go into this process knowing what your score is and what your options are.

Check your credit from all three major credit bureaus several months before you begin your car shopping journey so you have time to rebuild your credit if possible. Track your credit history to determine the areas where you can most improve before applying for a car loan.

2. Improve Your Score

There is no official minimum credit score you need to buy a car, but a higher score will open up more options and better rates. According to Experian, the average credit score for used car purchases at the end of 2018 was 659.

If your score is below 660, look for ways to improve your score before applying for a car loan. Your free Credit Report Card from Credit.com will help you determine the most efficient ways to improve your score: paying off debt, clearing up errors or taking care of old collection accounts could bump you over that coveted 700 threshold. Delaying the car finance process to improve your poor credit score and rebuild your credit can save you money in the long run.

3. Fix Credit Errors

If you find mistakes on your credit reports, fixing those errors could bring your score up quite a bit. If possible, give yourself at least 30 days to dispute credit report mistakes before you start car shopping and looking for an auto finance company or submit a loan application. If you think this is your best option, you can try DIY credit repair, or work with a credit repair service such as those from Lexington Law.

4. Know What You Can Pay

Whether or not you’re able to improve your credit score, you should know what you can afford to pay before you start shopping—and stay committed to your budget. Auto loan calculators are helpful tools to use when you are trying to determine how much car you can afford. These calculators can also provide you with an estimate of what you will be paying for the entire term of the auto loan, interest included.

〉 Try it now: Auto Loan Calculator

5. Make a Bigger Down Payment

If your score is still on the low side and you don’t have more time to rebuild your credit before purchasing a car, be prepared to put a large chunk of money down. If you’re able to put down more money, you can borrow less money—which will usually mean more savings overall. How much you have to put down on a car with bad credit depends on how low your score is (and why) as well as the price of the car and the dealer you’re working with. In general, at least $1,000 or 10% of the purchase price is recommended.

If you’re unable to put any money down, your options will be severely limited. You may be able to buy a car from a private seller who is willing to take payments, but this scenario is unlikely.

6. Get a Shorter Loan

Longer loans are generally considered a higher risk: there’s more time for you to potentially default on the loan, so the interest rates tend to be higher. The monthly payments will be higher for shorter loans, however, so make sure you are able to fit this into your budget with some room to spare.

7. Work with a Bad Credit Car Dealer

If you need a car now and have a credit score that falls below the 600 range, you may need to go to bad credit car dealerships that specialize in no-credit or poor-credit buyers. These dealerships will work with your credit history to get approval, but interest rates will likely be high and terms may be unfavorable.

8. Get Preapproved

Getting preapproval for auto financing from a bank or credit union could better prepare you for the car shopping process. This preapproval process analyzes your income, expenses, credit score and credit report and determines if you qualify for an auto loan from the lender and how much the lender would be willing to lend. Submitting your paperwork early and learning what obstacles you face could spare you a lot of headaches later when going through the loan approval process.

9. Get a Co-signer

If you have a poor credit score, it may be helpful to get a co-signer for your loan application. Not all lenders offer this option, so consider this carefully before moving forward.

10. Comparison Shop

Always shop around for your loan. You never know what options are available until you look. Look for the best possible terms and make sure that you can actually afford the payments so you don’t end up negatively affecting your credit even more. It’s also a good idea to compare rates from other lenders like banks or credit unions before settling on a loan straight from the dealership.

11. Read the Fine Print

The fine print can make a big difference in the overall purchase price of the vehicle, especially if your credit means a high interest rate. Make sure there’s no prepayment penalty so you’re not fined for paying off a loan quicker than agreed, and avoid pricey add-ons that increase the sales price.

12. Refinance

Auto loan refinancing could help lower your auto loan rates and your monthly payment, which could end up saving you hundreds over the life of the loan. For loan refinancing, you typically want a strong history of making on-time payments for at least 12 months. However, keep in mind that the loan refinancing will also take your credit history and current credit scores into account as well. So, as always, continue working diligently to improve and rebuild your credit rating.

Key Takeaways

Whether or not you can get a car loan with bad credit depends on many factors. If you follow these tips, you may be able to get an auto loan and save money even with poor credit scores.

You can view your credit score and get an easy-to-understand Credit Report Card for free at Credit.com or via the mobile app for iPhone and Android. Start by taking a look at what factors are having the most impact on your scores and credit rating so you know what to address first.

Source: credit.com

4 Credit Cards That Can Help You Save for a Car

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

4 Tips Before You Buy Your Teenager a Car

Roughly 26% of car buyers feel that they overpaid for their vehicle, according to a 2014 survey from TrueCar, Inc. That same survey admittedly also found consumers believe car dealers make about five times more profit on the sale of a new car than they actually do — but whether you truly paid too much for your now-old ride or you simply think you did, there are ways to save the next time you hit up a car dealership. For starters, the rates on auto loans are largely driven by your credit, so simply bolstering your credit score can potentially save you thousands of dollars over the life of your loan. Plus, it never hurts to comparison shop and negotiate when it comes to auto loans and the actual vehicle itself — you may be missing out on savings by doing one and not the other.

But First… How Much Car Can You Afford?

According to Credit.com contributor and car insurance comparison company TheZebra, automotive experts generally suggest auto loans not exceed 10% (if it’s just the loan) to 20% (if it’s the loan and related expenses like car insurance) of your gross monthly income. Of course, that’s a broad rule and every potential car owner is going to have to take a long, hard long at their finances and current debt levels to decide what they can, in fact, afford. Following these three simple cost-cutting steps can help you save big on your auto loan and next car purchase.

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1. Do a Credit Check

Not checking your credit before you start shopping for a car is a huge mistake. Because your auto loan rates are directly tied to your credit scores, even a small inaccuracy on your credit report could cost you. Before you start shopping for your dream car, take an hour to check all three of your credit reports and credit scores online. You need to check with all three major credit reporting agencies — Equifax, Experian and TransUnion — because you don’t know which one a lender will use for your application. If you have a credit score above 750, you can probably qualify for the best rates available and negotiate an excellent deal on your car. If your credit score is lower, see if you can give it a boost before you apply for a loan.

You can view two of your credit scores, along with your free credit report snapshot on Credit.com. The snapshot will pinpoint what your specific area of opportunities are and what steps you can take to improve. However, as a general rule of thumb, you can raise your credit score by disputing errors on your credit report, paying down high credit card debts and limiting new credit applications.

2. Shop Online

Unless you have a credit score in the 800s and can qualify for a 0% auto loan offer, you are probably not going to get the best deal on a loan from the dealership. Auto loan rates and fees offered by online auto lenders are usually a lot lower than the rates offered by dealership financing programs. Plus, you can shop and compare rates online without causing damaging inquiries to your credit report (provided you’re not formally applying for every offer you see). Most online lenders have calculators or rate guides that show you what rate you could receive based upon your credit score. (Note: Be sure to vet any lender, whether online or within a dealership, before taking them up on an offer.)

With many online loans, you fill out the application and receive an approval by email within a few hours. Then the lender mails you a check that is ready to be made out to the person or business selling the car. If you end up not buying a car or not using the loan, you toss the check (shredding it first, of course). Plus, the check from the lender usually specifies a certain price range (for example, $9,000-$10,000). This leaves you with some room for negotiating a lower price with the seller even after you have received your loan approval. Speaking of which …

3. Negotiate the Price

Many people may wind up overpaying for a car simply to avoid negotiating the price of a car with a salesperson. Luckily, the Internet makes negotiating with car dealers a whole lot easier. Before you start shopping, look up the listed price, invoice and MSRP of the car you want through an unbiased site like Kelley Blue Book and request free price quotes online. Armed with these facts, you’ll have an advantage over the salesperson when you start the negotiations. You should be able to save a couple hundred dollars, if not a few thousands, by negotiating with the car salesperson before you decide to buy.

Proving It

You may be thinking: This is all fine and dandy, but does it really add up to $3,000 in savings? Let’s crunch the numbers using this auto loan calculator.

According to data from Experian, the average interest rate on a new car loan for prime customers as of the last quarter of 2015 was 3.55%. The average rates on a new car for non-prime customers and subprime customers during that timeframe were 6.24% and 10.36%, respectively.

So, let’s say you wanted to buy a $16,000 car and had $1,000 saved for a down payment. If you chose a loan repayment period of 60 months, had a non-prime credit score (think just below 700), and got a loan through a dealership, you could receive about a 6.3% annual percentage rate (APR).

  • Dealership option: $292 a month – $17,525 total costs

However, if you checked your credit reports and scores before you applied and found a way to boost your score to prime (think around 750), your interest rate from the dealership could drop to about 3.5%.

  • Improved score: $273 a month – $16,373 total costs

You would have already saved $1,152 dollars, just by checking your credit reports! That’s a pretty good return on your investment. Next, you might be able to reduce your rate even more by shopping for a loan online with your new credit score of 750. Let’s suppose, for argument sake, you qualify for a 2.7% APR (the average interest rate for super-prime customers during the last quarter of 2015, according to Experian).

  • Online loan: $268 a month – $16,052 total costs

You would have saved almost $1,473 by working on your loan options using Step 1 and 2. Finally, if you went to negotiate with the salesperson you could probably make a deal with the seller to reduce the price of the car down to $14,000. In this case, you would only have to borrow $13,000 with your 2.7% APR loan from an online lender.

  • Negotiated deal: $232 a month – $13,912 total costs

Your total savings from following these three simple steps would equal $3,613 over the life of your auto loan!

Source: credit.com

The First Thing to Do Before Buying a Car

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

Is There Any Chance of Lowering Your Car Payment?

Buying a car with bad credit is possible—it’s just going to cost you. You’ll probably have a higher interest rate and require a bigger down payment, and you may have a much smaller selection to choose from than someone with a better credit history.

Here’s how to go about buying a car with bad credit and what you’ll need to be aware of to avoid being overcharged.

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1. Check Your Credit
2. Improve Your Score
3. Fix Credit Errors
4. Know What You Can Pay
5. Make a Bigger Down Payment
6. Get a Shorter Loan
7. Work with a Bad Credit Car Dealer
8. Get Preapproved
9. Get a Co-signer
10. Comparison Shop
11. Read the Fine Print
12. Refinance

Buying a Car With Bad Credit

If you have poor or bad credit, buying a vehicle requires some common steps that people with good credit don’t necessarily need to worry about. Consider taking these steps when buying a car with bad credit.

1. Check Your Credit

If your credit is poor, you may be stuck paying a higher interest rate until you can improve your credit scores. Your credit score is a huge factor when it comes to the interest rate and credit financing you will receive for your auto loan—or if you’ll be approved at all. You’ll want to go into this process knowing what your score is and what your options are.

Check your credit from all three major credit bureaus several months before you begin your car shopping journey so you have time to rebuild your credit if possible. Track your credit history to determine the areas where you can most improve before applying for a car loan.

2. Improve Your Score

There is no official minimum credit score you need to buy a car, but a higher score will open up more options and better rates. According to Experian, the average credit score for used car purchases at the end of 2018 was 659.

If your score is below 660, look for ways to improve your score before applying for a car loan. Your free Credit Report Card from Credit.com will help you determine the most efficient ways to improve your score: paying off debt, clearing up errors or taking care of old collection accounts could bump you over that coveted 700 threshold. Delaying the car finance process to improve your poor credit score and rebuild your credit can save you money in the long run.

3. Fix Credit Errors

If you find mistakes on your credit reports, fixing those errors could bring your score up quite a bit. If possible, give yourself at least 30 days to dispute credit report mistakes before you start car shopping and looking for an auto finance company or submit a loan application. If you think this is your best option, you can try DIY credit repair, or work with a credit repair service such as those from Lexington Law.

4. Know What You Can Pay

Whether or not you’re able to improve your credit score, you should know what you can afford to pay before you start shopping—and stay committed to your budget. Auto loan calculators are helpful tools to use when you are trying to determine how much car you can afford. These calculators can also provide you with an estimate of what you will be paying for the entire term of the auto loan, interest included.

〉 Try it now: Auto Loan Calculator

5. Make a Bigger Down Payment

If your score is still on the low side and you don’t have more time to rebuild your credit before purchasing a car, be prepared to put a large chunk of money down. If you’re able to put down more money, you can borrow less money—which will usually mean more savings overall. How much you have to put down on a car with bad credit depends on how low your score is (and why) as well as the price of the car and the dealer you’re working with. In general, at least $1,000 or 10% of the purchase price is recommended.

If you’re unable to put any money down, your options will be severely limited. You may be able to buy a car from a private seller who is willing to take payments, but this scenario is unlikely.

6. Get a Shorter Loan

Longer loans are generally considered a higher risk: there’s more time for you to potentially default on the loan, so the interest rates tend to be higher. The monthly payments will be higher for shorter loans, however, so make sure you are able to fit this into your budget with some room to spare.

7. Work with a Bad Credit Car Dealer

If you need a car now and have a credit score that falls below the 600 range, you may need to go to bad credit car dealerships that specialize in no-credit or poor-credit buyers. These dealerships will work with your credit history to get approval, but interest rates will likely be high and terms may be unfavorable.

8. Get Preapproved

Getting preapproval for auto financing from a bank or credit union could better prepare you for the car shopping process. This preapproval process analyzes your income, expenses, credit score and credit report and determines if you qualify for an auto loan from the lender and how much the lender would be willing to lend. Submitting your paperwork early and learning what obstacles you face could spare you a lot of headaches later when going through the loan approval process.

9. Get a Co-signer

If you have a poor credit score, it may be helpful to get a co-signer for your loan application. Not all lenders offer this option, so consider this carefully before moving forward.

10. Comparison Shop

Always shop around for your loan. You never know what options are available until you look. Look for the best possible terms and make sure that you can actually afford the payments so you don’t end up negatively affecting your credit even more. It’s also a good idea to compare rates from other lenders like banks or credit unions before settling on a loan straight from the dealership.

11. Read the Fine Print

The fine print can make a big difference in the overall purchase price of the vehicle, especially if your credit means a high interest rate. Make sure there’s no prepayment penalty so you’re not fined for paying off a loan quicker than agreed, and avoid pricey add-ons that increase the sales price.

12. Refinance

Auto loan refinancing could help lower your auto loan rates and your monthly payment, which could end up saving you hundreds over the life of the loan. For loan refinancing, you typically want a strong history of making on-time payments for at least 12 months. However, keep in mind that the loan refinancing will also take your credit history and current credit scores into account as well. So, as always, continue working diligently to improve and rebuild your credit rating.

Key Takeaways

Whether or not you can get a car loan with bad credit depends on many factors. If you follow these tips, you may be able to get an auto loan and save money even with poor credit scores.

You can view your credit score and get an easy-to-understand Credit Report Card for free at Credit.com or via the mobile app for iPhone and Android. Start by taking a look at what factors are having the most impact on your scores and credit rating so you know what to address first.

Source: credit.com

How to Determine What You Can Afford for a Car

How much can you afford for a carHow much can you afford for a carYour dream car and the car that you can realistically afford can be two totally different things. If you are paying cash, then your car choice may not be a complicated one. However, if financing is your only option then how to determine what you can afford for a car becomes a crucial undertaking.

Ideally, you should go for a car whose monthly payments do not exceed what your income can handle. Your calculations also have to factor in the extra costs that go into buying a car as well as the operational expenses that you will encounter on a daily basis.

What’s an affordable car? How do you go about the calculations? Let’s find out.

Breaking Down your Car Budget

Apart from the price listed on a car, there are other costs that you should consider. These are expenses that you find out on your own and plan for; the car salesman won’t reveal them to you!

Up-sells and Cross-sells: The dealer will try to increase the displayed price, a strategy known as upselling. You will be enticed with features like extra body kits, chrome wheels, warranties, etc. Another common trick is being led to buy a different and more expensive brand or model; cross-selling. Avoid these extra costs by sticking to your first choice.

Dealership Fees: There will be registration fees, sales tax, and documentation fees. These are for you to bargain with the dealership. Such fees can drive the price up by around 10%.

Ownership Expenses: Once you own the car, other expenses start: insurance, maintenance, repairs, annual registration fees, depreciation and the like.

Gas is another major ownership expense that most people neglect to factor when making a purchase. Let’s use a Toyota Prius, a favorite for first-time owners as an example; it goes for around $20k plus a possible 5k to cover the other costs.

The car consumes about 44 miles per gallon. Data from Federal Highway Administration show that on average a driver covers 13,476 miles per year. This translates to around $907 per year at $2.96 per gallon (13,476 miles x $2.96 / 44 mpg).

True Cost of Owning a Car

After you have calculated the expected cost of the car you are looking for (plus the extra costs), your budget starts to take shape. Using the above example, you are looking at around $25,000 for a new car with a 5-year (60months) car loan. However, for the true cost of owning you need to factor gas expenses for the loan duration;

True cost of owning = Purchase + Other costs + Gas = $20,000 + $5000 + ($907 x 5) = $29,535

Can your Income Sustain the Monthly Payments?

With car financing, you will be repaying the loan on a monthly basis. So what’s the optimal percent of your monthly income that should go to the car? There is no specific answer to this since budgeting depends on your priorities.

Most experts, however, recommend that transportation should cost 10-15% of your net pay. This follows a 50/30/20 rule where 50% of your income goes to living needs, 30% to flexible spending and 20% to investments and other long-term financial goals. Your car is included in the ‘living needs’ category with the remainder of the 50% going to mortgage and utilities.

It’s upon you to ensure that your car loan repayments fall within the 10-15% range. For the Prius, the monthly cost will be around $493 (the total cost of owning/ 60 months). Hence your take-home pay should be at least $3290 for you to afford this car.

Monthly income= $493 x 100/15 = $3290 (assuming 15% of your pay is the car budget)    

Final Thought

Before you walk into a car dealership, do your homework on all the costs that will go into owning a car: Make use of free online calculators to get a rough idea of which car you can afford and understand all costs that may come with other deals like trade-ins. Lastly, negotiate your car loan for cheap rates, keep in mind that a longer loan term could mean a lower resale value by the time you have paid off the loan due to depreciation.

Source: creditabsolute.com

The Secret to Beating a Car Dealer

Roughly 26% of car buyers feel that they overpaid for their vehicle, according to a 2014 survey from TrueCar, Inc. That same survey admittedly also found consumers believe car dealers make about five times more profit on the sale of a new car than they actually do — but whether you truly paid too much for your now-old ride or you simply think you did, there are ways to save the next time you hit up a car dealership. For starters, the rates on auto loans are largely driven by your credit, so simply bolstering your credit score can potentially save you thousands of dollars over the life of your loan. Plus, it never hurts to comparison shop and negotiate when it comes to auto loans and the actual vehicle itself — you may be missing out on savings by doing one and not the other.

But First… How Much Car Can You Afford?

According to Credit.com contributor and car insurance comparison company TheZebra, automotive experts generally suggest auto loans not exceed 10% (if it’s just the loan) to 20% (if it’s the loan and related expenses like car insurance) of your gross monthly income. Of course, that’s a broad rule and every potential car owner is going to have to take a long, hard long at their finances and current debt levels to decide what they can, in fact, afford. Following these three simple cost-cutting steps can help you save big on your auto loan and next car purchase.

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1. Do a Credit Check

Not checking your credit before you start shopping for a car is a huge mistake. Because your auto loan rates are directly tied to your credit scores, even a small inaccuracy on your credit report could cost you. Before you start shopping for your dream car, take an hour to check all three of your credit reports and credit scores online. You need to check with all three major credit reporting agencies — Equifax, Experian and TransUnion — because you don’t know which one a lender will use for your application. If you have a credit score above 750, you can probably qualify for the best rates available and negotiate an excellent deal on your car. If your credit score is lower, see if you can give it a boost before you apply for a loan.

You can view two of your credit scores, along with your free credit report snapshot on Credit.com. The snapshot will pinpoint what your specific area of opportunities are and what steps you can take to improve. However, as a general rule of thumb, you can raise your credit score by disputing errors on your credit report, paying down high credit card debts and limiting new credit applications.

2. Shop Online

Unless you have a credit score in the 800s and can qualify for a 0% auto loan offer, you are probably not going to get the best deal on a loan from the dealership. Auto loan rates and fees offered by online auto lenders are usually a lot lower than the rates offered by dealership financing programs. Plus, you can shop and compare rates online without causing damaging inquiries to your credit report (provided you’re not formally applying for every offer you see). Most online lenders have calculators or rate guides that show you what rate you could receive based upon your credit score. (Note: Be sure to vet any lender, whether online or within a dealership, before taking them up on an offer.)

With many online loans, you fill out the application and receive an approval by email within a few hours. Then the lender mails you a check that is ready to be made out to the person or business selling the car. If you end up not buying a car or not using the loan, you toss the check (shredding it first, of course). Plus, the check from the lender usually specifies a certain price range (for example, $9,000-$10,000). This leaves you with some room for negotiating a lower price with the seller even after you have received your loan approval. Speaking of which …

3. Negotiate the Price

Many people may wind up overpaying for a car simply to avoid negotiating the price of a car with a salesperson. Luckily, the Internet makes negotiating with car dealers a whole lot easier. Before you start shopping, look up the listed price, invoice and MSRP of the car you want through an unbiased site like Kelley Blue Book and request free price quotes online. Armed with these facts, you’ll have an advantage over the salesperson when you start the negotiations. You should be able to save a couple hundred dollars, if not a few thousands, by negotiating with the car salesperson before you decide to buy.

Proving It

You may be thinking: This is all fine and dandy, but does it really add up to $3,000 in savings? Let’s crunch the numbers using this auto loan calculator.

According to data from Experian, the average interest rate on a new car loan for prime customers as of the last quarter of 2015 was 3.55%. The average rates on a new car for non-prime customers and subprime customers during that timeframe were 6.24% and 10.36%, respectively.

So, let’s say you wanted to buy a $16,000 car and had $1,000 saved for a down payment. If you chose a loan repayment period of 60 months, had a non-prime credit score (think just below 700), and got a loan through a dealership, you could receive about a 6.3% annual percentage rate (APR).

  • Dealership option: $292 a month – $17,525 total costs

However, if you checked your credit reports and scores before you applied and found a way to boost your score to prime (think around 750), your interest rate from the dealership could drop to about 3.5%.

  • Improved score: $273 a month – $16,373 total costs

You would have already saved $1,152 dollars, just by checking your credit reports! That’s a pretty good return on your investment. Next, you might be able to reduce your rate even more by shopping for a loan online with your new credit score of 750. Let’s suppose, for argument sake, you qualify for a 2.7% APR (the average interest rate for super-prime customers during the last quarter of 2015, according to Experian).

  • Online loan: $268 a month – $16,052 total costs

You would have saved almost $1,473 by working on your loan options using Step 1 and 2. Finally, if you went to negotiate with the salesperson you could probably make a deal with the seller to reduce the price of the car down to $14,000. In this case, you would only have to borrow $13,000 with your 2.7% APR loan from an online lender.

  • Negotiated deal: $232 a month – $13,912 total costs

Your total savings from following these three simple steps would equal $3,613 over the life of your auto loan!

Source: credit.com

More Americans With Bad Credit Are Getting Auto Loans

Roughly 26% of car buyers feel that they overpaid for their vehicle, according to a 2014 survey from TrueCar, Inc. That same survey admittedly also found consumers believe car dealers make about five times more profit on the sale of a new car than they actually do — but whether you truly paid too much for your now-old ride or you simply think you did, there are ways to save the next time you hit up a car dealership. For starters, the rates on auto loans are largely driven by your credit, so simply bolstering your credit score can potentially save you thousands of dollars over the life of your loan. Plus, it never hurts to comparison shop and negotiate when it comes to auto loans and the actual vehicle itself — you may be missing out on savings by doing one and not the other.

But First… How Much Car Can You Afford?

According to Credit.com contributor and car insurance comparison company TheZebra, automotive experts generally suggest auto loans not exceed 10% (if it’s just the loan) to 20% (if it’s the loan and related expenses like car insurance) of your gross monthly income. Of course, that’s a broad rule and every potential car owner is going to have to take a long, hard long at their finances and current debt levels to decide what they can, in fact, afford. Following these three simple cost-cutting steps can help you save big on your auto loan and next car purchase.

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1. Do a Credit Check

Not checking your credit before you start shopping for a car is a huge mistake. Because your auto loan rates are directly tied to your credit scores, even a small inaccuracy on your credit report could cost you. Before you start shopping for your dream car, take an hour to check all three of your credit reports and credit scores online. You need to check with all three major credit reporting agencies — Equifax, Experian and TransUnion — because you don’t know which one a lender will use for your application. If you have a credit score above 750, you can probably qualify for the best rates available and negotiate an excellent deal on your car. If your credit score is lower, see if you can give it a boost before you apply for a loan.

You can view two of your credit scores, along with your free credit report snapshot on Credit.com. The snapshot will pinpoint what your specific area of opportunities are and what steps you can take to improve. However, as a general rule of thumb, you can raise your credit score by disputing errors on your credit report, paying down high credit card debts and limiting new credit applications.

2. Shop Online

Unless you have a credit score in the 800s and can qualify for a 0% auto loan offer, you are probably not going to get the best deal on a loan from the dealership. Auto loan rates and fees offered by online auto lenders are usually a lot lower than the rates offered by dealership financing programs. Plus, you can shop and compare rates online without causing damaging inquiries to your credit report (provided you’re not formally applying for every offer you see). Most online lenders have calculators or rate guides that show you what rate you could receive based upon your credit score. (Note: Be sure to vet any lender, whether online or within a dealership, before taking them up on an offer.)

With many online loans, you fill out the application and receive an approval by email within a few hours. Then the lender mails you a check that is ready to be made out to the person or business selling the car. If you end up not buying a car or not using the loan, you toss the check (shredding it first, of course). Plus, the check from the lender usually specifies a certain price range (for example, $9,000-$10,000). This leaves you with some room for negotiating a lower price with the seller even after you have received your loan approval. Speaking of which …

3. Negotiate the Price

Many people may wind up overpaying for a car simply to avoid negotiating the price of a car with a salesperson. Luckily, the Internet makes negotiating with car dealers a whole lot easier. Before you start shopping, look up the listed price, invoice and MSRP of the car you want through an unbiased site like Kelley Blue Book and request free price quotes online. Armed with these facts, you’ll have an advantage over the salesperson when you start the negotiations. You should be able to save a couple hundred dollars, if not a few thousands, by negotiating with the car salesperson before you decide to buy.

Proving It

You may be thinking: This is all fine and dandy, but does it really add up to $3,000 in savings? Let’s crunch the numbers using this auto loan calculator.

According to data from Experian, the average interest rate on a new car loan for prime customers as of the last quarter of 2015 was 3.55%. The average rates on a new car for non-prime customers and subprime customers during that timeframe were 6.24% and 10.36%, respectively.

So, let’s say you wanted to buy a $16,000 car and had $1,000 saved for a down payment. If you chose a loan repayment period of 60 months, had a non-prime credit score (think just below 700), and got a loan through a dealership, you could receive about a 6.3% annual percentage rate (APR).

  • Dealership option: $292 a month – $17,525 total costs

However, if you checked your credit reports and scores before you applied and found a way to boost your score to prime (think around 750), your interest rate from the dealership could drop to about 3.5%.

  • Improved score: $273 a month – $16,373 total costs

You would have already saved $1,152 dollars, just by checking your credit reports! That’s a pretty good return on your investment. Next, you might be able to reduce your rate even more by shopping for a loan online with your new credit score of 750. Let’s suppose, for argument sake, you qualify for a 2.7% APR (the average interest rate for super-prime customers during the last quarter of 2015, according to Experian).

  • Online loan: $268 a month – $16,052 total costs

You would have saved almost $1,473 by working on your loan options using Step 1 and 2. Finally, if you went to negotiate with the salesperson you could probably make a deal with the seller to reduce the price of the car down to $14,000. In this case, you would only have to borrow $13,000 with your 2.7% APR loan from an online lender.

  • Negotiated deal: $232 a month – $13,912 total costs

Your total savings from following these three simple steps would equal $3,613 over the life of your auto loan!

Source: credit.com

Why Are Auto Loans the Easiest Loans to Get?

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