We’ll get right to it: Truliant Federal Credit Union is the best overall credit union for getting a car loan, while Capital One Auto Loans is the best overall bank for auto loans. In this post, we also go into which financial institution is the best for military members (Navy Federal Credit Union) and which is the best for online car buying (Carvana).
We also explore what is an auto loan, places to get a car loan, the advantages of a dealership loan and more. Read on for more about auto loans and which financial institution is the best for your specific needs.
Our SimpleScore
With our proprietary SimpleScore, we evaluate financial institutions to help us suss out which ones are the best for which situations. The SimpleScore looks at five criteria: minimum new car rate, minimum used car rate, maximum loan size, customer satisfaction and fees. At the bottom of this post, we go into more detail about the different criteria and what they mean for you.
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Auto Credit Express
Min. Loan
N/A
APR Range
Varies
Term
24 – 72 months
Offer Details
- Bad Credit Auto Loans
- $5,000 to $45,000 Approvals
- No Credit Rejected
- Get Financing for a New or Used Car
- Apply & Drive Today!
NEXTon lender’s secure website
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CarsDirect
Min. Loan
N/A
APR Range
Varies
Term
24 – 72 months
Offer Details
- Rates as low as 0% on select cars, trucks and SUVs
- Free Online Quotes – Get Your CarsDirect Target Price Today
- Local dealers compete to provide the best rates for both new and used vehicles
NEXTon lender’s secure website
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LightStream
Min. Loan
$5,000
APR Range
2.49% – 11.89% w/AutoPay
Term
24–84 months
Offer Details
Disclaimer: Your loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Excellent credit is required to qualify for lowest rates. Rate is quoted with AutoPay discount. AutoPay discount is only available prior to loan funding. Rates without AutoPay may be higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice.
Payment example: Monthly payments for a $10,000 loan at 4.99% APR with a term of 3 years would result in 36 monthly payments of $299.66
© 2020 Truist Financial Corporation. SunTrust, Truist, LightStream, the LightStream logo, and the SunTrust logo are service marks of Truist Financial Corporation. All other trademarks are the property of their respective owners. Lending services provided by Truist Bank.
NEXTon lender’s secure website
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PenFed
Min. Loan
$500
APR Range
2.14%–2.89%
Term
36–84 months
Offer Details
New Auto Loans: Loan rate applicable to new vehicles only. New vehicles are where you are the original owner and the untitled vehicle is a current (2020) or prior model year (2019). Up to 110% financing is available. Vehicle weight restrictions apply. Minimum loan amount is $15,000 for 61-72 month term. Rate also depends on term.
Used Auto Loans: Maximum used car loan advance will be determined by PenFed using a NADA value. Financing is available up to NADA average retail value plus tags, title, taxes and extended warranties not to exceed 110%. Some restrictions apply. Call 1-800-247-5626 for details.
Financing for 61-72 month term is valid for model years 2015 – 2020. Rate depends on term. Other restrictions including vehicle and mileage limitations may apply.
Refinance Auto Loans: New vehicles are where you are the original owner and the vehicle is a current (2020) and prior model year (2019). For used vehicles, maximum used car loan advance will be determined by PenFed using a NADA value. Up to 100% financing is available to qualified members. PenFed does not permit internal refinances of an existing PenFed auto loan.
NEXTon lender’s secure website
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Carvana
Min. Loan
N/A
APR Range
Varies
Term
36–72 months
Offer Details
- 7 Day Test To Own
- Delivery or Pick Up
- Highest Quality Cars
- Finance With Us
- Online Equals Savings
The 6 best places to get an auto loan in 2021
Best places to get an auto loan at a glance
| Lender | Starting APR | Loan Amount | Terms | SimpleScore |
| Truliant Federal Credit Union | as low as 3.24% | Up to $100,000 | Up to 96 months | 4.25 |
| Navy Federal Credit Union | 1.79%–5.59% | Undisclosed | Up to 96 months | 4.5 |
| LightStream | 2.49%–11.89% with AutoPay | Up to $100,000 | 24 to 84 months | 4.2 |
| Capital One Auto Loans | Varies | Starting at $4,000 | 36 to 72 months | 4.6 |
| Carvana | Varies | Varies by state | 36–72 months | 4 |
| Bank of America | as low as 2.49% | $100,000 max | 12 to 75 months | 4.4 |
Rates accurate as of May 2021.
Best overall credit union – Truilant Federal Credit Union
Truliant is the doting grandma of auto financing — it’s just trying to help you buy a car at a reasonable rate.
While there are many great credit unions to choose from, the best one might be Truliant. It offers low interest rates and very flexible terms that meet just about anyone’s needs. Additionally, it has a lot of helpful perks that make your life easy, including Skip-A-Pay, which lets you miss one month’s payment every year without penalty. Truliant also has a 90-Day Deferred Payment where you can put off paying your first three months for more financial flexibility.
Best for military members – Navy Federal Credit Union
Navy Federal Credit Union is the VIP lounge of auto loan providers since you need a military connection to get in, but once you’re in you get solid rates and benefits.
If you are connected to the military in some way, you definitely want to check out Navy Federal Credit Union when shopping for an auto loan. With rates as low as 1.79% and discounts for military members, you’ll be hard pressed to find a better offer elsewhere. An additional benefit is that you get a free Carfax report when you’re approved for a loan, allowing you to see a vehicle’s history. The only downside is that you have to have a connection to the military, either directly or through a family member. Read our full Navy Federal auto loans review.
Best for same-day financing – LightStream
LightStream is the fast food of auto loans — it’s quick, cheap and satisfying.
LightStream has perfected the art of simplifying auto loans. From your device, you can seamlessly check your rates, apply for a loan and even get funding all in the same day. LightStream has a Rate Beat Program, which offers a rate that’s 0.1% lower than a rate offered by a competitor for similar loans. Backed by financial giant SunTrust (now Truist), LightStream is many borrowers’ No. 1 choice for all kinds of financing — including auto loans.
Best online car buying – Carvana
Carvana is like the Amazon of used cars, conveniently providing car shopping and financing all in one stop online.
Carvana is the most unique lender on this list since it also functions as an online dealership. When you visit its website, you can explore an assortment of used cars and find one you like near you. Carvana will even deliver the vehicle to you for free in some cases. You’re welcome to use third-party financing, but Carvana also provides auto loans. It takes about two minutes to fill out the form, and it instantly shows your terms without affecting your credit score. You’ll have the freedom to personalize your terms, and the competitive rates are valid for 45 days, which gives you a lot of information and time as you search for a used vehicle. Read our full Carvana car loans review.
Best for existing customers – Bank of America
Bank of America offers great auto loans, and the cherry on top is when you’re enrolled in its Preferred Rewards program.
Bank of America offers auto loans beginning at $7,500 ($8,000 if you live in Minnesota) and offers competitive rates with its APR for a new car starting at 2.49%. As with any car loan, your creditworthiness and loan type will affect the rate. Members who are enrolled in Preferred Rewards at the time of applying will get a 0.25% to 0.5% discount on their auto loans. If you’re already banking with Bank of America, it makes sense to get auto financing from them as well, although it’s always worth shopping around to find the best offers. Read our full Bank of America auto loans review.
What is an auto loan?
Vehicles are so expensive that most people cannot afford one outright. To buy one, you can use an auto loan. This means you’re borrowing the money you need from a lender, purchasing the vehicle and then slowly paying back the lender in small payments over the course of months or years. This works the same way whether you’re buying a used car or refinancing. The lender will charge interest to make a profit, so in the end, you’ll pay a little more money than the vehicle’s purchase price. Various factors affect your interest rate, such as your credit score and which lender you choose. It’s always wise to shop around to see which lender can offer you the best terms.
[ Read: The Best Used Car Loans of 2020 ]
Places to get an auto loan
Credit unions
Unlike banks, credit unions are controlled by their members. Generally speaking, credit unions are not aiming for profits as much as they’re focusing on helping people. The result is lower interest rates and better customer service, which are big advantages for borrowers. Another advantage to credit unions is they might be more flexible even if you have poor credit. Like most lenders, the process involves you providing information, such as your income, employment, identity, the car you’re buying and sometimes proof of insurance. They’ll likely check your credit history as well, then let you know if you’re approved.
[ Next: How to Get a Car Loan With Bad Credit ]
Banks
When working with banks, you can shop around and get pre-approved for multiple loans, then compare the rates and pick the best one for you. Depending on your bank, you might be able to apply online for pre-approval or you may have to visit a branch. You’ll provide all the information the bank needs, including details on the vehicle you’re going to buy. The bank will give you a quote, which you take to the dealer. Being pre-approved may keep the salesman from adding unnecessary add-ons. Keep in mind that banks sometimes have particular limits when qualifying used cars if the mileage and age doesn’t meet their standards.
Online lenders
Online lenders offer fast and convenient financing from the comfort of your home. With a connected device, you can easily compare several online lenders in a few minutes, evaluating their loan amounts, terms and interest rates. Not only that, but online lenders are often willing to lend to people with less-than-ideal credit scores. The tradeoff, however, is that online lenders typically have pretty steep interest rates and may have poor customer service. Before you take out an auto loan from an online lender, it never hurts to check the company’s reviews on Better Business Bureau or Yelp.
Dealerships
Dealerships are like the clothing stores of cars — they’re businesses that specialize in selling cars on a retail level. A dealership has a team of salespeople trained in the art of getting a car loan for you. From here, there are three paths you might take. One, the dealer can shop around with lenders and arrange an auto loan for you.
[ More: The New Car Buying Guide ]
While it’s nice they do the work for you, you may end up with a higher interest rate than you would prefer, not to mention they may tack on a fee for the service. Option two is you might be able to take out a loan from the car manufacturer. Several car brands have their own financing division, such as GM Financial. The third option is you can take out a loan from the dealership itself, which can also function as a lender.
Benefits of dealer financing
The big benefit of dealer financing is how hands-off it is for the borrower. Basically, the dealer handles all of the heavy lifting — hunting down a loan and finalizing the paperwork. You can sit there, answer any questions the dealer might have and simply wait for the car loan to fall into your lap. Sometimes dealerships can be intimidating — they are trying to make a sale, after all — however, it’s nice to have a guide to walk you through the complexities of buying a car with a loan. Dealers have years of experience when it comes to getting auto loans for their buyers, which means they know where to get financing for your particular circumstances and needs.
How to choose the best place to get an auto loan
- Check your credit report: Your credit score is a big factor in determining what interest rate you can secure and how much you can borrow. Before you start applying for auto loans, look over your credit report for errors. Things like fraudulent activity can result in higher interest rates, or you may be disqualified for an auto loan altogether.
- Apply to multiple lenders: Now it’s time to research and apply to various lenders for auto loans, such as your local banks and credit unions, online lenders, dealership financing and big national banks. Compare your different offers, analyzing the annual percentage rate, down payment, loan term and fees.
- Get pre-approved for the best option: Pre-approval will give you a close, if not exact, figure of what you’ll be paying if you take out a car loan. The process typically involves giving personal information such as your Social Security number. Once you’re pre-approved, you can visit a dealer knowing you have financing and how much it’ll cost you.
Auto loan FAQs
It comes down to whether you want convenience or a lower cost. Financing through a bank is the same as financing through a dealership, but the dealer is doing the work for you. To compensate for its service, the dealer may factor in a fee.
In quarter four of 2018, the average credit score of borrowers who received an auto loan for a new car was 718. If your score is lower than that, you can still qualify for an auto loan, but your options may be limited.
Generally speaking, the higher your credit score is, the better chance you have of getting a low-interest rate and fewer restrictions on your car loan. However, you still have a lot of options for auto loans even if you have bad credit.
Too long, didn’t read?
The best place to get an auto loan depends on your needs and circumstances. Dealerships essentially do the work for you, but banks and credit unions may offer lower interest rates. If you need fast financing, consider using an online lender like LightStream.
Last updated November, 2020 — Added SimpleScore data and updated editorial guide. We welcome your feedback on this article and would love to hear about your experience with the auto loans we recommend. Contact us at [email protected] with comments or questions.
Source: thesimpledollar.com
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.
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.
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 Much is Your FICO Score Costing You on Your Car? (Infographic)
A FICO credit score is a credit score developed by FICO, a company that specializes in what’s known as “predictive analytics,” which means they take information and analyze it to predict what’s likely to happen.
In the case of credit scores, FICO looks at a range of credit information and uses that to create scores that help lenders predict consumer behavior, such as how likely someone is to pay their bills on time (or not), or whether they are able to handle a larger credit line.
/***Credit Repair***/
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Scores developed by FICO can also be used to forecast which accounts are most likely to end up included in bankruptcy, or which ones will be most profitable. And credit-based insurance scores, which they also create, are used to help insurance companies identify which customers are least likely to file claims.
What Does FICO Stand For?
The name FICO comes from the company’s original name, the Fair Isaac Co. It was often shortened to FICO and finally became the company’s official name several years ago.
To create credit scores, they use information provided by one of the three major credit reporting agencies — Equifax, Experian or TransUnion. But FICO itself is not a credit reporting agency.
Though a FICO credit score is the most widely used among lenders, there are other scores lenders can choose from, such as the VantageScore, which is becoming more widely used.
What is the FICO Score Range?
There are actually dozens of FICO scores, with each version serving a different purpose (more on that later). Generally, the FICO score range is 300 to 850, with the higher number representing less risk to the lender or insurer.
What Is a Good FICO Score?
Consumers with excellent FICO scores (usually around 760 fico score range or higher, though every lender has different standards) are likely to get the best rates when they borrow, as well as the best discounts on insurance.
What Goes Into FICO Scores?
Five main factors go into FICO scores, and they each have a different effect on your score. Here’s the breakdown:
- Payment history (35% of the FICO score)
- Debt/amounts owed (30%)
- Age of credit history (15%)
- New credit/inquiries (10%)
- Mix of accounts/types of credit (10%)
All these factors are considered in other credit score models, so it’s safe to say that if you have a good FICO score, you likely have a strong score with other models as well. However, for some people, the weight of these categories can vary.
For example, people who haven’t been using credit for very long will be factored differently than those with a longer credit history, according to FICO. So, the importance of any one of these factors depends on the overall information in your credit report.
That’s why it’s a good idea to not get too hung up on the specific number of your credit score. Instead, focus on what areas of your credit are strong and which ones you might want to work on to better achieve a good FICO score.
What’s Not in My FICO Score?
While FICO considers a wide range of information to come up with your credit scores, there is a lot of information that is not used. According to FICO, the scores do not consider anything that isn’t on your credit report, which includes your race, religion, national origin, sex, marital status and age.
Here are some other things that FICO says it does not factor into its scores:
- Participation in a credit counseling program
- Employment information, including your salary, occupation, title, employer, date employed or employment history
- Where you live
- The interest rates on your credit accounts
- “Soft” inquiries (requests for your credit report), which include requests you make to see your own credit reports or scores
- Any information that has not been proven to be predictive of future credit performance
Is There Just One FICO Score?
FICO has dozens of credit score models. Some are specific to what the consumer is applying for. For example, if you’re applying for an auto loan, your potential creditor may use a FICO score formula that gives significant weight to your history of making auto loan payments. Other models are customized for FICO’s clients.
Additionally, FICO updates its general formulas from time to time, with the most recent being the FICO 9 rollout in 2014. Paid collection accounts are not factored into FICO 9 scores, and unpaid medical collections have less of a negative impact on credit scores, compared to other credit scoring models and previous FICO algorithms.
A Few More Facts About FICO Scores
A lesser-known fact about FICO scores is that some people don’t have them at all. To generate a credit score, a consumer must have a certain amount of available information. For example, to generate FICO scores, the consumer should have at least one account that has been open for six or more months and at least one account that has been reported to the credit reporting agencies over the last six months.
Did you know that it is also possible to achieve a perfect FICO score? The best FICO score a consumer can have is an 850, and that number has been reached by only about 0.5% of consumers that practiced better credit behavior.
Paying all your bills on time, not carrying your credit card balances month to month, and not opening multiple accounts are all good behaviors to follow to help you reach your FICO score goals of 850.
Each of the three major credit bureaus will generate their own FICO scores. It is recommended that you look at each credit report from Equifax, Experian, and TransUnion because the FICO score for each may slightly vary. You may also find that there is more than one FICO score available from each reporting agency.
FICO SBSS
FICO scores are not just for individuals either. Small businesses also have their own FICO scores, and these scores are what banks and other financial institutions use to help determine if they should lend to a business or not.
The FICO SBSS is the small business FICO Score (FICO Small Business Scoring Service) and counts as one of three main business credit scores. These FICO scores range from 0 to 300 and like regular FICO scores, the higher the sbss score, the better.
To calculate a FICO SBSS, the personal and business credit history is considered alongside other financial information such as payment history to vendors and suppliers. These scores can then be used to prescreen or determine loan terms and credit amounts that could reach more than one million dollars.
If a small business would like to improve their FICO score, then they should take a closer look at their personal credit history while they take positive steps to begin to build business credit.
FICO Score Versus VantageScore
Like FICO scores, VantageScores are also utilized by all three of the major credit reporting agencies. The VantageScore credit score is another scoring model that was actually developed by TransUnion, Equifax, and Experian.
While both scoring models use much of the same information to calculate scores, FICO bases their model off the reports from the three credit bureaus to come up with one formula. They both use a scoring model with scores ranging between 300 and 850.
VantageScore is most often used if the individual does not have an adequate credit history while FICO is used if there is a history of at least six months or more. VantageScore credit scores are given to people who don’t qualify to receive a FICO credit score due to the short or nonexistent credit history.
In addition to a FICO score and VantageScore, you can also find a TransRisk Score. This score is also a three-digit number on a scoring model of 300 to 850. The TransRisk Score, however, is found with information on a TransUnion credit report and is not often used by lenders.
How to Get Your Credit Score
With a free Credit.com account, you get a free credit score. This is not a trial offer, there is nothing to cancel, and you won’t be asked for your credit card information.
You can also purchase a FICO score online, and some credit card companies also provide free credit scores with an account or on your regular statement.
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.
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
5 Things Car Dealers Won’t Tell You
Whether you are shopping for a new car or a used one, you know how overwhelming the process can be. No matter how much research you’ve done, or how hard you’ve bargained, you may still second guess yourself, wondering if you struck the best deal.
Here are five things dealers may not tell you that can save you money on your next car purchase.
Invoice Price Isn’t Our Bottom Line
Most of us know that the sticker price is just a starting point for negotiations. And we may even know to research the invoice price. But most of us don’t realize that even when we buy a car “at invoice” the dealer has plenty of other ways to make a small profit. One of those ways is something called the “dealer holdback.”
According to Edmunds.com, an amount called a “holdback” is 2-3% of either the MSRP or the invoice. After the car is sold, the manufacturer pays this amount to the dealer, hence the name “dealer holdback.” On a $20,000 car, a 2% holdback would be $400.
Ummm, There’s Been An Accident…
Shopping for a used car? Your car dealer may be just as reluctant as your teenager to mention that the car’s been in an accident. “When it comes to accidents, it’s don’t ask, don’t tell,” warns Michael J. Sacks, automotive consumer advocate and director of communications for 1 800 LEMON LAW. A dealer is not going to come out and say a car has been in an accident. You must ask. If you don’t and you find out later, how can you prove the car was misrepresented?”
In addition to asking specifically about accidents, you can check a vehicle’s history through Carfax. “While a Carfax report does not guarantee a problem-free used vehicle, it does help to reduce the risk. Never buy a used car without reviewing its history,” insists LeeAnn Shattuck, Chief Car Chick with Women’s Automotive Solutions.
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Low Monthly Payments Are Our Friend, Not Yours
Yes, most of us know that just focusing on the monthly payment, rather than the overall cost of the car, is a mistake. But that’s not stopping us from taking out loans of five years or longer. Experian reports that the average loan term for a new vehicle jumped to an all-time high of 65 months in the last quarter of 2012, up from 63 months in the last quarter of 2011.
The minute you start talking monthly payments with a dealer you’re in trouble, warns Shattuck.
“If you tell the dealer, ‘I can afford $300 a month,’ all they have to do is play with the loan term and get you the payment you want without getting you a good deal on the car.”
The longer your car loan, the more likely you are to be “upside down” on your loan, owing more than the vehicle is worth. That’s especially risky if you drive a lot of miles since the high mileage will also cause the car to depreciate more quickly. “The more miles you drive per year the shorter your loan term should be,” she insists. In addition, interest rates for 60- to 72-month loans tend to be higher. A higher rate combined with a longer term can add up to thousands of dollars by the time the car is paid off.
Your Credit Score Is Different Than Ours
If you’ve checked your credit reports and scores before you started auto shopping (smart move) you may be surprised to learn that the credit score the dealer sees is different than the one you have obtained. Credit.com’s credit scoring expert Barry Paperno explains:
While the typical FICO score predicts the likelihood of any account on a consumer’s credit report going delinquent, auto dealers often use the “auto score” version of the FICO formula to predict the chances of an auto loan — not just any account — incurring late payments. To do this, the FICO auto scoring formula gives slightly more weight to auto loan-specific information on the credit report, such as auto loan payment history. The result is often a higher auto score than standard FICO for a consumer with positive auto loan history (all things on the credit report being equal), and a lower auto score if there is negative, or a lack of, auto loan history.
Of course, you still want to check your credit reports and scores before you need to finance a vehicle. Ideally, you should check them at least a month before to allow time to fix mistakes you may find on your credit reports. (You can use Credit.com’s free Credit Report Card for an easy to understand overview of your credit, along with your free scores. You can update your Credit Report Card monthly.) In addition, though, you’ll want to shop for a car loan before you set foot in the dealership. If the dealer knows you have already lined up financing, they can’t charge you a higher rate on a loan because your credit “isn’t good enough.” All they can try to do is match or beat the rate on the loan you’ve already lined up.
It Doesn’t Have to Be That Difficult
Dread haggling? Don’t make it harder than it has to be. “The actual process of negotiating a price for a new vehicle is a lot simpler than most people realize,” writes Mike Rabkin, a professional car shopper who walks car shoppers through the process. “It’s all about who you talk to and how knowledgeable you appear.” One strategy, he says, is to bypass the sales person and go straight to the decision maker. That person could go by different names, depending on the dealer: sales manager, general sales manager, fleet manager, Internet manager, etc.
“Whatever you do,” says Rabkin, “make sure you get competing quotes from at least four dealers. To know a good price, you have to know what a bad price is,” he says. “Competition is what makes them more competitive. Even if you don’t plan to shop at other dealers, you have to let them know you are shopping around.”
Get matched with a personal loan that’s right for you today.
Other experts agree. “You can buy a car with minimal haggling by calling and speaking to the fleet manager directly,”says Blair Natasi, PR director for MyRedToy.com, an online reverse auction service for car shoppers.
Or find a dealer that is transparent with customers.”The world of car buying is constantly changing and some dealers are finding that less pressure and more transparency helps their sales and earns them enthusiastic customers,” says Edmunds.com Sr. Consumer Advice Editor Phil Reed. “These enlightened dealers realize that many shoppers are well informed and they accept this and are willing to expedite the sales process accordingly. (They understand) how important customer satisfaction is for repeat sales.”
How do you find a straight-shooting dealer? Reed suggests: “You should try to learn as much as possible about a dealership before you give them your business. There is always the BBB to consult. We have dealer ratings and reviews on our site. You can always type the name of the dealership and ‘reviews’ into Google and you will get reviews from a variety of sources. Word of mouth from friends and family is also quite valuable, and it’s not uncommon for friends to refer you to a specific sales person. It’s important, however, to do all of your research on the price of a car, because a referral doesn’t mean you have an inside deal.”
And if you’re still not comfortable negotiating for the best price, you can hire a professional like Shattuck or Rabkin. The car I previously owned was purchased with the help of a professional car shopper and I was confident I got a good deal. I was able to pay it off early and drive it for a long time. My past car I purchased on my own, with help from my hubby, and while I think we did OK, I do wonder if we could have done better.
Image: iStockphoto
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.
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.
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
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.
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.
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