For most Americans, having a car is a necessity. We need it to get to work, school, the grocery, the doctor, and all our weekly errands. Unfortunately, both new and used cars are expensive — and auto loan rates are on the rise as well.
So when buying a car, does it ever make sense to use a personal loan instead of traditional financing? We’ll break down the difference between personal loans and car loans and when you might want to use the former to buy a new set of wheels.
Personal Loan vs Auto Loan: An Overview
You can use a personal loan for almost anything, including buying a car. But why would you use a personal loan to purchase a vehicle when there are very specific loans — auto loans — to finance this purchase?
As we’ll see, personal loans can offer some benefits over car loans, including less buyer risk, no down payment needed, better negotiating power, and potential savings on car insurance. But car loans still have their place and may be cheaper in the long run.
Personal Loans
A personal loan allows you to borrow money from a bank, credit union, or lender to fund nearly any kind of purchase. People commonly use personal loans for debt consolidation, home renovations, weddings, vacations, and even new and used car purchases.
Personal loans can be unsecured (no collateral required) or secured (collateral required). For the sake of our personal loan vs. auto loan comparison, we’ll be looking at unsecured personal loans, as they’re more common.
Recommended: Types of Personal Loans
How Interest Rates Work on Personal Loans
Because unsecured personal loans aren’t backed by any collateral, interest rates tend to be higher than what you’d get for a car loan. Average personal loan interest rates vary depending on your credit score and the loan terms, but typically, they max out at 36%.
Most personal loans come with fixed rates, meaning your interest rate will stay the same over the life of the loan. It is possible, however, to get a variable-rate personal loan. Check out our guide to fixed vs. variable rate loans to figure out which is right for you.
Terms for Personal Loans
Personal loan terms vary by lender, but you can typically take out a loan with a repayment term of one to seven years. The faster you pay it off, the less you’ll pay in interest — but your monthly payments will be much larger. 💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.
Car Loans
When buying a new or used car through a dealership, the dealer’s finance department can help you find a loan through a bank or credit union. Alternatively — or when buying from a private seller — you can shop around for a car loan from various banks and credit unions on your own.
Auto loans are usually secured loans, meaning the car you’re buying serves as collateral. This means, if you fall behind on payments, the lender can repossess your car. (It’s possible, but less common and more expensive, to get a car loan without putting the car up as collateral.)
How Interest Rates Work on Car Loans
The collateral on the car loan reduces the risk to the lender, which usually results in a lower interest rate. Still, auto loan interest rates depend on your credit score.
Car loan rates for both new and used cars have increased in recent years, but they’re still typically lower than the average personal loan rate. Notably, car loan refinancing rates are lower than regular financing rates.
Terms for Car Loans
Like personal loans, car loans might stretch 84 months (that’s seven years), but some are as short as 24 months (two years). Also like personal loans, it’s common to repay your car loan over three to five years. 💡 Quick Tip: In a climate where interest rates are rising, you’re likely better off with a fixed interest rate than a variable rate, even though the variable rate is initially lower. On the flip side, if rates are falling, you may be better off with a variable interest rate.
Can You Use a Personal Loan to Buy a Car?
Yes, you can use a personal loan to buy a car. In fact, you can use a personal loan for (almost) anything. However, it often makes more sense to get traditional vehicle financing when buying a car.
Recommended: Personal Loan Calculator
Is It Better to Get a Personal Loan to Buy a Car?
In some ways, it can be better to buy a car with a personal loan. You don’t have to stress about saving up for a down payment, there’s no risk of your car being repossessed, and you might even have more negotiating power at the dealership.
However, many buyers prefer the structure of an auto loan. These loans tend to be cheaper in the long run because of the lower interest rates. And they’re easier to get — both because of lower credit score requirements for car loans and because dealerships can help you find the best car loan for you.
Pros & Cons: Car Loan vs Personal Loan
Buying a car with a personal loan instead of an auto loan has its share of advantages, but there are also drawbacks to consider.
Pros
• Less risk: When you take out a car loan, the car itself serves as collateral for the loan. If you miss enough payments, the lender could repossess your vehicle. With an unsecured personal loan, you don’t face that risk, though there are still consequences if you default on a personal loan.
• More negotiating power: When you don’t have to go through the hassle of securing financing, the car buying process is much easier and faster for you and the dealer. That means you might be able to negotiate a better deal, like a discount for paying in full.
• Lower insurance costs: When financing a car, the lender may require you to carry comprehensive, collision, and gap insurance. But when you pay for the vehicle outright with the funds from your personal loan, no one can require you to carry those car insurance coverages.
• No need to save for a down payment: Personal loans don’t require a down payment. Though some have origination fees, you might even be able to roll those into the cost of the loan. That means you could use a personal loan to get a car with no money down.
Cons
• Higher cost: Interest rates are typically higher for personal loans, which means you’ll end up spending more money on your car in the long run than you would if you got traditional auto financing. Origination fees for personal loans may also be higher than they are for car loans.
• Higher credit score requirements: Because auto loans are secured by the vehicle being financed, lenders are a little more willing to work with lower credit scores. The credit score you need for a personal loan is typically higher (around 670), though this varies by lender.
• More insurance risk: There may not be an auto lender requiring you to carry comprehensive, collision, or gap insurance, but declining those coverages just because your personal loan lender doesn’t mandate them could open you up to a lot of risk. If your car is totaled and you don’t have the proper coverage to get reimbursed, you’ll still be on the hook for making your personal loan payments — so think carefully before minimizing your car insurance coverage.
The Takeaway
Both auto loans and personal loans can help you get behind the wheel of a new (or used) daily driver. Determining which type of loan is right for you comes down to your needs and preferences.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
Is it easier to get a personal loan or car loan?
Getting a car loan is usually easier than getting a personal loan. That’s because car loans are secured by the vehicle you’re buying. That means less risk to the lender, who will be willing to accept lower credit scores.
Should I take out a personal loan to buy a car?
While you can get an auto loan through a bank, credit union, or the dealership, you can also pay for a car with a personal loan. Personal loans reduce your risk — there’s no chance of your car being repossessed — and they may give you more negotiating power. However, personal loans typically cost more in the long run.
Am I allowed to use a personal loan to buy a car?
Yes, you can use a personal loan to buy a new or used car. In fact, you can use personal loans for just about anything. Just read the fine print of any loan agreement to make sure.
Photo credit: iStock/skynesher
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Explore car buying in 2024, from Carvana’s process to the electric vehicle surge and how to maximize your car’s sale value.
Budgets Beyond the Numbers: How do you manage the emotional aspects of budgeting? What’s the car buying market like in 2024? Hosts Sean Pyles and Elizabeth Ayoola discuss personal budgeting and the future of car buying to help you understand how to navigate financial decisions with confidence. They begin with a discussion of budgeting “beyond the numbers,” with tips and tricks on categorizing expenses into their emotional impacts to make budgeting feel more personal.
Today’s Money Question: Is Carvana a good service? Should you buy an electric vehicle if you’re in the market for a new car? NerdWallet autos writer Shannon Bradley joins hosts Sean Pyles and Sara Rathner to delve deeper into the future of car purchases and the electric vehicle revolution. They explore the evolution of electric vehicles, the current state of the car market for both buyers and sellers, and strategies to get the best deal when selling your vehicle. The conversation aims to provide insights on choosing the right time to buy an electric car, understanding the market dynamics, and ensuring a smooth car selling experience.
Check out this episode on your favorite podcast platform, including:
NerdWallet stories related to this episode:
Episode transcript
This transcript was generated from podcast audio by an AI tool.
Sean Pyles:
What’s in a budget? If you look at the 50/30/20 budget, you have your needs, wants along with extra debt payments and savings. But we all know a budget can be much more than that. We get into it this episode. Welcome to NerdWallet’s Smart Money Podcast, where we help you make smarter financial decisions, one money question at a time. I’m Sean Pyles.
Elizabeth Ayoola:
And I’m Elizabeth Ayoola.
Sean Pyles:
This episode we answer a couple listeners’ questions about car buying and selling, including what to know about the electric car market right now. But first, we’re exploring what’s really in a budget beyond the numbers and Elizabeth, this is something that you are especially interested in, right?
Elizabeth Ayoola:
I am, Sean, because budgeting gets a bad rep, but it can be fun too, especially when you have something you really want and are working towards, but it can be equally stressful. I’m not going to deny that.
Sean Pyles:
Totally. When people hear the word budget, they might just think about numbers in a spreadsheet or about restricting themselves from purchasing something that they want. Neither is really fun. And don’t get us wrong, we are still big proponents of having a budget and we think the 50/30/20 budget, where you have half of your income going towards needs, 30% going towards wants and 20% going towards extra debt, payments and savings, can be a really accessible and flexible framework for most people, but it doesn’t get to the more personal parts of our finances. So Elizabeth, you like getting into those deeper parts of a budget and you do this by breaking it into three general categories: something stressful, something exciting, and something confusing. Can you talk about why you are thinking about your budget in this way and what’s the purpose of each category?
Elizabeth Ayoola:
So I feel like by doing this, it gives our budget some personality, it creates some interesting conversation around our budgets. I think we all know that budgets can be monotonous, so breaking it up like this helps me stay engaged with my budget and also have something to feel excited about. You know what I’m saying, Sean? So the confusing one especially is a chance for me to challenge myself to untangle areas of my budget where I’m winging it or I’m just disorganized and usually I’m winging it or disorganized because I’m overwhelmed and don’t understand something.
Sean Pyles:
This reminds me of a game that I sometimes play with my friends called Rose, Thorn, and Bud. The rose is something good that happened to you, the thorn is as you might expect, something that’s a little bit thornier or unpleasant and the bud is something that is in progress or something that you are excited about. This is kind of like that, but for your finances, it’s a way to categorize items of your budget under broader themes, which can help you process them in that more personal and emotional way. Is that how you think about it too?
Elizabeth Ayoola:
Exactly. You just put it in a fancy way. Thank you, Sean.
Sean Pyles:
Thank you.
Elizabeth Ayoola:
And I also have a new game that I’m playing with my friends because I’m stealing your idea.
Sean Pyles:
Happy to hear it.
Elizabeth Ayoola:
As of recent, I’ve been asking them when I go on girlfriend dates, what’s one thing they hope happens this year? But I’m definitely going to swap it out for your idea.
Sean Pyles:
Oh, I love that. Well, to help our listeners understand this way of thinking about budgeting, Elizabeth, I would love to hear what you are finding stressful, exciting, and confusing in your budget right now?
Elizabeth Ayoola:
As a recovering over sharer, I am definitely going to share that. So let’s start with stressful. Start with the worst, a moving budget. So just please anybody rescue me on a red carpet and make sure you bring a margarita with you because moving is stressing me out. I’m trying to make the move as cost-effective as possible because it’s looking like I’m going to spend a couple of thousand dollars right now and that’s really hurting my feelings.
Sean Pyles:
Yeah, it’s a lot of money.
Elizabeth Ayoola:
So now let’s get into the exciting thing, a love sack. I don’t know if any of our listeners or you, Sean, have heard of love sacks before, but they’re essentially these giant beanbags and in my fantasy of living out the Bohemian dream in my household, I have something like a love sack where I can read books and watch Netflix and do whatever else I want to do on it. So I’ve wanted one for years, but they are pretty pricey. They can start around the $900 range and go up to a thousand dollars, but I am budgeting for that and I’m looking forward to it. The only thing I’m worried about is my son putting his Cheeto hands all over my stuff.
Sean Pyles:
That’s a fair concern. Also, you might want to wait to get that until after you’re moved because that would be just one other thing to haul across state lines.
Elizabeth Ayoola:
Oh fact, I’m definitely not buying that now, so I’m going to buy it once I move. So it’s also giving me more time to save towards it or to budget for it. Another exciting thing I’m also budgeting for is to go to Nigeria. So I am Nigerian for the listeners and I haven’t been since I had my son maybe like four or five years ago, and he’s been asking me to go. That’s kind of what inspired the trip, but it does cost a couple of thousand dollars, so I’m budgeting towards that as well, but excited. And lastly, what is confusing? Balancing business and personal budgets at the same time is very confusing for me right now.
So I’m trying to kind of figure out how much to put towards retirement saving because my expenses just keep changing and I’m also trying to ensure that I don’t commingle, which is when you’re mixing kind of your business finances with your personal because we don’t want the IRS to come knocking. So all these kind of things are just confusing and maybe a little bit stressful as well. Then lastly, my son is going to a private school in August, so my budget is going to change. I’m trying not to be hard on myself because I really like saving big chunks of money and him going to private school might mean I have to save less, but it’s all good.
Sean Pyles:
See, I feel like this really shows how your budget is being enacted to help you meet the short and long-term life goals that we talk about so much on Smart Money and also the various emotions that come with meeting your goals or trying to meet them and the compromises that are just inherent in this conversation you have with yourself and your finances. Also, Elizabeth, last week you said that you were financially boring, and I’m going to say that all of these things are interesting. I’m especially excited about your trip to Nigeria, so let me know how that goes. And also let me know where you land on your savings when your son starts private school.
Elizabeth Ayoola:
Of course, I’m going to share that with you guys, so watch out for that. It has been so long since we’ve been to Nigeria, so we’re looking forward to it. And private school, well all the listeners with kids know that kids swallow up your dollars, but I hope to get a good return on investment on this. So what are yours, Sean? Tell me about your things that are stressful, exciting, confusing.
Sean Pyles:
Okay, well this is where I reveal that I am actually boring. Something stressful is that I’m in the middle of a season of travel right now, which is not boring. It’s very exciting actually. But I went down to San Francisco for a concert a couple of weeks back and I’m about to fly out to the East coast to see some friends in New York and DC and it’s going to be great to see these friends and it was great to see San Francisco again where I lived for many years, but boy, oh boy, traveling is very expensive. It’s much more expensive than working from home day in day out and the adjustment from making my breakfast every morning and having my coffee and a nice little ritual for myself, going from that to spending $20 on the sandwich and a coffee every single morning is a little bit painful and a little bit stressful for my budget, but I’ll make it work.
And then something exciting, this might be a little bit premature because it’s not actually going to happen for nine months, but I’m getting relatively close to paying off my car. I’ve had this car loan since 2020 and I know I took a longer car loan than we typically recommend, but that’s just where my finances were at the time. And I’m kind of lucky to have a pretty affordable car payment. But I am also very excited about having that extra $350 that I pay for my car each month back in my budget, even though I will likely direct most of that into my car savings bucket. Confusing? To be honest, nothing is too confusing for me right now fortunately, but as ever, I am in this continual dialogue with myself and my ADHD impulses that tell me to buy random things that I sincerely do not need. And what’s helped me recently to shake myself from buying things online is just asking what do I expect this thing to do for me? And the answer is usually nothing meaningful. So that helps me break the spell.
Elizabeth Ayoola:
Oh, I love that. And I can relate with you re ADHD. I think in a previous episode I told y’all that I was emotional buying and I’m so glad to update y’all that that has stopped.
Sean Pyles:
Oh, congratulations.
Elizabeth Ayoola:
Thank you. No more random Zara shops every other week. So I’ve been doing pretty good and I can understand what you’re saying, re travel because I have lots of upcoming trips as well and it’s so expensive. But Sean, I’m excited about the car. $350 a month sounds really good to do something else with. And that’s about how much my payment is too. So I’m going to tap into your excitement and hopefully I will be there next year.
Sean Pyles:
Manifesting that for us, yes. Well listener, I hope this exercise has helped you think about your own budget in a new way. Before we get into this episode’s money question segment, let’s check in on our nerdy question of the month, which is what is your weird money habit, behavior, or principle that you live by?
Elizabeth Ayoola:
Here’s one weird money habit that a listener texted us. I just listened to your podcast of a person with dozens of credit cards. I’m one of those individuals too. To be clear though, the only balances I carry are those on temporary 0% promo offers and ones that are paid off monthly. My system is to carry five to six cards in my wallet and rotate them, then return those cards to the bottom of my home credit card stack. Another side gig hobby I do is entering sweepstakes online daily. It’s an easy but exciting activity that can lead to surprise winnings at any given time. My biggest win to date is $24,000 minus taxes, of course. That’s a large chunk of cash.
Sean Pyles:
Oh, that’s an interesting one. Thanks for sharing that. So listener, let us know: what is your weird money habit? Do you only use cash for all of your transactions or are you a hardcore credit card point maximizer?
Elizabeth Ayoola:
Or maybe you have 10 billion bank accounts like Sean. Okay, he just has 10. It’s not 10 billion, it’s just 10.
Sean Pyles:
I didn’t really think that was weird until recently. I was talking with a friend who was considering getting her very first high yield savings account, and she looked at me like I had two heads when I mentioned that I have 10 accounts. So maybe that’s also a good way to think about this. What is something that you do with your finances that seems maybe totally normal to you, but everyone else around you thinks is a little bit off? We want to know.
Elizabeth Ayoola:
Yes, we do. So tell us your weird money habit by texting us or leaving a voicemail on the Nerd hotline at (901) 730-6373. That’s (901) 730-N-E-R-D. Or you can email us a voice memo at [email protected].
Sean Pyles:
And while you’re at it, send us your money questions too. We know how confusing money can be and we want to help you make smarter financial decisions. And a quick reminder that we are running another book giveaway sweepstakes ahead of our Nerdy Book Club episode.
Elizabeth Ayoola:
Our next club guest is Jake Cousineau, author of How to Adult: Personal Finance for the Real World. The book offers tips to young people on how to get started with managing their money.
Sean Pyles:
To enter for a chance to win our book giveaway, send an email to [email protected] with the subject ‘book sweepstakes’ during the sweepstakes period. Entries must be received by 1159 P.M. Pacific Time on May 17th. Include the following information: your first and last name, email address, zip code, and phone number. For more information, please visit our official sweepstakes rules page. All right, now let’s get into this episode’s money question segment with our co-host, Sara Rathner, after a quick break, stay with us.
We’re back and answering your money questions to help you make smarter financial decisions. This episode we’re taking on a couple questions about cars, how to buy and sell them, and how electric vehicles fit in. And we’re joined by NerdWallet autos writer Shannon Bradley to help us navigate the winding roads of car buying in 2024. Shannon, welcome back to Smart Money.
Shannon Bradley:
Thanks for having me back. Let’s get to the first listener’s question. This comes from a voicemail.
Listener Voicemail:
Hello. The reason I’m calling is we were wondering what do you think about the company Carvana? We’re thinking about selling our vehicle to them because if we maybe try to sell it at a car dealership or something, we’re not really thinking that we’re going to get a good deal for it. But we don’t know as far as us selling a vehicle to them, not us purchasing one from them, if they’re reputable with regards to that. We’ve never used them.
Sean Pyles:
So Shannon, can you start by giving us a quick explanation of how Carvana works?
Shannon Bradley:
Yeah. Carvana is an online only car retailer and they sell and buy used cars only. They also take trade-ins. And based upon the listener’s question, I think the most important thing is that you can request an offer for your car right on the Carvana website as long as it’s a 1992 model or newer. And it’s a pretty simple process. They’re going to ask you for your 17 digit vehicle identification number, more commonly known as your VIN, or your license plate number. They’re going to ask you for mileage, the vehicle condition, vehicle options, and then if you have a loan or a lease on the car, they’ll ask you for information about that too.
Sara Rathner:
So other than Carvana’s iconic car vending machines that you see dotting the landscape in different cities, what makes it different from going to a dealership or to CarMax?
Shannon Bradley:
Well, let’s talk about CarMax first. CarMax is an online retailer too, and they’re very similar to Carvana. I think one of the biggest differences when you sell your car between the two is how you get your car to the retailer. With Carvana, you can finalize the entire sale remotely. They will come to your house, they’ll pick up your car, do the inspection there. You do have to be within one of their service areas, and there could be a small fee depending upon how far you are from their hub. CarMax, on the other hand, they offer pickup, but only at limited locations in four states.
So more than likely you’re going to have to take your car to a CarMax store for inspection. And depending upon where you live, that could be quite a distance. So if you compare these types of online retailers to a dealership, I think two of the biggest differences are convenience and being able to negotiate what’s offered for your car. Again, with Carvana, you can potentially complete the entire process of selling your car right from your home, but when you get an offer from Carvana or CarMax, it’s not negotiable. Whereas if you sell to a dealership, you can attempt to negotiate that offer.
Sean Pyles:
So car buying and selling is a notoriously frustrating process. Are there any common complaints about how Carvana handles this process that maybe are distinct from other ways of buying and selling a car?
Shannon Bradley:
On the selling side, I’m not aware of too many complaints. In fact, it was kind of funny, over the weekend I had a friend on Facebook ask this very question, and so I was monitoring responses of people and they were saying that it was a fast and easy process to sell their car to Carvana. On the buying side, I think the thing is, you have to remember that when you buy a car from Carvana, you can’t test drive it, you can’t inspect it. And on occasion, I’ve heard of people receiving a car that they didn’t feel really matched what was represented online. But I think the thing to keep in mind there is that Carvana offers a seven-day money-back guarantee with a limit of 400 miles. So when you get your car, just take that time to really test drive it and get a very thorough inspection done.
Sean Pyles:
So people go with Carvana because it seems like a really easy way to buy or sell a car and you can potentially just have the car dropped off at your front door. But that doesn’t mean that you still don’t have to do your due diligence and then get that inspection to make sure the car is as good as they are telling you it is.
Shannon Bradley:
Yes, exactly. They will allow you to, I think return up to three vehicles. There is some leeway there. And then the other thing that I was just going to mention, because I think a lot of people have heard about this because there was a lot of media coverage about it. This was in late 2022, early 2023, there was an issue with Carvana buyers. They would buy a car, they didn’t get their title in a timely manner, and so they couldn’t even register and drive the cars. And that’s something that our autos team has been monitoring. It doesn’t seem to be the issue that it has a year ago, but we still recommend for people to ask for proof of title. It’s just given that there were issues a year and a half ago, it’s just not a bad idea to do that.
Sara Rathner:
So our listener, like so many others, is interested in getting a good deal when selling their car. Do we know if places like Carvana offer better or worse deals than other places where you can sell your car?
Shannon Bradley:
Well, when you compare Carvana to CarMax, I’d say that’s kind of a toss-up. I think a lot depends on the vehicle you’re selling. Is it one that the retailer needs in their inventory at that time? And if it is, they may be more inclined to make you a better offer, but that’s why it’s so important to get more than one offer. And then you asked about dealerships. Traditionally you can get more selling your car to an individual, but of course that’s not going to be as easy as selling to someone who’s going to come right to your door and pick it up or even being able to go to the dealership down the road, but dealerships, their offers tend to be the lowest. But again, it depends on the car that you’re selling. Right now we’re seeing that both new and used cars are low inventory for Toyota. So if you have a type of car that a dealer is really needing on their lot, you may be able to negotiate a better deal.
Sean Pyles:
So the car market has been on a wild ride over the past few years, really since the pandemic began. So what is the car market looking like right now both for buyers and sellers?
Shannon Bradley:
Well, I would say wild ride is kind of an understatement. As someone who’s been covering the car market for the last three years, it has been a wild ride. It is not back to where it was before the pandemic. But from a car buyer aspect, several things are improving. For one, inventory is returning to normal. And actually you have some auto manufacturers who have overshot and are overstocked and those particular manufacturers, they’re starting to offer incentives again. We’re hearing you may be able to negotiate below the manufacturer’s suggested retail price, which was really unheard of during the pandemic. And then on the downside, we all know how vehicle prices are still high. I think actually this morning I saw that the average transaction price for a new vehicle is still at $47,000. That’s not small change by any means.
Sean Pyles:
No, it’s a lot of money.
Shannon Bradley:
But you can find deals out there, especially if you’re flexible about what you’re buying. And then leasing has some good deals. And if you buy or lease an EV right now, you could qualify for the federal tax credit of up to $7,500 on top of the other incentives that are out there.
Sara Rathner:
So how about sellers in the current climate? How are things looking for people who are selling their car right now?
Shannon Bradley:
Well, I would say they’re not faring quite as well as the buyers. Depends on what you’re selling, but if you recall, during the pandemic the vehicle shortage meant that individuals were actually selling their cars for a lot more than they paid for them. And with car supplies returning to normal for most manufacturers, selling isn’t what it was during the pandemic. You shouldn’t anticipate a huge profit like we were seeing in the past several years, but you should expect to receive a fair price and you can do that by researching the current market value of your car.
Sean Pyles:
So how can people get the most money for their vehicle?
Shannon Bradley:
Well, I go back to research. Research is key. If I was selling my car right now, I definitely wouldn’t put all of my eggs in one basket. If you get only one offer, which is something a lot of people do, they just don’t want to take the time to get more than one offer, you won’t ever know if there was a better offer out there. And the thing is, nowadays, it’s easy to do your research. You have online pricing guides where you can find estimates like Edmunds or Kelley Blue Book. And as we’ve been discussing, you can request actual offers from sites like Carvana, CarMax or TrueCar. And there’s not any cost or obligation to do that. Something we recently launched at NerdWallet, we can also make an offer on your car. We now have NerdWallet Automotive and you can find that when you Google NerdWallet buy my car.
Sean Pyles:
Alrighty. Well now let’s turn to the next question, which comes from a listener’s text message. They wrote, what is the fuel of the future? I’ve been researching about buying a new car and they’re saying that cars in the future are going to be electric, but if there’s a new fuel of the future, should I just wait until the new fuel comes out or just buy an electric car now? So Shannon, if you don’t mind, please bring out your crystal ball or industry research and tell us is there a new fuel of the future or does it seem like electric vehicles are the automotive energy of the coming years?
Shannon Bradley:
Well, we’re hearing a lot about research of different alternative fuels like natural gas, propane, or hydrogen fuel cells, which is really just another way of generating electricity. But these are all really in their early stages of development and adoption. So while I think development of various ways to lower vehicle emissions will definitely continue, my crystal ball says that in the near future, the emphasis will still be on EVs.
Sara Rathner:
And is that because EVs have just been around longer and have an advantage in the market over these other fuel types?
Shannon Bradley:
Yes, Sarah, it is. Many people don’t realize that the first electric vehicles were actually introduced in the late 1800s, then they kind of fell by the wayside and interest renewed in the 1970s. So it’s actually taken a long time for us to reach a point where electricity is accepted as a fuel source as it’s becoming today. According to Kelley Blue Book, EVs represent the fastest growing car sales category, and last year nearly 1.2 million U.S. vehicle buyers went electric. We don’t expect that pace to slow down with federal and state legislation as well as so many car makers devoting many resources to the transition to EVs. I just don’t see a quick pivot to other fuel sources that are going to take more time to build that infrastructure and to build that adoption rate.
Sean Pyles:
So the EV market has been developing rapidly over the past few years, but many anxieties that would-be buyers might have around electric vehicles like range, affordability, finding chargers are pretty persistent. Have any of these issues gotten better?
Shannon Bradley:
They have gotten better. For comparison, before 2016, when you’re looking at range, the median range of a new EV was below 100 miles and the top performing option couldn’t travel 300 miles without a charge. Today you can buy an EV that has a 250-mile range for less than $40,000 and the high-end models can have a range of more than 400 miles per charge. When you’re talking about the charging infrastructure, that’s improving too. We now have about 60,000 charging stations across the country, and that’s more than twice the number that we had five years ago. And there are a lot of incentives out there to help with installing home chargers, like from some auto manufacturers or your local electric company.
Sara Rathner:
What about the price of these cars? EVs are generally more expensive than gas powered cars. Is this changing?
Shannon Bradley:
That’s improving too. I think the Tesla price drops have driven other car makers to follow suit. There are a lot of EV incentives out there to help reduce the cost. As I said earlier, you could qualify for the federal tax credit of up to $7,500 and that can usually be stacked with other incentives from car manufacturers, state and local government and electric companies. The U.S. Department of Energy actually has a site, you can find it by searching alternative fuels U.S. Department of Energy, that has a database where you can research all of the various incentives that are available. Late last year, I talked to someone who was an EV buyer in California and he used multiple incentives to knock $8,000 off the price of a Chevy Bolt. And then right now there are a lot of EV leasing deals, and that’s a great option if you’re someone who just isn’t sure that you want to go ahead and buy an EV right now.
Sean Pyles:
Okay. So Shannon, I have to ask you, as a consumer and also someone who writes about this stuff a lot, how are you thinking about electric vehicles? Have you made the jump or are you planning to?
Shannon Bradley:
I haven’t made the leap yet, but it isn’t because I don’t want one. I’m pretty frugal with my money and I bought a gas-powered car right before the pandemic, so I was able to buy it before car prices skyrocketed. And I’m in a fortunate position right now where I’m no longer supporting children. I was receiving, like everyone, stimulus funds during COVID, so I was able to pay down that car and I actually don’t have a car payment right now. I am environmentally conscious. So I think that eventually I will buy or lease an EV, but for right now, I’m enjoying taking a vacation from car payments and putting that money into my retirement savings.
Sean Pyles:
Well, that does sound like a very smart financial decision. I’ll say that. Well, Shannon, thank you so much for joining us on Smart Money.
Shannon Bradley:
Well, thanks for having me.
Sean Pyles:
And that is all we have for this episode. Remember, listener, we are here for you and your money questions. So if you have anything that you want the Nerds to help you out with, call us or text us on the Nerd hotline at (901) 730-6373. That’s (901) 730-N-E-R-D. You can also email us at [email protected]. Also visit nerdwallet.com/podcast for more info on this episode. And remember to follow, rate and review us wherever you’re getting this podcast. This episode was produced by Tess Vigeland who also helped with editing. Sara Brink mixed our audio. And a big thank you to NerdWallet’s editors for all their help.
Sara Rathner:
And here’s our brief disclaimer, we’re not financial or investment advisors. The nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Sean Pyles:
And with that said, until next time, turn to the Nerds.
When you think about the cars wealthy Americans choose to drive (or choose to have someone drive for them), you probably imagine customized Bentleys, Rolls Royces, Ferraris, and Lamborghinis. And in some cases, you’d be right. Those luxury car brands — along with BMW, Mercedes-Benz, and Audi — are popular with the rich and very rich in the U.S. and worldwide.
But they aren’t the car brands of choice for all high-income consumers. Some of the wealthiest people in the U.S. are driving vehicles from manufacturers that might surprise you, including Fords, Toyotas, and Hondas.
Read on for a look at the surprising car brands that rich Americans are buying and why.
What Is a Luxury or “Rich People” Car Brand?
Brands that are popular with wealthier car buyers typically have a reputation for superior performance, craftsmanship, high-quality materials (inside and out), and advanced technology. They also may have extra amenities to make them more comfortable and attractive, and to provide a better driving experience.
Luxury car brands also generally offer a higher level of customer perks, such as extended warranties, complementary maintenance, roadside assistance, and concierge services.
Of course, cars from more prestigious brands have higher price tags. New cars range from $40,000 to more than $100,000 — and over $500,000 for a higher-end brand like Rolls-Royce. Before you settle on any particular brand or model, you’ll want to determine how much you should spend on a car. 💡 Quick Tip: When you have questions about what you can and can’t afford, a money tracker app can show you the answer. With no guilt trip or hourly fee.
Check your score with SoFi
Track your credit score for free. Sign up and get $10.*
Examples of Popular Luxury Car Brands
Several long-standing carmakers — and a few newer brands — are known to appeal to high-earning drivers:
• Acura A division of Honda, Acura made the first true Japanese luxury car sold in America. Like Genesis below, Acura is known for offering buyers more bang for their buck.
• Audi The German car manufacturer began gaining popularity stateside in the 1970s, and grabbed even more fans in 1980 when it unveiled the innovative Quattro, an all-wheel-drive sport coupe.
• BMW Another German company, BMW sold 362,244 vehicles in 2023, setting a new annual record for the brand in the U.S. BMW is the best-selling luxury auto worldwide.
• Cadillac Cadillac is America’s most prestigious domestic luxury automaker. Owned by General Motors, the brand has long been a favorite of older drivers. Models that appeal to younger buyers include its Escalade SUV and CTS sport sedan.
• Genesis Genesis is a newer car brand (launched in 2009) that built its reputation by offering luxury at a competitive price. Its parent company is the Korean automaker Hyundai.
• Land Rover The Land Rover brand, which began in England but now is owned by the Indian automaker Tata Motors, sells only SUVs. Its iconic Range Rover debuted in America in 1989.
• Lexus Owned by the Japanese automaker Toyota, the carmaker was named the most reliable of all car brands in 2023 and 2024 by J.D. Power Associates. Lexus is known for its upscale designs, comfortable cabins, and a smooth, quiet ride.
• Mercedes-Benz The German company, which has been making cars for more than 100 years, is known for its loyal fan base, attention to detail, and focus on customer service and comfort.
• Tesla Tesla Motors is an American car brand that makes vehicles that run on electricity.
What Car Brands Are Rich Americans Choosing?
Luxury brands like BMW, Mercedes-Benz, and Lexus are among the most popular with wealthy American car shoppers who are looking for reliability, prestige, extra amenities, comfort, and top customer service. And Teslas, which range in price from about $43,000 to well over $100,000, remain among the top-selling electric vehicles in the U.S.
But the line between luxury and mainstream brands is blurring, according to the car-shopping website Edmunds. Carmakers like Ford, Volkswagen, and Mazda are adding more upgraded models to their lineups, while high-end makers are offering smaller and more affordable cars.
And then there’s a much-publicized report from Experian Automotive, which found more than 60% of Americans who earn $250,000 or more aren’t sticking strictly to luxury brands. When Experian crunched the numbers in their huge database to see what wealthier folks choose to drive, it turned out there were three Honda models, a Toyota, and a Volkswagen on their Top 10 list.
Rich and famous car buyers also tend to like their pickup trucks. And though the Tesla Cybertruck is the new celeb must-have, you might also see photos of Dwayne “The Rock” Johnson or Lady Gaga driving their Ford F150s, Sean Penn gassing up his Nissan Titan, or Ben Affleck in his Dodge Ram 2500.
Recommended: Car Value vs Truck Value
Pros and Cons of Luxury Car Brands
There are many reasons why people long to drive a luxury car — from the prestige to the performance to the high-end amenities and potential add-ons. But there are pros and cons to buying the kind of cars rich people often own:
Pros
• High-end brands are generally known for their reliability and advanced technology.
• Because luxury cars can quickly depreciate in value, used models can be found at bargain prices — especially if you’re buying a high-mileage car.
• Luxury car brands often offer a more comprehensive warranty and other customer perks.
Cons
• The cost of a high-end car can get in the way of important financial goals or keep you from enjoying things you care about, like good food and wine.
• Luxury models tend to depreciate in value much faster than mainstream cars.
• A luxury car can cost more to insure, and when the warranty runs out, it will likely cost more to repair.
Recommended: Should I Buy a New or Used Car?
Popular Alternatives to Rich Car Brands
While you’re saving up for a car, and before deciding which car brand you hope to purchase, take time to prioritize what you want from your ride. You may find you can get what you’re looking for without paying luxury prices. For example…
• Safety First According to the Insurance Institute for Highway Safety, 2024’s safest cars include models from Kia, Honda, Mazda, Toyota, Nissan, and Subaru.
• Luxe Interior U.S. News & World Report named Volvo, Chevrolet, Ford, Hyundai, GMC, Kia, Jeep, and Honda among the car brands with the nicest interiors in 2023.
• Designer Chassis The Toyota Prius, Honda Accord, Hyundai Santa Cruz, Kia Soul and EV6, Jeep Wrangler, Mazda 3, and Ram 1500 all made U.S. News & World Report’s list of the best looking cars of 2023.
• Most Reliable When Consumer Reports road-tested and ranked 34 car brands this year, the top 10 included Subaru (#2), Honda (#4), Mini (#6), Kia (#7), Mazda (#8), Toyota (#9), and Hyundai (#10).
• Biggest Bang for Your Buck Honda and Kia had the most models on U.S. News & World Report’s list of the “2024 Best Cars for the Money.”
💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.
Tips for Choosing a Car Brand
If you’re set on buying a luxury car, or if you’re still trying to decide which brand or model is right for you, here are a few things to consider:
• Does the luxury car brand you’re looking at offer something you can’t get from a mainstream carmaker? It can help to test-drive cars from a few different brands to compare the features that are most important to you. You might end up confirming your decision to go with the luxury brand. Or you may find a mainstream model that offers high-end comfort and performance but at a more competitive price.
• Do you plan to hold onto the car for a while, or will you sell it in a few years? Some luxury brands and models tend to lose value more quickly than others. (Here’s how to spot a good car-value estimate.) So you may want to research your top picks before you sign on the dealer’s dotted line and drive your new car off the lot.
• Could you be satisfied with a used car from your favorite luxury brand? Because luxury brands tend to depreciate faster, you may be able to find a used model that’s much more affordable than buying new.
• Can you afford it? Before you fall in love with that pricey BMW or Benz, you may want to take a look at another “b” word: your budget. Using a free budget app can help you figure out how much you can spend on your down payment, monthly car payment, and auto insurance costs, and if those costs will mesh with your other expenses and financial goals.
The Takeaway
Purchasing a luxury car is mostly an emotional decision: You buy one because you want it, not because you need it to get around.
If you’re rich, and you can afford to pay for the perks and prestige of an upscale brand, you may not give the cost a second thought. But even some wealthier car buyers are choosing mainstream brands, perhaps because they’ve found a model they want or they don’t care about the extras or the label.
How can SoFi help? Just as with any major purchase, it’s a good idea to do some research before you buy your next car. SoFi Relay can help you track your spending, monitor your credit, build a budget, and more. Once you run the numbers and know where you stand, you can feel more confident about your purchase, no matter what car you decide to buy.
See exactly how your money comes and goes at a glance.
FAQ
Which car brand is driven most by millionaires?
Though wealthy consumers are known for buying luxury car brands like Rolls-Royce, Mercedes-Benz, Jaguar, or Porsche, you might also find them driving mainstream brands such as Honda, Toyota, and Ford.
What is the most common car for rich people?
BMW is the best-selling luxury carmaker in the world.
What percentage of millionaires choose to buy used cars rather than new cars?
In their 2010 book The Millionaire Next Door, authors Thomas J. Stanley and William D. Danko state that nearly 37% of the millionaires they surveyed reported buying used cars. But in some cases, a millionaire’s “used car” may be one of several vehicles the driver owns, or even part of a collection of classic or vintage autos.
Photo credit: iStock/mevans
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Minority-owned banks and credit unions, classified as Minority Depository Institutions (MDIs) by government agencies, are financial institutions where most board members or stockholders are people of color.
MDIs play a crucial role in helping underserved communities. While such institutions don’t solely lend to minorities, they tend to provide more loans and accounts to minority communities than non-minority-owned banks do, according to data from the Federal Deposit Insurance Corp. This is particularly important because members of minority communities, like African Americans, often lack access to financial services and are typically underserved by financial institutions.
Supporting Black-owned or Black-led financial institutions and lenders by doing business with them can help minority communities economically.
Black-owned and Black-led auto lenders
Note that the lenders are listed alphabetically.
Adelphi Bank
Primary location(s): Columbus, Ohio
Good for: Borrowers in Franklin County, Ohio, who want to bank with an institution that empowers the local community. Note that Adelphi is a newer institution that primarily provides commercial lending and, according to a spokesperson for the bank, has only approved a handful of auto loans thus far.
Alamerica Bank
Primary location(s): Birmingham, Alabama
Good for: Residents of Birmingham, Alabama, with great credit scores. Alamerica only provides auto loans under exceptional conditions, and applicants must have good credit scores to apply. The bank does not offer prequalification and does not provide refinance loans.
Andrews Federal Credit Union
Primary location(s): Maryland, New Jersey, Northern Virginia and Washington, D.C.
Good for: Military service members based on the East Coast. The credit union also serves nonmilitary personnel who meet other eligibility requirements, like working for one of its employer groups. In addition to loans for traditional vehicles, AFCU offers financing for new and used boats, motorcycles and recreational vehicles (RVs).
Citizens Trust Bank
Primary location(s): Alabama and Georgia
Good for: Veterans and first-time car buyers in Alabama and Georgia. Citizens also offers auto refinance loans. While any U.S. resident can apply for a credit card with the credit union, only residents of Georgia or Alabama can apply for consumer loans, like auto loans, through the institution.
Commonwealth National Bank
Primary location(s): Mobile, Alabama
Good for: Residents of Mobile, Alabama, who want to borrow from a local institution. The bank provides loans for all borrowers, with a particular focus on serving its historically underserved African American community. Commonwealth National Bank offers vehicle loans for up to 90% of the vehicle’s value, according to a spokesperson for the bank, and also offers auto loans for motorcycles, motor homes, campers, travel trailers, boats, personal water-crafts and more.
Democracy Federal Credit Union
Primary location(s): Maryland, Virgina and Washington, D.C.
Good for: Borrowers in the D.C. metro area who want a variety of auto loan options and the benefits of credit union membership. In addition to new and used purchase loans, the credit union offers refinance loans and lease buyout loans. Democracy also offers additional benefits like GAP insurance and an auto advantage program that extends borrowers’ manufacturer warranties.
First Independence Bank
Primary location(s): Detroit, Michigan, and Minneapolis, Minnesota
Good for: Detroit or Minneapolis applicants seeking a preapproved car loan with a local bank.First Independence provides car loans as well as financing for recreational vehicles like campers, motorcycles, motor homes, snowmobiles and travel trailers.
First Security Bank and Trust Company
Primary location(s): Oklahoma City, Oklahoma
Good for: Auto loan borrowers in Oklahoma City who want to support the institution’s mission of serving minority communities in the area. The bank gives new and used car loans, as well as refinancing loans.
Primary location(s): Chicago, Illinois
Good for: Individuals who live in Chicago’s South Side community. The bank’s website notes that it aims to serve communities outside of Chicago, in Illinois and nationwide, in the future.
Hope Federal Credit Union
Primary location(s): Alabama, Arkansas, Louisiana, Mississippi and Tennessee
Good for: Borrowers in these southern states with limited or no credit history looking for flexible auto loan terms. Hope also provides financing for RVs, boats and all-terrain vehicles.
Good for: Borrowers in primary locations that the bank serves seeking flexible new and used-car auto loans. Consumers can apply for a Liberty auto loan online or at a local branch. Some of the bank’s auto loan features include the ability to make fixed monthly payments, no prepayment penalty and a credit decision within hours of application.
Mechanics & Farmers Bank
Primary location(s): North Carolina
Good for: North Carolina borrowers who want to buy new or used cars between $7,500 and $75,000. The bank also offers auto loan refinancing. M&F has an “Outstanding” Community Reinvestment Act (CRA) rating from the FDIC, which means that it has maintained a record of meeting the needs of the low to moderate-income communities that it serves.
Municipal Employees Credit Union
Primary location(s): Maryland
Good for: Auto loan applicants in the greater Baltimore region wanting the convenience of an online car buying service and the benefits of credit union membership. Municipal members can use its online vehicle shopping service AutoSMART to search for and compare new and used cars at dealers near them. The credit union provides financing for new and used cars, as well as auto refinance loans.
Optus Bank
Primary location(s): Columbia, South Carolina
Good for: South Carolina residents, particularly those who are historically underserved people and those who were previously unbanked or underbanked.
SecurityPlus Federal Credit Union
Primary location(s): Baltimore and Ownings Mill, Maryland
Good for: Applicants who want flexible auto loan terms and rate discounts. The credit union provides new and used car loans with loan terms ranging from less than 12 months up to 84 months. SecurityPlus also features a 0.25% APR discount for setting up automatic payments.
St. Louis Community Credit Union
Primary location(s): St. Louis County, Missouri
Good for: Applicants in St. Louis County seeking a variety of auto lending options. The credit union offers new and used car loans, both external and internal refinance loans, as well as cash-out refinancing, private party loans and lease buyout loans.
Unity National Bank of Houston
Primary location(s): Texas and Georgia
Good for: Individuals in the bank’s service areas who want a preapproved auto loan from a local institution.
Methodology:We created this index of auto lenders based on lists of “minority depository institutions,” or MDIs, from the Federal Deposit Insurance Corp. and the National Credit Union Administration. The FDIC considers a bank or financial institution to be a MDI if at least 51% of its stockholders are “minority individuals” or most of its board of directors and the community it serves are minorities. The NCUA considers a credit union to be a MDI if more than 20% of its current members, board members and community it serves are Asian American, Black American, Hispanic American or Native American.
The least expensive and potentially easiest way to buy a car with bad credit is to pay cash outright for it. That way, no one even needs to check your credit history, and you don’t pay interest expense of any kind.
However, that’s not a path everyone can take, especially with the rising costs of new and used cars. The average MSRP for a new vehicle in 2023 was $34,876, and used vehicles aren’t much cheaper. The average cost of a used vehicle in mid-2023 was more than $27,000.
Even if you have money saved up and can afford to drop it all at once on a car or truck, if you’re looking to build up your credit for the future, a cash purchase won’t help you with that. So, understanding how to buy a car when you have bad credit might be important. Luckily, we’ve got plenty of tips to help you manage this financial step.
What to Consider When Buying a Car With Bad Credit
Buying a new—or new to you—vehicle can be exciting. But before you show up to browse at a dealership and get caught up in negotiations, it’s helpful to do some research and consider your financial situation. Some things to consider include:
What you can afford. When you don’t have great credit, you might feel like you’re lucky to get a loan. This can lead to taking any deal you’re offered, which might be a mistake. Before you start shopping for vehicles or financing, take a realistic look at your income, expenses, and monthly budget. Know what you can afford to pay each month for a car payment, insurance, fuel, and maintenance, and stick to that budget.
Your deal-breakers. You might not be able to get your dream car, but you also don’t want to get stuck with something that doesn’t work for you at all. Decide on a few deal-breakers, and don’t get talked into a vehicle that doesn’t meet those basic needs just because you think you can get a loan for it. For example, a family of six may not be satisfied with a sedan that seats five, no matter how great the deal or loan terms are.
Your credit. Check your credit so you know where you stand. This can help you understand what type of loan you may be able to get and ensure you don’t run into surprises during the financing step.
Tips for Getting a Car Loan With Bad Credit
Once you understand your personal finances, you can move on to applying for a car loan. Here are some tips for buying a car with bad credit if you need a loan to do it.
Correct Any Errors on Your Credit Reports First
When you review your credit situation, order your credit reports from all three major bureaus. Look for any inaccurate information, particularly any error that might be hurting your credit, and dispute it with the credit bureau.
Get matched with a personal
loan that’s right for you today.
Learn
more
For example, if you see that your credit card company reported a higher balance than you actually carry or that you’re shown as late on a payment when you’ve always paid on time, these issues could be dropping your score unnecessarily. The Fair Credit Reporting Act requires that credit bureaus review your dispute in a timely manner and delete or edit information that turns out to be incorrect.
Addressing inaccurate negative information on your credit report could help you improve your credit, which might help you get a better deal on a car loan.
Pay Down Revolving Credit Card Balances
Another way you might be able to improve your credit is by paying down credit card and other revolving credit balances. This can improve your overall credit utilization rate, which may in turn help increase your score. It also helps make lenders more comfortable taking a chance on you. If you don’t currently owe high balances to others, they may see you as someone who’s more likely to make a car payment on time every month.
Make a Bigger Down Payment
The issue with trying to get a car loan with bad credit is that lenders consider you a higher-risk borrower than someone with good credit. In short, they’re worried you might leave them holding the balance on the loan, so they want to reduce their risk as much as possible.
Lenders attempt to reduce their risk by not approving people with certain credit scores, charging higher interest, and limiting the size of loan they’re willing to offer. For example, a lender might only approve you for a loan up to $20,000. You can work with that, even if you want a car that’s $27,000, if you can make a big enough down payment. In this hypothetical example, you’d need to pay $7,000 or more down to bring the balance within the range of loan the lender is willing to approve.
Get a Cosigner
Another way you can reduce risk for a lender and potentially increase your chances of getting approved for a car loan is by getting a cosigner. A cosigner is someone who agrees to be responsible for the loan if you don’t make your payments. Typically, this needs to be someone with good credit and the income to make the loan payments.
Always consider this step carefully. You need a cosigner who’s willing to take this step with you, and if your financial situation changes and you truly can’t afford the vehicle in the future, your cosigner may be responsible for the payments. It’s helpful to have a solid plan for making your car loan payments and communicating everything up front with your cosigner.
Get Preapproved for a Car Loan
Going out to buy a car without any financial backing can increase your chances of getting caught up in the moment and signing on the dotted line of a lackluster deal. Instead, consider getting preapproved for a vehicle loan so you know exactly how much buying power you have. A preapproval may also help you negotiate a better deal, because the car dealership or seller doesn’t have any financial power to hold over you.
Improving Your Credit for the Future
Once you get a car loan despite bad credit, ensure you take steps to improve your credit in the future so your next time buying a car is easier. Make your car loan payment on time every month to build up a stronger payment history, and avoid taking out loans and racking up credit card debt unnecessarily. When you’re ready to start looking for a car loan, visit Credit.com to get free, no-obligation quotes from our network lenders.
Another strong jobs report finished off a remarkably solid year for labor in 2023. Among the highlights:
Job growth continued. The Bureau of Labor Statistics data shows the U.S. economy once again beat expectations for jobs gains at 216,000 for December, the latest in a 36-month trend of growth. For 2023, job growth came in at 2.7 million, with an average monthly gain of 225,000. By comparison, 4.8 million jobs were added in 2022, with an average monthly gain of 399,000.
Unemployment remained low. The unemployment rate stayed steady at 3.7%, and rates are on a streak of 23 months below 4% — a stretch unseen since the late 1960s, Bureau of Labor Statistics data shows.
Wage growth remains elevated. Wage growth came in at 4.1% over the prior 12 months — that’s good news for workers, but higher than the Federal Reserve might like as it determines when it begins cutting rates in 2024.
A tight labor market, falling inflation and persisting economic growth all form a strong economic picture heading into 2024. But high interest rates remain, as do elevated prices. NerdWallet spoke with Jared Bernstein, chair of the White House Council of Economic Advisers to get his take on Friday’s jobs report, consumer sentiment and the economic look ahead.
The following interview has been edited for length and clarity.
NerdWallet: In 2023, inflation fell, the labor market steadily cooled, we saw higher-than-expected GDP growth and avoided a recession. Many economists seem surprised that the Fed was able to ease inflation without tanking the job market or tipping us into a recession. Are you surprised at where we stand right now?
Jared Bernstein: I wouldn’t say I’m particularly surprised. And in fact, we’ve long argued publicly that the goal was to maintain the tight labor market while easing inflationary pressures. I think President Biden views that as a key way to both empower workers with the maintenance of the tight job market while giving families some breathing room with easing inflation and even some lower prices. Substantively, an important piece of this is recognizing that supply chain normalization and the improvement of the economy’s supply side — whether it’s logistical supply chains or the increase in labor supply — have also helped in that regard. And that’s a good way to reduce inflationary pressures without dinging the demand side of the equation.
NerdWallet: Last year, job gains were mainly in three areas: health care, government, as well as leisure and hospitality. How much of the 2023 job growth can we attribute to a rebound from the pandemic, and how much can we attribute to underlying economic growth?
Jared Bernstein: I think by the time you’re in 2023 a chunk of the rebounding is behind you. Certainly the biggest numbers. One way to think about this is that in ’21 the average monthly job gain was 600,000 a month — so that’s huge and it has some rebounding clearly embedded in it. And in ’22 the analogous number that’s the average monthly job growth was about 400,000. And in ’23 it was around 200,000 and 225,000. So there’s kind of a stepladder there that gets you more into a steady, stable growth path.
I think by the time we got into ’23, we really executed on the president’s plan to maintain a tight job market and to get wages rising. That is such a key — real wages beating prices. Look, in an economy that’s 70% consumer spending like this one, if American consumers are facing a tailwind of a strong job market and easing prices, rising real pay, that’s a pretty good forward-motion machine. I think that’s a lot of what we saw in ’23.
NerdWallet: So is there some economic vulnerability in having growth concentrated in so few sectors? Some of the more interest-rate-dependent industries, for example, have shown little to no growth. And other areas like transportation and warehousing that boomed during the pandemic are now seeing some decline.
Jared Bernstein: Well, I get paid to worry about everything, so I’ll never say, ‘Oh, nothing to see there,’ but I think that caution has been somewhat overplayed. Lots of industries created jobs. I think 70% of the industries contributed in ’23, some more than others, as you say. If you think interest rates are more likely to be down than up next year, then that should be helpful to some of the interest rate-sensitive sectors that you mentioned, upwardly speaking.
If I look at the sectors that did create the most jobs, some of them are very large and significant sectors — private services, for example. We saw some great manufacturing numbers this year, more in the first half than in the second half of the year.
We also know that we had good construction numbers, and not so much in residential buildings, but more in nonresidential. And I think some of that really links up to factories that are being built. There’s hundreds of billions of capital that’s come in from the sidelines supported by the Inflation Reduction Act and the Chips Act. We’re actively building manufacturing facilities in this country to stand up the domestic industry of chips with electric vehicles, batteries and that should lead to more manufacturing jobs once those factories come online.
“ Executing on the president’s agenda has led to a situation where things are looking a lot better than people thought they would. And I think as time goes on, we’ll see more positive reporting when it comes to consumer sentiment.”
Jared Bernstein, chair of the Council of Economic Advisers
NerdWallet: I want to shift to consumer sentiment and approval of President Biden’s economic management — both slumped for most of the year, but at least one recent poll shows that the tide may be turning in that respect. How do you understand the disparity between the economy’s many objective strengths and consumer discontent?
Jared Bernstein: Well, I think it takes some time for the dynamics that you and I have been talking about to reach into people’s lives, and there’s a consciousness deep enough that it shows up in some of these indices of confidence and sentiment. And that’s why the December numbers, as you suggest, are a positive glimmer there. It’s one month, so it’s not a new trend, but the consumer confidence survey was up 10%; the University of Michigan sentiment survey was up a whopping 14%; there was some other polling that began to show this morphing in the way you suggested.
I think one of the things that’s going on there, again, has to do with this intersection of the very strong job market while inflation is easing. So we see real wage gains; wages are beating prices now for 10 months in a row for middle-wage workers. A lot of economists and I think it was 90% of CEOs a year ago said we would be in a recession. So executing on the president’s agenda has led to a situation where things are looking a lot better than people thought they would. And I think as time goes on, we’ll see more positive reporting when it comes to consumer sentiment.
NerdWallet: Interest rates are something that’s obviously on the mind of the market and consumers. Can you comment on the effect today’s jobs report might have on the timing of Fed’s rate cuts?
Jared Bernstein: Yeah, no I can’t. We have much respect for the independence of the Federal Reserve. So I’m certainly not going to talk about that. But I can talk to you a little bit about inflation because, of course, it’s relevant.
At the end of the day, inflation is going to drive a lot of the result of that kind of question. So we know that inflation is down two-thirds from its peak. We know that the six-month annualized rate of one of the inflation gauges the Fed watches most carefully, the core PCE, is growing at just below 2%. So that’s a good sign for them.
We also know that actual prices probably get more into sentiment than the Fed. And we know that actual prices — not lower inflation, actually lower prices — are in place whether we’re talking about gas or bread, milk, eggs, toys, TVs, airfares, used cars, a lot of things that really spiked in price have come down in price. So we’ve had some deflation there. That helps with breathing room and, of course, that helps on the inflation side as well.
NerdWallet: Can you talk a little bit about the populations that fueled labor force growth in the last year, specifically women?
Jared Bernstein: When President Biden talks about empowering workers — and that’s a key pillar of Bidenomics — one of the things he’s really thinking about is the benefit of running a tight labor market, and the way they cascade to groups that have historically been underserved or even left behind.
So here’s a number you haven’t probably heard too much today, but it comes out of the report: If you look at the average Black unemployment rate for 2023, it’s 5.5% — that’s the lowest Black unemployment rate on record for an annual average going back to 1972, when the Bureau of Labor Statistics started collecting that data. If you look at the employment results for disabled workers, they’re shooting up very nicely. And, of course, women, in what we call prime age: 25 to 54. If you look at folks in their prime working years, women’s labor force participation broke records in 2023.
This is just what happens when you have a persistently tight labor market with the unemployment rate below 4% for 23 months in a row, 14.3 million jobs, 36 months in a row of job creation. It’s a great labor market. And it’s reaching folks who too often are left behind under weaker conditions.
Photo by Kevin Dietsch/Getty Images News via Getty Images
Federal Reserve left its key short-term interest rate unchanged again Wednesday, hinted that rate hikes are likely over and forecast three cuts next year amid falling inflation and a cooling economy.
That’s more rate cuts than many economists expected.
The decision leaves the Fed’s benchmark short-term rate at a 22-year high of 5.25% to 5.5% following a flurry of rate increases aimed at subduing the nation’s sharpest inflation spike in four decades. The central bank has now held its key rate steady for three straight meetings since July.
That provides another reprieve for consumers who have faced higher borrowing costs for credit cards, adjustable-rate mortgages and other loans as a result of the Fed’s moves. Yet Americans, especially seniors, are finally reaping healthy bank savings yields after years of paltry returns.
Best high-yield savings accounts of 2023
401(k) boon:Stocks surge, Dow Jones hits all-time high at close after Fed forecasts lower rates
Leaving savings behind:Many Americans are missing out on high-interest savings accounts. Don’t be one of them
Is a soft landing in sight? What the Fed funds rate and mortgage rates are hinting at
Will the Fed raise interest rates again?
The central bank didn’t rule out another rate increase as it downgraded its economic outlook for next year while lowering its inflation forecast. In a statement after a two-day meeting, it repeated that it would assess the economy and financial developments, among other factors, to determine “the extent of any additional (rate hikes) that may be appropriate to return inflation to 2% over time.”
Fed Chair Jerome Powell said at a news conference, noting the Fed’s key rate is “at or near its peak.”
while the Dow Jones Industrial Average closed at a record high after rising 1.4% following the Fed’s signals that it’s probably done lifting rates and is forecasting three cuts next year. The 10-year Treasury was down to about 4% from 4.21% on Tuesday.
Last month, Powell said high Treasury yields, if persistent, likely would constrain the economy and require fewer Fed rate increases,
In its statement Wednesday, however, the central bank didn’t acknowledge the recent decline in Treasury yields, suggesting yields are still relatively high and could spike again, crimping the economy.
“Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation,” the Fed said, repeating the language of its previous statement.
Is inflation really slowing down?
The Fed’s middle-ground approach may have been cemented Tuesday by a mixed report on the consumer price index. The good news was that overall inflation barely budged in November amid falling gasoline prices, pushing down annual price gains to 3.1% from 3.2%, still well above the Fed’s 2% goal.
The Federal Reserve System is the U.S.’s central bank.
When does the Fed meet again?
The first Federal Reserve meeting of the new year will be from Jan. 30 through 31.
Federal reserve calendar
Jan. 30-31
March 19-20
April 30- May 1
June 11-12
July 30-31
Sept. 17-18
Nov. 6-7
Dec. 17-18
The U.S. economy was strong in the third quarter as consumers continued to spend despite high interest rates and inflation.
The value of all services and products generated in the U.S., or GDP, rose at a seasonally adjusted 4.9% for the year in the months spanning July to September, according to the Commerce Department. That was more than twice the 2.1% increase in the previous quarter and the most aggressive pace of growth since the end of 2021 when the economy surged back from a recession sparked by the pandemic.
a recession over the next year, down from the 61% odds forecast in May.
Barclays predicted a loss of roughly 375,000 jobs by the middle of next year. But consumer spending remains robust despite high inflation and interest rates that are making credit card use and consumer loans more expensive. And that may help stave off a recession, says Barclays economist Jonathan Millar.
What does FOMC stand for?
The FOMC is the Federal Open Market Committee, the voting body responsible for setting interest rates. The 12-member committee includes seven members of the Board of Governors and five of the 12 Reserve Bank presidents.
What causes inflation?
Inflation can have many roots. Typically, it’s caused by “a macroeconomic excess of spending over the economy’s relative ability to produce goods and services,” said Josh Bivens, the director of research at the Economic Policy Institute, a left-leaning think tank based in Washington D.C.
That means more people are wanting items and services than there is adequate supply, leading producers to raise prices.
“If everyone in the economy, tomorrow, decided they weren’t going to save any money from their paychecks, and they’re just going to spend every last dollar out of the blue, they would all run to the stores and try to buy things,” Bivens said. “But, producers haven’t produced enough to accommodate that big surge of across-the-board spending. So, you would see prices bid up.”
Inflation can also happen when there are too few producers, or there aren’t enough employees to provide the coveted products and services, Bivens said.
Finally, economies also have some “built-in inflation” to help keep inflation in check. In the U.S., that target is 2%, meaning businesses can raise prices 2% annually year and that shouldn’t overburden consumers. That’s also the typical cost of living raise offered by employers.
Inflation meaning
Inflation is the term for a “generalized rise in prices,” according to Josh Bivens, head of research at the Economic Policy Institute, a left-leaning think tank based in Washington D.C.
Everything from food to rent can become costlier due to inflation. But it is the overall impact that determines what the inflation rate actually is.
“Inflation, though, really is meant to only refer to all goods and services, together, rising in price by some common amount,” Bivens said. The Federal Reserve’s inflation goal is 2%, which means businesses can hike prices by 2% a year and that shouldn’t cause consumers financial distress. Cost of living increases to workers’ pay are also expected to meet that target to ensure consumers can adequately deal with the rising costs of goods and services.
What is CPI?
In November, the Consumer Price Index (CPI) ‒ a measure of the average shift in prices for different products and services ‒ was 3.1%, down slightly from the month before.
Annual inflation is down dramatically from the 9.1% in June 2022 that marked a 40-year high but remains above the 2% target the Fed sees as the level that signals the rate of price increases is under control.
Why is CPI important?
The Federal Reserve watches two key aspects of the economy, price stability and maximum employment, and those are the main factors it takes into account for its interest rate decisions. The CPI is a primary measure the Fed looks at to help determine if prices are “stable.’’
What is the difference between CPI and core CPI?
Core prices don’t count the volatile costs of food and energy items, giving a more accurate window into longer-term trends.
Are wages going up in 2024?
If you’re deemed a top performer at a company that is offering raises, you’ve got a pretty good chance of getting a pay boost next year.
About 3 out of four business leaders told ResumeBuilder.com they intended to give raises. But half of those company executives said only 50% or less of their staff members would see a pay hike, and 82% of the raises would hinge on performance. For those who do manage to get the salary boost, 79% of employers said the pay hikes would be greater than those given in recent years.
Are U.S. Treasury yields rising?
Not recently.
The 10-year Treasury yield was above 5% in November when the Fed kept rates steady for the second consecutive month the first time it had left the key rate unchanged two months in a row in almost two years.
That led to mortgage rates spiking to almost 8% and pushed up other borrowing costs for consumers and businesses. Stocks meanwhile sank close to a recent low, leading Fed Chair Jerome Powell to say such financial pressures could achieve the same cooling effect on the economy as additional rate hikes.
But in the following weeks, 10-year Treasury yields dipped to 4.2% and stocks rebounded. That might make the Fed resist rate cuts in case the economy heats up and causes the broader dip in prices “to stall at an uncomfortably elevated level,” Barclays says.
Barclays and Goldman Sachs forecast that rate cuts won’t happen until the spring, and that there will be only two, to a range of 4.75% to 5%, with more cuts implemented in the next two years.
When will inflation go back to normal?
It may take a little while.
Inflation’s decline likely “won’t show much progress in coming months,” Barclays wrote in a research note.
Overall price hikes have eased significantly since peaking at 9.1% in June 2022, a four-decade high. And in October, broader inflation as well as core prices experienced a dip, leading to a lower 10-year Treasury yield.
But core prices, which exclude the volatile costs of food and energy, will probably rise 0.3% each of the next three months, Goldman Sachs says. Used cars and furniture have been getting cheaper as the supply-chain shortages of the pandemic end. Meanwhile, health care, auto repairs, car insurance and rent continue to get more expensive, as employers pay higher wages to attract workers amid a labor shortage lingering from the global health crisis.
What is core inflation right now?
Core prices, which leave out the more volatile costs of food and energy, bumped up 0.3% in November, slightly more than the 0.2% uptick seen the previous month. That kept the yearly increase at 4%, the lowest rate since September 2021.
New inflation tax brackets
Inflation may also impact the amount of taxes you have to pay.
The Internal Revenue Service said in its annual inflation adjustments report that there will be a 5.4% bump in income thresholds to reach each new level in next year’s tax season.
In 2024, the lowest rate of 10% will apply to individuals with taxable income up to $11,600 and joint filers up to $23,200. The top rate of 37% will apply to individuals earning over $609,350, and married couples filing jointly who make at least $731,200 a year.
The IRS makes these adjustments annually, using a formula based on the consumer price index to account for inflation and stave off “bracket creep,” which happens when inflation shifts taxpayers into a higher bracket though they’re not seeing any real rise in pay or purchasing power.
The 2024/25 increase is less than last year’s 7% increase, but much more than recent years when inflation was below the current 3.1% inflation rate.
Will Social Security get a raise because of inflation?
Yes, but it will be a lot less than what recipients received in 2023.
The cost-of-living adjustment, or COLA, to Social Security benefits will be 3.2% next year. That’s roughly one-third of the 8.7% increase given in 2023, which marked a forty-year high.
The 2024 COLA hike is above the average 2.6% raise recipients have received over the past two decades, but seniors remain concerned about being able to pay their expenses as well as the increasing possibility Social Security benefits will be reduced in coming years, according to a retirement survey of 2,258 people by The Senior Citizens League, a nonprofit seniors group.
How does raising rates lower inflation?
The federal funds rate is what banks pay each other to borrow overnight. If that rate increases, banks usually pass along that extra cost, meaning it becomes more expensive for businesses and consumers to borrow as rates rise on credit cards, adjustable rate mortgages and other loans. That’s why the funds rate is the key mechanism used by the Federal Reserve to calm inflation.
Simply put, companies and consumers don’t borrow as much when loans cost them more, and that means an overheated economy can cool and inflation may dip.
Will credit card interest rates continue to rise this holiday season?
The Fed’s string of rate hikes, aimed at easing the highest inflation in four decades, are a big reason credit card interest rates have reached record highs just in time for the holiday season.
Some retail credit cards now charge more than 33% interest, topping a 30% threshold that stores and banks were previously able to bypass but seldom did – until now.
“They can charge that much,” said Chi Chi Wu, a senior attorney at the nonprofit National Consumer Law Center. “Credit cards can actually charge whatever they want. It’s a little-known fact.”
The domino effect of a high benchmark rate and soaring credit card interest could put many Americans in financial straits this holiday season.
Though some consumers are paring back to deal with high prices, rising debt and shrinking savings, the average shopper expects to spend $1,652 this year on holiday purchases, according to the consultancy Deloitte, more than was typically spent in the last three years.
A lot of the buying will be done with credit cards. In an October poll of 1,036 shoppers by CardRates.com, nearly 4 in 10 respondents said they intend to have holiday credit card debt in the new year.
The nation’s collective credit card debt was $1.08 trillion, at the end of September, a record high. And the average interest rate was 21%, the highest ever documented by the Federal Reserve.
Savings account impact of high rates
The upside to the Fed’s string of rate hikes has been that consumers were able to earn good interest on their savings for the first time in years. Even when the Fed leaves interest rates unchanged, savers can do well.
Unfortunately, most account holders aren’t making the most of that potential opportunity.
Roughly one-fifth of Americans who have savings accounts don’t know how much interest they’re earning, according to a quarterly Paths to Prosperity study by Santander US, part of the global bank Santander. Among those who did know their account’s interest rate, most were earning less than 3%.
But consumers have time to make a change that could enable them to make more from their savings.
“We’re still a long way from (the Fed) beginning to cut rates,” said Greg McBride, chief financial analyst at financial services platform Bankrate. “This is great news for savers, who will continue to enjoy inflation-beating returns in the top-yielding, federally insured online savings accounts and certificates of deposit. For borrowers, interest rates staying higher for a longer period underscores the urgency to pay down and pay off costly credit card debt and home equity lines.”
The string of Fed rate hikes that began in March 2022 has made it costlier for consumers to borrow as interest rates on credit cards and other loans increased dramatically.
At the same time, inflation has made daily needs more expensive, pushing more Americans to lean on credit cards to get by. But lenders have become more reluctant to issue new cards, so in the midst of the holiday season, more shoppers are seeking higher credit limits, experts say.
In October, the application rate for higher limits rose to 17.8% from 11.2% in the same month the previous year, and from 12.0% in 2019, New York Fed data showed.
For some consumers, a higher limit on a card they already have is about their only option.
“After COVID, inflation and interest rates went out of control … people have less emergency funds for car repairs or buying presents,” said Brandon Robinson, president and founder of JBR Associates, which specializes in retirement strategies. “What they’re doing is using more credit card utilization – over 30% or well over 50% of their credit card allowance – and then can’t get approved for another card because their credit rating is down.”
Inflation is leading more Americans to work multiple jobs
The number of Americans working at least two jobs is at its highest peak since before the COVID-19 pandemic, according to federal data, an uptick that may reflect the financial pressure people are feeling amid high inflation.
Almost 8.4 million people had multiple jobs in October, the Labor Department said, a figure that represents 5.2% of the laborforce, the highest percentage since January 2020.
“Paying for necessities has become more of a challenge, and affording luxuries and discretionary items has become more difficult, if not impossible for some, particularly those at the lower ends of the income and wealth spectrums,” Mark Hamrick, senior economic analyst at Bankrate, told USA TODAY in an email.
People may also be moonlighting to sock away cash in case they’re laid off since job cuts typically peak at the start of a new year.
What is the Federal Reserve’s 2024 meeting schedule? Here is when the Fed will meet again.
What is the mortgage interest rate today?
Mortgage rates are falling, so is it time to buy?
It depends.
First of all, the Fed doesn’t directly set mortgage rates, but its actions have an impact. For instance, when the central bank was steadily boosting its key rate, the yield on the 10-year treasury bond went up as well. Because those bonds are a gauge for the interest applied to an average 30-year loan, mortgage rates increased.
But over the past six weeks, mortgage rates have been declining, averaging 7% for a 30-year fixed mortgage. That’s down from almost 7.8% at the end of October, according to data released by Freddie Mac on Dec. 7.
That may be giving some wannabe homeowners the confidence to start house hunting. For the week ending Dec. 1, mortgage applications rose 2.8% from the prior week, according to the Mortgage Bankers Association.
“However, in the big picture, mortgage rates remain pretty high,” says Danielle Hale, senior economist for Realtor.com. “The typical mortgage rate according to Freddie Mac data is roughly in line with what we saw in August and early to mid-September, which were then 20 plus year highs.”
So, many potential buyers may still need to sit on the sidelines, waiting for rates to drop further, says Sam Khater, chief economist for Freddie Mac. Hale and many other experts believe mortgage rates will dip next year.
Interest rate projection 2024
The Fed is expected to cut interest rates next year, though markets and economists disagree about how many rate cuts there will be.
Futures markets forecast there will be four or five rate cuts in 2024, amounting to a quarter of a percentage point each. The cuts, they predict, should start by spring, and ultimately drop interest rates as low as 4% to 4.25%.
But core prices, which leave out the volatile costs of food and energy and are the metric followed more closely by the Fed, ticked up 0.3% in November, higher than the 0.2% increase the month before. That might make the Fed more hesitant to nip rates in the immediate future.
Goldman Sachs and Barclays expect there to be only two rate decreases in 2024. And Fed Chair Jerome Powell has cautioned in recent public remarks that it was “premature” to talk about rate cuts.
November inflation report
Inflation dipped slightly last month, with falling gas prices mitigating the impact of rising rents.
Consumer prices overall increased 3.1% from a year earlier, slightly below the 3.2% rise in October, according to the Labor Department’s consumer price index. That slower pace moves the inflation rate nearer to the level, reached in June, that was the lowest in over two years. Month over month, prices increased a slight 0.1%.
Core prices, however, which leave out the more erratic costs of food and energy and which are more closely monitored by the Fed, increased 0.3% in November after rising 0.2% the previous month. That means core inflation’s yearly increase remained at 4%, though it’s the lowest level since September 2021.
While FICO and VantageScore take some of the same factors into account, VantageScore determines your credit score based on six different factors. Let’s look at how VantageScore weighs each factor:
Payment history (41%): Your past ability to pay bills on time.
Depth of credit (20%): The ages and types of credit accounts you have.
Credit utilization (20%): How much of your credit limit you’re using.
Recent credit (11%): The number of hard inquiries on your credit report.
Balances (6%): The total balances on your credit accounts.
Available credit (2%): The amount of credit you have available to you.
What Kind of Loan Can I Get With a 720 Credit Score?
As mentioned above, a good credit score can help you qualify for better rates and terms for loans. However, it’s important to keep in mind that your credit score isn’t the only factor that lenders look at when reviewing your loan application. Your income, employment, credit history, and debt-to-income ratio are also taken into consideration during the approval process.
With that in mind, here’s a look into the loans you can generally expect to qualify for with a 720 credit score. Assuming you also qualify for income thresholds as well.
Mortgages
Generally, mortgage lenders require a minimum credit score of 620, so you should have no problem qualifying for a mortgage with a 720 credit score. You’ll also likely qualify for low interest rates, although you might not get the best rate available. Borrowers who qualify for the lowest interest rates typically have a 760 credit score or higher.
Additionally, how much of a down payment you put down may influence your interest rates. A larger down payment provides less risk to the lender because you have additional stake in the house.
Auto Loans
A 720 credit score will allow you to qualify for an auto loan. When looking at the average car loan interest rates, borrowers with credit scores between 661 and 780 qualify for an average used car APR of 7.83% and an average new car APR of 5.82%. However, if you bring your score to 781 or above, you can expect a 1.84% lower interest rate for used cars and a 1.07% lower interest rate for new cars, on average.
Personal Loans
With a 720 credit score, you’ll have many options for personal loans, so you should shop around for the best rates. Personal loan interest rates can range from 6% to 36%, although a good credit score should allow you to qualify for rates on the lower end of that spectrum. According to recent personal loan statistics, the average interest rate is 11.2%.
Student Loans
While federal student loans don’t have credit score requirements, private student loan lenders typically require a good credit score. With a 720 score, you’ll likely get approved by most lenders and may even qualify for the best interest rates.
Credit Cards
Most credit card issuers will approve borrowers with a 720 credit score and potentially offer the lowest interest rates. You can likely even get approved for a 0% APR card. Keep in mind that certain prestigious credit cards that provide luxurious perks require excellent credit to qualify plus additional requirements. Therefore, you may need to improve your credit score before applying for an exclusive credit card.
How to Further Improve Your 720 Credit Score
If you have a good credit score but want to reach the very good or excellent range, here are some tips for how to make your good credit score even better:
Pay your bills on time: Since 720 is a high credit score, a single late payment can cause a significant drop in points. Make sure to continue paying your bills on time to further improve your credit.
Make payments more frequently: Making multiple payments on your credit card bill each month can help keep your credit utilization low.
Request a credit limit increase: Another way to lower your credit utilization is to increase your credit limit.
Leave credit accounts open: Avoid closing old credit accounts to maintain the length of your credit history.
Space out new credit applications: Wait six months between credit card applications to limit the number of hard inquiries on your credit report.
Get credit for rent and utility payments: If you regularly pay your bills on time, a rent and utility reporting service can report your payments to the credit bureaus, which may help improve your credit.
Dispute any errors: Check your credit report at least once a year and challenge any inaccurate information you find.
While a 720 credit score is considered good, there’s still room for you to stay on top of your credit—that’s where ExtraCredit® comes in. ExtraCredit is a credit management product that helps you check your FICO® scores, view your credit reports from all three credit bureaus, report rent and utilities, and more. Start your free trial* today.
*Your 7-day trial will begin after agreeing to these terms and submitting your ExtraCredit® sign-up. After your trial period, your subscription will automatically continue on the same day every month as the day you started your trial membership. The free trial is available for new ExtraCredit customers only. The credit card you provided will be charged $24.99 (plus any applicable tax) on the next business day and monthly; after your trial period unless you cancel. You may cancel at any time by downgrading your service level in your settings or by contacting us at [email protected]. Dishonored payments will result in an automatic downgrade to the free credit.com product.
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations.
If you’re interested in investing in a new vehicle, it’s not always easy to know what’s in your price range. Understanding your options and learning how to calculate your budget can determine what you can afford.
Discover how auto loans can enhance your ability to afford a range of vehicles, from brand-new cars to those with some mileage.
How to Calculate How Much Car You Can Afford
Calculating how much you can afford for your new car is a helpful step in saving money when you’re ready to make the purchase. Follow the next steps to calculate your budget effectively.
1. Calculate Your Car Payment Budget
There are two main expenses to consider when calculating your car payment budget: your down payment and your monthly payment.
Above is an example of how to calculate your monthly payment calculation. Let’s say you have a net monthly income of $4,500. Multiply your income by 0.10, or take 10% of your income. This number will be your estimated monthly payment. In this example, it would be $450.
Get matched with a personal
loan that’s right for you today.
Learn
more
Monthly payment: We recommend spending no more than 10% of your monthly net (take-home) income on your monthly car payment. This doesn’t include other expenses like gas and maintenance. Round up to 15% to include all vehicle expenses.
Down payment: If you plan on purchasing a car, we recommend putting around 20% of the vehicle’s purchase price toward your down payment. The more you put down, the lower your auto loan will be.
2. Determine Which Auto Loan You Qualify For
You now have a better idea of how much you can potentially borrow based on your budget.
Several determining factors affect how much you can borrow, including:
Credit score: This will influence the annual percentage rate (APR) of the loan. Higher FICO® credit scores between 661 and 850 can lower your auto loan interest rate.
New vs. used: Auto loans for new cars typically come with reduced APRs.
Loan term: This is how long you’ll be repaying your auto loan. The average car loan term ranges between five and six years.
If you already have an auto loan, you can refinance and customize your loan with Credit.com. Try out our Auto Loan Calculator to simulate your current payment and find out what savings you can earn today.
3. Estimate Auto Insurance Cost
You should also factor in car insurance when considering purchasing a new vehicle. Factors like the make and model of the car, your driving history, and where you live can impact your insurance costs. Reach out to several insurance companies for quotes and get a clearer picture of what you’ll likely need to budget for insurance.
4. Calculate Your Purchase Price
It’s important to note your auto loan isn’t the total price you’re going to pay for your vehicle. There are other hidden costs you should be aware of beyond the number on the price sticker. Take note of these common additional costs:
Sales tax: This can be around 5% to 10% and may include local, county, and state taxes. However, not all states have sales tax, such as Montana and Oregon.
Documentation fees: These can range from $100 to $400, depending on your state.
Registration fees: These can range from $8 to $225, depending on the state.
What Car Options Do You Have?
You never want to put yourself in a financially vulnerable position if you can avoid it. That’s why it’s important to consider all of your purchasing options. Keep reading to understand how buying versus leasing can help you afford a car.
New Vehicle
Everyone wants a shiny new car, but it’s not always affordable. If there’s a particular type of vehicle you want, do some research to determine the vehicle’s current market value. That way, you’ll know exactly how much that car is worth and avoid purchasing a vehicle with an inflated price tag.
Used Vehicle
Purchasing a used vehicle can be the best route for those with a lower budget. Used vehicles tend to have considerably reduced prices compared to brand-new cars, leading to more affordable monthly payments. Additionally, used cars typically have lower car insurance costs.
Leased Vehicle
Leasing a car can be a great option for those who want a brand-new car, but would prefer lower monthly payments. There are drawbacks to this option, however, as the payments that go toward the vehicle don’t provide value and there are mileage limits. But if you don’t mind those drawbacks and like to try out different cars every couple of years, leasing is worth considering.
FAQ
Here are answers to some frequently asked questions about car affordability and monthly payments.
How Much Car Can I Afford Based on My Salary?
Determining your car affordability based on your net income is one way of estimating how much car you can afford. You should put 10% or less of your monthly income toward your car payments.
Annual Income
Monthly Car Payment Maximum
$30,000
$250
$40,000
$334
$50,000
$416
$60,000
$500
$70,000
$584
$80,000
$667
$90,000
$750
$100,000
$833
However, this doesn’t include costs such as fuel, parking, and maintenance. You can plan on dedicating about 15% of your monthly income to total vehicle expenses.
How Much Should My Monthly Car Payment Be?
Your monthly car payment will depend on a few factors, such as your auto loan interest rate, loan term, and how much you put toward your down payment. Your choice of vehicle and where you purchase it can also affect interest rates.
However, your monthly car payment should be around 10% or less of your monthly take-home pay. You can always choose to pay more every month to pay your auto loan quicker and save money on interest.
Shop for Auto Loans With Credit.com
Take your first step toward vehicle ownership by learning more about credit scores with Credit.com. Get your free credit report card today.
There are many reasons you might want to pay a loan with a credit card. Maybe you want to earn rewards on your mortgage payment. Or maybe you want a reprieve from interest on your auto loan by paying off the balance with a card’s 0% APR offer.
Unfortunately, most loan types prohibit you from making a payment directly with a credit card. Yes, there are some workarounds, but higher interest rates, processing fees and potential risk factors generally make those methods inadvisable.
Here are some potential ways to pay a loan with a credit card.
Ready for a new credit card?
Create a NerdWallet account for insight on your credit score and personalized recommendations for the right card for you.
Transfer your loan to a credit card
You may be able to transfer your existing loan balance to a credit card. However, this would make sense only if the interest rate on the credit card is lower than the rate on your existing loan.
While interest rates will vary based on your credit scores, most credit cards will carry a higher APR than other types of loans. As of May 2023, the average APR across all consumer credit cards that charged interest was 22.16%, according to the Federal Reserve. By comparison, the average rate on auto loans for the same period was 6.63% for new cars and 11.38% for used cars (according to Experian), and the average APR for new federal student loans was 5.50%.
One exception could be a balance transfer to a credit card that offers an introductory 0% APR period — but there are risks. The longest 0% intro APR periods generally cap out at 18 to 21 months, and you’ll need to be approved for a credit limit on the card greater than your existing loan amount to transfer the full balance. You’ll usually incur a fee to transfer the loan, typically between 3% and 5% of the total balance. And if you don’t pay off the transferred balance before the 0% APR period expires, you’ll then start to incur interest on the remaining balance at the normal, ongoing (and much higher) APR.
Use a third-party service
Some third-party payment processors, such as Plastiq, allow you to use a credit card to pay vendors that don’t otherwise accept cards. This might be an option if you’re temporarily strapped for cash or you’re trying to snag a sign-up bonus. But be aware that you’re going to incur a healthy processing fee for using the service, and if you don’t end up paying off your card balance on time, you’ll owe interest on it at whatever rate your credit card normally charges.
Tap your card’s cash advance limit
A credit card cash advance is a short-term loan against the credit line on your card. A cash advance can let you quickly access cash to pay down your loan, but it’s among the most expensive ways to pay a loan with a credit card. You’ll incur a cash advance fee from your card issuer, which could be either a flat rate or a percentage of the total advance amount. There’s also no grace period, so you’ll start accruing interest the second you receive the advance. And that interest rate on cash advances is usually higher than for regular purchases.
Because these costs will likely be higher than the interest payment on your existing loan, a cash advance is inadvisable.
Use your card’s ‘flexible financing’
“Flexible financing” programs like My Chase Loan and Citi Flex Loan allow you to get a loan against your card’s existing credit line. You’ll pay a fixed interest rate and pay the loan back over time, typically from six to 24 months. Similar to a cash advance, this could give you an immediate cash infusion directly to your bank account, which you’d use to pay off your existing loan. But if the APR your card gives you for that loan is higher than the existing loan you’re trying to pay off, it won’t make sense.
Should you pay a loan with a credit card?
While it’s possible to pay a loan with a credit card, it will almost always cost you to do so. That cost usually comes in the form of transaction fees and higher interest rates.
Transferring an existing loan to a credit card offering a 0% intro APR on balance transfers could make sense for some people, but typically only if you know you’ll be able to pay off the balance in full by the time that promotional window ends.