Car Loan Interest Rates: What’s Good?
on Jan 07 in Financing tagged Financing by jasonl
Generally speaking, the best interest rate you can hope for on an auto loan is about ½ percent less than the prime rate. (Find out what the prime rate is if you’re not sure.) But before you go out and look for a interest rate that’s ½ percent less than prime, you’ll need to consider a few things:
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Your Credit History. If you have a history of late payments, unpaid debts, collections, civil judgments, defaulted loans, or bankruptcy, you’ll most likely end up paying a higher interest rate. If you’re not sure about your credit history, get a copy of your credit report, read through it carefully, and then take care of any problems that you may have. Take a look at our tips on how to fix your credit for more information if any of this applies to you.
Your “Available Credit” Ratio. Even if you have a better-than-average credit history, you can still end up paying a higher interest rate that you should if your available credit ratio is out of whack. What’s an available credit ratio? Lenders add up all your available sources of credit – your home equity loan, credit cards, etc. – and they compare it to how much debt you have. If you’re using more than half of your available credit, lenders will often give you a higher interest rate because you fit the profile of a person that’s living on credit. If you want to improve your available credit ratio, either pay off your debt (hard) or get more credit (easy).
The Type Of Car You Want To Buy. The older a car is, the more interest you’re going to pay. A one- or two-year-old car will usually qualify for the same rate as a brand new car, but once vehicles start to get older then that you start to see the interest rate go up. Once a vehicle reaches ten years of age, the interest rates explode.
Also keep in mind that the higher the mileage on a car, the higher the interest rate will be. Most lenders charge a steep interest rate for cars with more than 80,000 miles, and many don’t even offer financing for cars with more than 100,000 miles. The reason? Once cars get that high in mileage, they’re more likely to suffer a major break-down. Many people, when they realize they can’t afford to fix a major repair, simply stop making payments. The bank wants to avoid this scenario so they charge a high interest rate to discourage you from buying a high-miles car.
So what does this all mean? When you’re trying to figure out what a good interest rate is, you need to consider your credit history, take a look at your available credit ratio, and consider the type of car you want to buy. The smartest thing that you can do is to get financing quotes online. We like online quotes because they’re easy and fast, and they help you find out what is the best interest rate for your situation.
As always, take your time when buying a new or used car. Do your car research, get multiple car financing quotes, and feel free to contact us with your questions.
Dealer Financing Basics: What To Expect
on Nov 19 in Financing tagged car dealer tips, Car Dealer Tricks, Financing by jasonl
When it comes to buying a car from a dealership, it’s important that you know about some of the things they are going to offer you in the finance office. Here’s a basic explanation of each.
First, they’re probably going to try to sell you a vehicle extended warranty or service contract. Both have saved people lots of money, and they’re a good idea in some instances. However, they are usually overpriced at the dealership, so make sure you shop around.
The finance office will also offer you GAP protection (also called Gap Insurance). It’s usually fairly inexpensive (about $5-10 per month). GAP protects you if your car gets totaled – if your car is totaled, your insurance company will not pay you what you owe on your car – they’ll only pay what they think the car is worth. If you’re in a situation where your car depreciates faster than you can pay it down (which is a situation about 90 percent of Americans find themselves in, especially when they buy brand new cars) and your car gets totaled, you can end up with a large difference between your loan amount and what your car is worth. In other words, if you’re financing, you should seriously consider GAP insurance.
The finance manager may also offer you a security system of some type. You’re not likely to get a decent security system at a dealership, new or used. If you want one, you’re better off going to your local Best Buy, Circuit City, etc. They have good security products their and they often offer free installation. They’re also less expensive than the dealership.
The finance manager will also offer window etching, and it is a total rip-off. The dealership will etch either your VIN number or some identity number into each piece of glass on your car – it’s a great concept, but the value of the product is only about $30-$40. Unfortunately, dealerships charge anywhere from $99-$800. It’s a bad deal and I suggest you avoid it unless you can get it cheaply (or free).
The finance manager may also offer you a “clear bra” or clear hood protector. This is a good idea – if it’s a quality product that’s correctly installed, it will protect the front of your car from damage. But, like most things the dealership will try to sell you in the finance office, it’s probably overpriced. I’d suggest you negotiate the price with them, but a “clear bra” is definitely worth buying.
The dealership will also offer you something called credit insurance. The basic concept is this: if you die or you become injured or disabled, credit insurance steps in and makes your car payments for you or pays your loan off. This is a bad deal. If you really want this type of credit protection, call your local insurance provider and get it from them – they’re going to give you a much better deal than the dealership will.
The bottom line with all these products, and any other deals they might offer you, is this: You should consider everything the finance manager offers you – 90 percent of it is valuable and worthwhile. Just remember that most of the products he or she offers you will be overpriced. They’ll probably try to charge you much, at least much more than you can get elsewhere, so your strategy should be to tell the finance person, “I want it, I really like the idea, but I want to sleep on it, so can I call you back next week?” This gives you a chance to shop around, and you’ll most likely get a better deal somewhere else.
As always, take your time when buying a new or used car. Do your car research, get multiple used car financing quotes, and feel free to contact us with your questions.
Buying A Car On A Budget
on Nov 19 in Financing tagged Financing by jasonl
It’s best to work out precisely how much you can afford to spend before you leave to go car shopping. When it comes to buying a car, it’s very important that you set a budget and stick to it. Before you begin your transaction, you should have a maximum price set. If you find a vehicle you like, but the price is over the maximum, you need to know how to walk away.
You can go over your budget the old-fashioned way, with a calculator and your bank and credit card statements, or you can use the income and price range budget calculator on our website.
Remember that a budget is a dollar amount, not a monthly payment. One of the worst things you can do is walk into a dealership and say, “I want to pay $350 dollars per month.” Dealership people are very creative, and they’ll figure out a way to make a car that’s way too expensive cost $350 dollars per month. In the short run it will make you happy, but in the long run it will hurt you most of the time.
If you have a monthly payment in mind, and you don’t know what price it will work out to be, we have a calculator for that: the price range budget calculator, and it will tell you what price range of vehicle you should be looking at.
Here’s a fairly easy system if you’d rather to do the math yourself. Figure out what you can afford to pay per month, and multiply this figure by 36, 48 or 60 (3, 4 or 5-year loans). Add what you can afford for a down payment. Finally, subtract 12-20% of the total for sales tax and finance charges.
Once you set your budget, stick to it. If you find a nice car that meets all your requirements, but it’s $2000 too much, walk away. You’ll find another car.
Here are some questions you should ask yourself to help make the car-buying process a little easier:
- What do you like and dislike about the vehicle you currently own?
- Do you want a lot of passenger space?
- Do you want two doors or four?
- Do you prefer a Standard or an Automatic transmission?
- How much does status mean to you?
- What about fuel economy?
- Are you willing to settle for a well-maintained used car, or is your heart set on buying a new one?
- How much can you afford to spend?
As always, take your time when buying a new or used car. Do your car research, get multiple used car financing quotes, and feel free to contact us with your questions.
Car Buying Tips: Get Your Own Car Financing
on Nov 19 in Financing tagged car buying tips, Financing by jasonl
One of the best things that you can do if you’re buying a car is to get your own financing. There are a few good ways to do it, but one of the best ways to go about it is to get multiple quotes. The more quotes you get, the more options you have. There can be a lot of variance in the quotes, and every lender has its own scoring system: some lenders will give you points for being a college graduate, others will give you better terms because you had a good account with an affiliated company, etc.
It’s also a good idea to get multiple quotes and have your own financing available because it gives you power. If you have your own financing available, you can use it as leverage to get a better rate at your local dealership. If you walk into a dealership and you don’t have any financing lined up, you don’t know anything about your credit, etc., they might be able to convince you that you have bad credit when you really don’t, and they might be able to charge you 3 or 4 percent more in interest than you can get otherwise.
But remember when you get your own financing that dealerships tend to have the best lending rates. By using the quotes you get on the internet, it might be easier for you to get a special rate or a discount. The dealership is likely to have millions of dollars in loans, and the bank will be more willing to work with the dealership for a special interest rate than they would an individual who has only one loan for a few thousand dollars. That’s why it’s a good idea to get your own financing lined-up on the internet, you can still finance at the dealership, but you can use your outside quotes as a bargaining tool.
In addition to using our recommended car financing quote services, you should also consider calling your local credit union. Sometimes credit unions offer better interest rates, and they’re a good resource you should check into.
Before you look for financing, you should:
- Review your family’s finances to find out just how much you can afford to spend. You can use our budget calculator and read more about figuring out how much car you can afford.
- Make a list of all the vehicle features you will really need.
- Keep in mind that the car’s sticker price does not mirror the full cost of owning a financed vehicle
Securing reasonable financing is easier than ever in today’s changing consumer market, with increasing competition between car dealers and financial institutions. Pre-shop for the car that fits your budget – use the library, the Internet, your neighbors, competing car salesmen – every available means to learn who is offering the lowest financing and interest rates.
As always, take your time when buying a new or used car. Do your car research, get multiple used car financing quotes, and feel free to contact us with your questions.
