Jim Carson Sr asked:




The auto-lending business is no different than any other form of lending. It is, and always has been about risk. Therefore the loan rate you earn for a major purchase, such as an automobile, is a moving target. The rate you earn partly aligns with your credit score, and partly aligns to other factors, such as income, percentage of other debt, money down, etc. The more you know about how loan-rates are assigned, the better you will be able to equip yourself to earn the best rate when you are ready to purchase a vehicle.

Here’s how you go about getting the best interest rate possible: Put the lender in a position of low risk and you will get a low APR.

Here’s a tale of two brothers who go to a local dealership, each looking to buy a used car. Tom, with a high 715 Beacon score has his eye on a five year-old sedan that will allow him to park the Hemi pickup that never met a gas station it didn’t like. Tom has never missed a payment in his life and has paid off most loans early. Brother Mark, armed with a 640 score crosses his fingers and hopes he doesn’t get his head knocked off with a high interest rate as he tries to buy a one year-old sedan. Mark had some slow pays back in the day, and a couple of medical charges that were paid off just before being turned to collection. Other than that he had a history of paying his current truck off with minor hitches. Tom, the 715, is looking to finance his third vehicle. Both he and his wife have new vehicles-Tom being on both loans. Brother Mark, the 640 score, will be trading in his ten year-old truck (paid for). They both have a similar home mortgages, but 640 Mark has no current auto loans and makes $2000 more per month than Brother 715′s modest salary. Finally, 715 Tom buys the five year-old sedan with a 120% carry (indicating that the loaned amount is 20% past the “book” value of the vehicle), while Brother 640 Mark puts $2500 cash down along with the $3500 trade-in value of his truck, giving him a total of $6000 down-which places his loan, 40% under book value.

Let’s compare: Tom has a high 715 Beacon score, but is asking for his 3rd auto loan. He brings nothing to the table in the way of cash down and needs to borrow 20% beyond the loan value of the vehicle. Finally, he is buying a 5 year old vehicle, which sends a red flag to lenders that there is a good chance he will be spending money on repairs. Brother Mark has a 640 score, but lays out $6000 on a one year-old, low mileage vehicle. His down payment places the loan request at 40 under what the banks deem his vehicle is worth at an auction. Who gets the better interest rate? Brother Mark…take it to the bank.

The lowest credit score I have personally seen, in all my car-selling years, was a deal we not only “got done”, it was a deal in which the buyer received a low interest rate. The main reason was that he purchased his used pickup with a very large down payment, so that the amount the lender loaned was considerably under book value. (He also made a decent wage and had a stable time of residence. If you’re a lender, where’s the risk? The buyer, in this case, could have skipped the next twenty payments while the repo guys chased him all over the country and the vehicle-when they found it-would still be worth more than what was owed.

Here’s some tips on keeping your interest rate low:

High Credit Scores: You think you are safe? Well, let’s suppose your grandpa to four of the sweetest college age kids you could imagine. You’re retired, so your income is fixed, and each kid, one-by-one comes to the well called Grandpa to get a co-signer for their auto loan. Grandpa never missed a payment in 40 years, but as the auto loans pile up, the rates get higher and higher because the exposure to the car loans, when compared to Grandpa’s income, make the loans more and more risky to the lender.

If your score is high, keep a balance to your loans versus income. If you co-sign too many times it may impact your ability to get a good loan.

Middle Credit Scores:

(1) Beware of the dreaded “negative equity” (the vehicle you are trading in is worth less than what you owe)…especially if you are putting no money down.
(2) Consider a loan that is fewer months than you might otherwise have taken. (The average auto loan is around 60 months. Lower that, to say 48 months-assuming the loan is manageable-and the loan becomes more attractive to the lender because the risk just went down.
(3) Consider paying more for a newer vehicle. As mentioned in the Tom and Mark story, most lenders raise interest rates as vehicles get older-due to the likelihood of car payment money being siphoned off to car repair bills.

Low Credit Scores:

(1) Have a large down payment.
(2) If you are on the brink of moving or changing jobs, consider buying your vehicle first, while your loan application shows longer job and residence time. Length of job and residence show stability to a lender, which lowers their risk-and your interest rate.
(3) If you were considering paying cash for a vehicle, consider using that money for a large down payment. Then
(4) pay the vehicle off earlier than the contracted length of the loan. This will place you in a position to lower your interest rate down the road.
(5) Consider paying a reputable company to “clean up” your credit report. Taking off bogus bad marks, and settling minor (negative) hits, could place you in a position to either get a loan that you otherwise might not have earned, or could place you in a bracket that lowers the interest rate you might otherwise have earned.
(6) Consider a co-signer (with good credit). (This won’t always lower your interest rate-especially if your credit is torched, but it may be the difference between getting a loan and not getting one.

Robert

Albert s asked:


i baught a truck 2 months ago with high payments and high interest rate 30+ percent. The dealer told me i should wait at least 6 months to refinance it and a year if i want to trade it in? I refinanced it with a bank. If i refinance it do i have to put ANOTHER down payment?? thanks!

William

Carrie Reeder asked:




Obtaining a car loan with bad credit is achievable. The downside to purchasing a car with bad credit is that you may receive a high interest rate. On average, individuals with poor credit can expect to pay about 2 or 3 percentage points higher. Higher interest rates may increase you monthly payment by up to $150. Those who can afford to pay a higher monthly payment may be willing to purchase a car with a high rate. Nonetheless, there are ways to improve your chances of getting a reasonable interest rate.

Fix Your Credit Problems

Before approving a loan, lenders review credit reports to determine credit worthiness. Credit reports reveal a lot of information regarding your credit history. Do you pay your bills on time? Have you filed bankruptcy? How much debt do you have? Based on this information, lenders will approve or deny credit. If you have a low credit rating, try and improve your score before applying for a car loan. It takes time to improve your credit score, but it is worth the effort. Improving score involves paying bills on time, reducing credit card and consumer debt, etc. If you have recently filed bankruptcy, consider opening two or three new credit accounts to rebuild credit and establish a good payment history with creditors.

Save for a Down Payment

Having a down payment is a great way to negotiate a lower interest rate on a new car. The average down payment varies. However, a down payment of as little as $1000 can make a big difference. An interest rate reduction may save you thousands throughout the life of the loan. If you are hoping for a very low monthly payment, consider a large down payment. Not only will you get a low interest rate, but you are able to pay off the loan balance quicker.

Compare Fees and Rates

Many people receive auto financing through a dealership. However, it is smart to obtain at least three quotes. The best way to obtain multiple quotes for a car loan is to apply for a loan with an auto loan broker. Brokers are the convenient way to compare lenders. Simply complete an online information request form, and auto loan brokers will negotiate with several lenders to provide you the best financing. After you receive quotes from lenders, compare their rates, fees, and terms. Select the lender with the best financing option.

Roberto

Ruth Caldon asked:




Picture this. You need a new set of wheels and you need them in a hurry. The only problem is you don’t have the disposable cash to buy it and you know your credit record leaves a lot to be desired. So what do you do? Resort to grabbing the bus every day or go for an auto loan instead?

Most people would put their hands up at the suggestion of an auto finance loan. It solves all your problems, giving you the cash you need to buy that new car up front, and allowing you to pay it back monthly at an agreed rate.

But hang on a minute – aren’t interest rates for bad credit risks going to be sky high?

It’s a fact of life that someone who is an excellent credit risk is going to get the lowest rates. But it doesn’t work in quite the same way in reverse. It’s easy to assume that the worst credit risk is automatically going to get really high interest rates. But this is where the logical thinking can break down.

The truth is that there are companies around today who specialize in providing competitive car loans for people who don’t have a good credit record. The trick is to shop around and make sure you get the best rate you can.

Some people are surprised at just how much they can do to help themselves as well. For instance, let’s say you are looking to borrow $15,000 to finance that new car you’ve got your eye on. You might find you have the option to spread your repayments over different lengths of time. But this could involve different rates of interest.

Generally speaking you should get a better rate for agreeing to pay the money back faster. You should always be sure you agree to what you can afford of course. There is no point agreeing to a lower interest rate for paying back $300 a month if you can only afford to pay back $150 a month. Always ensure you pick the right loan and terms for your needs.

Another example would be the advance payment you make on your car. If you can put 20% down you’ll get better terms than if you only put 5% down. Crunch those numbers carefully and work out what you can afford to do before agreeing to the terms of any loan. This will help you to get the lowest possible rate for your situation.

Ernest

Carrie Reeder asked:




Bouncing back after a recent bankruptcy is challenging, but possible. To begin with, you will need to rebuild credit, which involves opening new accounts. If you need a new vehicle, financing a car following a bankruptcy may be a smart move. Auto loans are easy to qualify for. Thus, you can get approved with horrible credit.

How to Avoid High Interest Rates?

If your bankruptcy was recently discharged, high interest rates may be unavoidable. Yet, there are ways to purchase a new car without paying several percentage points above the current average. Sadly, there are some people paying interest rates 18% or more.

To avoid high fees, postpone financing a new or used vehicle. Instead, attempt to get a secured credit card. Make timely payment for about a year. In time, your credit score will improve, making it possible to obtain an auto loan with a rate of 9 or 10 percent.

Choose a Used Vehicle to Finance

If you are hoping to improve credit by financing a vehicle, opt to finance a small amount. Thus, even with a high interest rate, you can receive affordable payments. Another tactic involves taking charge of the car buying process. Instead of allowing the dealership to determine monthly payments and loan term, inform the dealership of how much you are willing to pay. Your ideal monthly payment should include finance fees.

Use a Subprime Auto Loan Lender

After a bankruptcy, subprime lenders are helpful with helping people secure auto loan financing. Some lenders are shady. On the other hand, a large number of lenders understand your circumstances and attempt to offer affordable solutions. If using an auto loan broker, you have the opportunity to receive various quotes from different subprime lenders. This is ideal for making comparisons and choosing the best loan.

Apply for Loan with a Co-signer

If you are hoping to obtain an auto loan with a low interest rate, it may help to apply for the loan using a co-signer. Co-signers or co-borrowers become responsible for the loan if you are unable to pay. If your co-signer has exceptional credit, you may qualify for a low interest rate on your auto loan.

Jeffrey

nocclocster asked:


I was a local dealership a month ago trying to trade in my used car for another pre owned car. They ran a credit check and I qualified for an auto loan with a credit score of 571, but because of the high interest rate I couldn’t afford the car. A month later, I tried the same thing another dealership out of town and after hours of wating, the salesman told me that I was denied by 5 different banks for a loan. Then later that day I went home to check my credit score on freecreditreport.com and my score was 515.
So my question is, did my credit drop because I was denied by five banks for an auto loan? or did my first local dealership did not give me my real credit score?

Marion

Loki asked:


My auto loan has about 5k and change left. I had no credit, nor a co-signer, so I had to bite the bullet of a high interest rate. 14% to be exact. High, I know. However, I want to pay this off by September buy sending in $1000 every 2 weeks. This is possible, but I need to know how this interest is applied. I don’t want to send in 1k and have it all go to interest. I believe the interest was precalculated, so how would this work? Paying 1k until September will leave me with a few payments, but I at least wanna have 12 payments made before I pay it off. Going back to school, so I will need the extra $230 a month, which is what I pay monthly. Any help would be greatly appreciated. Thanks.

Juan

lovemusicjunky asked:


I want to buy a Nissan Cube in the next couple of weeks. I have $6,000 to put down and the car will be around $20,000 I tried to get a auto loan from my bank and I got denied. My credit score is 601. I have no debt, I paid everything off 2 years ago, no major credit cards (bc my credit is so bad I can’t get one), I make $60,000+/year so I can afford it. My debt was no more than $3500 and I have never owned or rented a house. Is there any place that I can go in the Houston, Texas area that will approve me with a not so high interest rate? Thanks in advance. It wouldn’t be such a big deal but my current car is hanging by a thread and will cost $1500 to fix and I refuse to put that much money into it again.

Jennifer

J asked:


I have been watching a lot of CNBC and you see all over the news about the current economic crisis. It looks like we are in a credit crunch, and I have heard its affecting getting any kind of credit.

I want to purchase a used car. My credit score is far from great! It is right around 590. I was prepared to pay a high interest rate prior to the economic crisis, but now I am concerned I wont even be able to get a car.

I was looking at purchasing something for around 12-15k and putting 10-20% down. What are my options? What can I expect? Any links the news articles or real world examples appreciated, and any relevant references or resources in concern to CURRENT loan practices.

I knew what to expect two months ago, but I want to know what to expect TODAY! And references or real world experience backing up your statements.

Keep the smart ass comments to yourselves! Thanks! =)

Joel

Terry Asbra asked:


Nowadays many auto loan companies have come online in order to reach a broader audience. This also includes those companies who are trying to target those people who want to sign up for an auto loan immediately regardless of what interest rates are offered to them. Usually, if you don’t know how to go about it you can end up getting an auto loan with a very high interest rate online. This is why it pays to know how to get the best rates when you are searching for an auto loan online.

The good thing about doing a search for an auto loan online is that many brokers will offer you a convenient application which you can use online to compare various lenders. Some websites will even allow you to do a side by side comparison of various lenders while other websites will email you with the best auto loan options they have. Auto loan brokers online work really hard to try to get as many customers as they can and they are often willing to negotiate low rates with a lender you are interested in. This often results in much better deals if you do business via their website.

In order to get a more accurate quote I would always advise that you fill out the auto loan application form with as much detail as possible. Even the slightest difference in your income or your employment can mean a reduced interest rate.

Finding a good rate requires that you know exactly how to balance the rate you are offered as well as the duration of the loan. Loans with a shorter period often are accompanied with a lower interest rate but require a higher monthly payment. You will need to take a long hard look at your monthly budget to see what type of auto loan will work best for you.

Another good way to get a lower interest rate is to give a down payment when you are applying for an auto loan. A large down payment can significantly save you a great deal of money in monthly payments. If you put down a 20% down payment for your car you will qualify for very low interest rates even if your credit is really bad. You will also now be paying a much lower interest rate on 80% of the vehicle which you have financed.



Ralph