Is an 84 Month Auto Loan Bad?: Let’s Do the Math

Your car is approaching that make or break point, the six-figure mile marker. Every time you hop in your car, you see the odometer inching closer and closer to 100,000 miles. You know that, once it reaches that point, depreciation sets in at a more significant rate with each additional mile you put on the car.

So the following weekend you find yourself in an auto dealership, surrounded by gleaming polished vehicles all with that new car smell when you step in. But as you go over the numbers with the salesman, it becomes clear that the monthly payment on the vehicle is going to be more than you can afford at the moment. However, the salesman has an idea that may solve your problem: an 84-month car loan.

Is an 84-Month Car Loan Bad?

Determining whether it makes sense to take out an extended car loan starts and stops with the interest rates. It’s one thing if you’re going to be paying the same interest rate only for an additional year or two. But it’s an entirely different matter if you’re paying significantly higher interest rates. And that’s what you are guaranteed to find with an 84-month car loan.

Higher Interest Rates

What the car salesman didn’t highlight in his sales pitch was that the longer the loan, the higher the interest rates. Like your car’s 100,000-mile mark, car loans have a similar breaking point when they go further out than 60 months. And just like your car’s depreciation, the breaking point is significant.

You may be able to stretch your loan out to 66 months before seeing the increase. But once you reach anywhere near a 70-month loan, the interest rate can jump swiftly. For example, a loan with a 4% interest rate could increase up to over 6% when the loan approaches six years in length.

Let’s use an example to highlight the heightened interest rate. If you want a car that costs $20,000 and your trade-in is worth $5,000, you’ll be financing $15,000. If you go with a 60-month loan, your monthly payment will be $276.25 before taxes and fees. The total amount you’ll pay for the loan would be $16,575, so your total interest paid would be $1,575.

If you wanted that monthly payment to get down closer to $200, an 84-month loan with 6% interest would have a monthly payment of $219.13. But your total amount paid would increase to $18,406.92, with a total interest paid of $3,406.92.

By going with an 84-month loan, your total interest paid more than doubles.

Longer Debt Cycle

Not only will you be paying more money than you need to, but taking out a loan that long means you’ll be stuck paying it off for the next seven years.

The additional length of the loan also means that, by the time you’re done paying it off, your car will have depreciated by an extra year or two. So when it comes time to repeat the car-buying cycle all over again, your trade-in will be worth less. And not only will it be less valuable, but you will have also sunk more money into repairs and maintenance.

How to Combat Car Payments

But what if you have no choice? You need a new car, and you cannot afford the monthly payments on a shorter-term loan. You still have multiple options at your disposal.

Negotiate a Better Price

Whatever price you have settled on with the car salesman is likely higher than the lowest price they’d sell it for. Before you walk into the dealership, look up the car’s invoice price. This is the price that the dealers pay to acquire their vehicles. You may think that they would never consider selling for less than the invoice price, but while it sounds counterintuitive, it is not uncommon to get as much as 2% below invoice price.

Holding your ground can be the hardest negotiating tactic to learn when stuffed into a car dealership’s office. You’re in their territory, sitting in an uncomfortable plastic chair as the salesman walks back and forth to chat with their manager about the price. They wait you out, and they throw a variety of numbers on a piece of paper to confuse you.

But if you have a game plan, and more importantly, if you stick to it, you can leave that dealership with a steal. Set a max price you are willing to pay. This should be no higher than 3% above the car’s invoice price. Now, set a starting point and a plan of how you’ll negotiate from your starting point to your maximum amount. If you have to offer your max, don’t budge any higher.

Walk out of the dealership if you must. You’ll be surprised at how well it works.

Consider a Lease

We are not going to settle the never-ending debate over whether it’s smarter to lease or buy a car today. But a lease could be the perfect option for you if you find yourself in a difficult situation with the monthly payment. With a lease, there are fewer upfront costs, and your monthly payment should be lower. But the best part about a lease is the shorter period of payments.

Four years from now, rather than worrying about how many miles you’ve already piled up on your car, you can consider another lease. Or maybe you decide the time is right to buy because you have a higher monthly cash flow than you did four years ago. Whichever you choose, the point is that you have the choice.

With an 84-month car loan, your choices evaporate. You are locked into a seven-year-long loan, and that’s not even the worst part. You could easily end up paying more than double the amount of interest on the loan by extending it just two additional years.

Refinance Your Car Loan

If you’re already stuck with an extended car loan, you may not be entirely stuck with it. Check out our article on how to refinance your car loan.

Bottom Line on Extended Car Loans

An 84-month car loan is never a good idea. If leasing a car isn’t your thing, start working on your negotiation skills.

If you want to shop for the best auto loans, look no further.

Auto loan delinquency rates climb as Americans amass record household debt

U.S. household debt set another record high in the first quarter of 2018.

According to the Household Debt and Credit Report from the Federal Reserve Bank of New York, which uses credit report data from Equifax. As of March 31, household debt hit a staggering $13.2 trillion.

While most of that debt ($8.9 trillion) comes in the shape of mortgages, one of the report’s most startling revelations relates to auto loans.

Auto loan balances increased by $8 billion in the first quarter of 2018, continuing a trend that dates back to 2012. Auto loan delinquency rates also rose, with 4.3% of auto loan balances at least 90 days delinquent as of March 31.

The report’s data also revealed that nearly 19% of new auto loan originations were issued to consumers with credit scores below 620. Oftentimes loans issued to consumers with lower credit scores can come with higher interest rates — a factor that might be contributing to the rising rates of delinquency.

The good news? A Credit Karma analysis last year found that Americans could potentially save $37 billion by refinancing their car loans.


  • What does this mean for you?
  • Why should you care?
  • What can you do?

What does this mean for you?

As we go over in How to Refinance a Car Loan in Five Steps, generally speaking, the better your credit, the more likely you are to secure a lower interest rate. But even people with good credit can get stuck with a high-interest-rate auto loan. Buying a car involves a lot of decision-making and, in all too many cases, researching the best deals on financing may take a back seat.

Why should you care?

Rising auto loan delinquency rates may sound ominous, but they can act as a wake-up call.

Whether you took a bad deal on financing or couldn’t qualify for a cheaper loan at the time you bought your car, you may want to see what your options are for refinancing — it could lower your interest rate and reduce your monthly payments.

“The $37 billion is a big number, but what’s more impactful is how much some people are overspending on their loans on a monthly basis,” says Bethy Hardeman, Credit Karma’s chief consumer advocate. “A monthly savings of $100 or even $50 can make a big difference to a lot of U.S. households — and that’s just for one auto loan.”

Refinancing your auto loan could lower your monthly payments, which could help you avoid becoming delinquent or, if you become significantly delinquent, having to deal with an account in collections. This may be especially true if you live in one of the 25 cities where motorists are leaving the most money on the table.

What can you do?

If you’re in the market to refinance your auto loan, you should consider your options. You can check out some refinancing options or look for new auto loans via Credit Karma, but that’s not all. Here are some other tips that can help keep you on track with your auto loan payments:

If you already own a car

  • Know your APR. In an October 2017 survey of U.S. car owners who are currently making monthly payments on their car, Credit Karma found that nearly half — 45% — couldn’t recall the annual percentage rate on their loan. Knowledge is power; you may not know whether you can save on interest if you don’t know what you’re already paying.
  • Shop around. If you’re concerned about comparison-shopping hurting your credit scores, check out our primer on whether rate shopping can affect your scores.

If you’re shopping for a new car

  • Do your research. We don’t recommend taking the first deal you’re offered without shopping around first. When financing your new vehicle, it’s important to know your options. The Consumer Financial Protection Bureau offers an auto loan worksheet that can help you through the process.
  • You can walk away if you feel pressured. We get it — buying a car can be a stressful experience. But that doesn’t mean you should let the salesman push you around. Keep your cool and feel empowered to walk away if you suspect you’re getting a raw deal on financing.

About the author: Brian Spychalski is a former Credit Karma freelance contributor now based in San Francisco. He has a background in corporate finance and a deep knowledge of the consumer credit market. W… Read more.

Best Auto Loan Rates: Where Can You Get Them?

Your desire for a car or truck that is above your budget may have you considering where to get the best auto loan rates. You have taken your time to make a thorough inquiry. But somehow, you are not sure if you have the right credit score for an auto loan.

Interestingly, you have also done a few test drives. However, the reality check is that the vehicle is probably above your budget, and you may need financing.

Essentially, wishing for a new ride is not enough. You must also devote your time to finding the best auto loan rates for your purchase.  However, many people do not take their time to research and find out the most suitable loan for them. Since they are only interested in getting their favorite machine, they just go for whatever comes their way without giving it due consideration. Eventually, they end up with regrets the moment they realize what they have gotten themselves into.

Like any other loan applications, you need to count the cost before you conclude. And chances are, you already know all the precautionary steps and measures off the top of your head. However, one critical yet underestimated part that nobody cares about is the lenders. Finding the right lender is equally as important as finding the right car. So you need to check out which one will serve your best interest financially before signing on the dotted line.

Since you don’t want to take any chances, you may need to carry out comprehensive research online to select which lender is best for you. However, if you find that stressful and time-consuming, you can still get the best auto loan rates if you follow our lead.

We have made this search easier for you by presenting some of the best lenders in the industry. Read on to discover more.

Photo Credit: Pixabay (Pexels)

Best Auto Loan Rates: Discover Which Lender is Best for You

When it comes to car shopping, you definitely need to put in some effort upfront. However, you can quickly check out this list to see some of the best auto loan rates and their lenders.

Consumers Credit Union

When it comes to loans, the right information will get you through the door of the best lenders and also protect your interest. That is why many loan applicants prefer credit unions, as they can avoid being victims of auto loan debt traps. Firstly, credit unions protect their members’ interests and also offer lower interest rates when compared to banks.

Having an account with a credit union allows you some sort of “VIP treatment.” Hence, lenders like the Consumers Credit Union offer their registered members friendly deals, making it convenient for them to pay back. Banks, on the other hand, may be unable to grant you such privilege, as they thrive on your repayment of interests.

CCU’s Auto Loan Rate: Interest rates are as low as 2.69%. CCU requires a minimum of 640 credit score for your request to fly through.

Again, you may want to consider credit unions other than CCU. Several credit unions have specific membership requirements before admitting you fully into their credit circle. Some of them may require you to be an alumnus of a particular school, come from a certain state, or even be associated with a military branch. Some may also require you to reserve some minimum amount in your savings account with them. All these requirements are combined to determine your qualification for their best auto loan rates. Their paycheck is expected to help you cover charges on fixed rates and repairs. Fortunately, your repayment is then calculated on a friendly, simple interest system. With this system, you will be able to repay your loan conveniently.

Unfortunately, as inviting as the CCU offer is, not everyone qualifies. The 640 credit score expectation and other factors like a hard credit inquiry determine application results.

Capital One

There is an advantage that comes with choosing top lenders when it comes to delicate applications like loans. If you want your interest to be protected and your loan request treated in the most professional manner, and with a sense of urgency, Capital One is one lender that has gained acceptance for its standardized loan processes.

If the plan is to get a used car or a brand new one, you can register for a pre-approval via Capital One’s Auto Navigator program. This pre-approval does not affect your creditworthiness because it is a soft pull. Capital One has a nationwide auto loan coverage with over 12,000 auto dealers, and your pre-approval letter can be presented to any of them.

You can check Capital One’s website for the dealer in your neighborhood. The dealership receives your pre-approval note, takes you on tour, and kick starts your application once you have made your car selection.

Capital One’s Best Deals: You can get pre-approval online before starting your full application. This step, however, doesn’t affect your credit score. However, if you already own a car but need the best auto loan rates, you can apply for Capital One’s Refinance Program.

Open Road Lending

It’s possible that lenders charge you more if your credit score recently increased. This case may be because you just cleared your debts or got a raise. OpenRoad Lending simplifies loan application for qualified applicants. You are able to refinance your existing loans and still save up to $100 on your auto payments.

Open Road’s process is seamless and will take just a few minutes.

Open Road Lending’s Best Auto Loan Rates: 1.99%

For Open Road Lending, you need a monthly income of at least $1500 for consideration. But be aware that Open Road Lending’s process may involve a hard credit pull; hence, you should consider the pros and cons of refinancing your auto loan.

Carvana

 Have you ever thought about getting all the auto application and approval done from your living room? Then Carvana is that one platform that’s concerned about upgrading the auto loan service for your convenience. You can bypass the processes of dealership and banks and get your car. All you need to do is visit the Carvana site, apply, select your vehicle, and have it delivered to you.

Additionally, you can trade-in your old car for a deal.

Carvana’s Best Auto Loan Rates: Rather than loan rates, carvana offers shop rates without a hard pull on your credit. You don’t even need a minimum score to apply. However, you will need a minimum annual income of $10,000 to access the service.

You can use the Auto Loan Calculator on their website to prevent the implications of a hard inquiry on your credit while you shop.

Best auto loan rates
Photo Credit: Pixabay (Pexels)

Enjoying happiness and convenience is a necessity. You don’t have to wait until your paycheck is fatter to access some of the best things in life. With the right information, you can leverage auto lenders to drive that ride you have always wanted. We hope this article helps you select the best auto lenders with the best auto loan rates. Congratulations in advance. 

What Credit Score Do You Need to Get an Auto Loan?

If you are trying to get an auto loan, you may be worried about your credit score. Is it high enough to get you favorable terms? What is the highest credit score possible? These questions are going to be answered here so that you can be prepared and ready to get a car loan.

Lenders often choose the credit score they want to use when they evaluate your application for an auto loan. Some lenders are going to use different scores or might even test multiple credit scores. Therefore, you aren’t going to know which one they see when applying for a loan.

What Are the Differences in Credit Scores?

The fundamentals behind credit scoring models are quite similar, but each one uses particular criteria to analyze your report and generate your credit score.

Sometimes, there can be small but important differences. For example, one scoring model might consider anything that went to collections as a negative thing, even if you paid it off, while another might completely ignore collections accounts.

VantageScore and FICO are the two top leaders for credit scoring, and they both share similarities. Both models look at the information from one of the credit reports, using Equifax, TransUnion, or Experian to help determine your score. Higher scores are always better because they can indicate that you aren’t as likely to miss your loan payment each month.

Generally, the base models have a similar scoring range from 300 to 850. FICO, though, has scores specific to particular industries. Auto lender scores can range from 250 up to 900.

What Credit Score Does a Car Lender Use?

You may not know which credit score your auto lender is going to use, but these are some of the most popular options:

  • FICO Auto Scores: You can find many versions of the Auto Score from FICO, which was created specifically for lenders catering to auto loans. These scores are still based on the general FICO Score, but then it is altered to help predict the likelihood of a person repaying their auto loan on time. If you already have a history with auto loans (and paid them back in full and on time), this could be a deciding factor for your current FICO Auto Score.
  • FICO Score 8 or 9: The eighth and ninth versions of the FICO scoring models are the latest on the market. While FICO did not create them for auto lenders specifically, they’re used widely for a variety of credit purposes. Therefore, auto lenders might use this base FICO score when they review your loan application for an automobile.
  • VantageScore 3.0 or 4.0: VantageScore is a credit scoring agency that was founded by the major credit bureaus (Equifax, TransUnion, and Experian.) The 3.0 and 4.0 are the latest versions of its scoring model. Between 2016 and 2017, about 70% of auto lease and loan decisions made by auto lenders used the VantageScore model.

You should be aware of many small differences between VantageScore and FICO and how they use the information provided in your credit report. There are also different scoring models within the same company. Regardless of the one the lender chooses, all the scores rely on an analysis of one of the credit reports. Therefore, some actions can help one score, such as making payments on time, and it can also improve all scores at the same time.

How Do You Check Your Auto Score?

Most people believe that they can only check their FICO Auto Score by buying their credit reports and enrolling in a credit monitoring service. While you can do that, and it offers many benefits, you can get your credit score for free as well.

Each score that you get is going to depend on the underlying credit report and scoring model. Still, knowing all of your scores can give you a better idea of where you stand before applying for your auto loan.

Consider these places to get your free score:

  • Credit unions and banks
  • Private student loan lenders
  • Credit card issuers
  • Financial and credit counseling organizations
  • Online comparison sites for financial products
  • Annualcreditreport.com (you get one free report each year from all three credit bureaus)
  • Experian (you can gain access to the FICO Score 8 from your Experian credit report)

What Is the Highest Credit Score?

Even though auto loans might be a little different, you should be aware of the highest credit score you can get on average. With the FICO model, 850 is the highest credit score you can achieve, but this is under perfect circumstances. While there are a few people with such a high score, it is seen as redundant by most lending institutions.

Generally, if your score is over 740, you have a great score, and it can put you in the market for better interest rates on a variety of loan needs.

Do you need a perfect score to get an auto loan? No, you do not. If you’re already near that 740 mark, you don’t have to work toward improving your score before buying a car. To do that is just going to waste time and probably frustrate you immensely. Instead, apply for a loan with a few reputable lending institutions. Make sure to check interest rates and terms so that you know what options are out there and can get the best deal.

What If You Don’t Have a Perfect Score?

Again, the highest credit score should not be your goal here. As long as you have a score of about 740, you are sure to get favorable terms. Still, most people don’t have a credit score that high. If you have a score of less than 600, it’s a good idea to start improving it before you get an auto loan.

Some lenders are still going to offer you a loan, even if you have a low score. It does depend on a few things, but the issue here is that you are going to pay exorbitant interest rates because you’re considered a high-risk borrower. Therefore, if you have a lower-than-average score, it might be better to raise it before requesting the loan.

The question is, how do you do that? There are a variety of ways to improve your credit score, but they take time and diligence.

Pay Down Your Credit Card Balances

Have you heard of the credit utilization rate? It’s the percentage of your credit card limits that you’re using right now, and it is one of the most important factors for credit scoring. You can easily figure out how much of your credit you are using. To do this, find out what your credit limits are on all of your credit cards. Then, get the current balance on all of those cards, ignoring the last payment you made, as it might not have had time to reflect on your credit score.

Once you know these numbers, divide the total balance by the overall limit. Let’s say you have a total credit limit of $50,000, and your balances on all of your cards equal $25,000. When you divide the balance by the limit, you get 0.5, which means your utilization rate is half of the total credit limit.

The goal is to shoot for a utilization rate of under 30%. It is better to have as low a utilization rate as possible. Therefore, if yours are higher, you should work on paying down those balances, which can quickly boost your credit score.

Consolidate Your Credit Card Debt

Many people cannot afford to pay more than the minimum balance on their credit cards. Some can’t even pay the minimum amounts and get behind on payments. If that is the case, you may want to consider applying for a loan to help consolidate your debts. Use that money to pay off all of your credit cards. That way, you have one low payment to make each month. Plus, a personal (installment) loan like this isn’t going to impact utilization ratings. Therefore, you can transfer your debt to a personal loan from the credit cards, improving your scores. Just make sure that you don’t add more charges to the cards, racking up the bills again.

Keep Your Credit Card Accounts Open

Though it may seem like a good idea to pay off a credit card and close it so that you aren’t tempted to use it again, this is likely to backfire. If you close a credit card account, even one you don’t use, it is going to lower the amount of credit you have available, which increases the utilization rate.

Of course, there are exceptions to this rule. For example, if the credit card in question has annual or monthly fees, it might be a good idea to close that account. Also, you may want to close your credit accounts if you know that you are going to have problems with overspending.

Continue Making Payments on Time

Even a single late payment could damage your credit score more. You need to ensure that your most recent credit history is clean before you apply for an auto loan.

Don’t Fill out Other Loan Applications

If you apply for an auto loan and another type of loan at the same time, you are taking on extra debt, which could damage your credit score. Unless there is a pressing need, such as the act of consolidating your debt, it might be wise to put off a new loan and credit card applications until you have bought the car.

Review Your Report and Look for Errors

Make sure you request your credit report from each of the three bureaus. Check each one thoroughly for errors and file disputes where necessary. The credit bureau has to investigate the claim and validate, delete, or update the information.

The Right Auto Insurance Coverage for You and Your Family

From the day an individual receives their driver’s license, life becomes a little more complicated. The reality of adult life begins to set in, and it is intimidating. Parents do their best to give their children the world, but sometimes it can be a tad expensive. Adding your child to your auto insurance policy can make your premium rise.

Auto insurance coverage may seem confusing. Insurance companies have jargon and tend to make policies seem more complicated than they are. Nonetheless, almost every single state requires vehicle owners to have auto insurance. Even though this adds to your monthly bills, it is worth it if something was ever to happen. Auto insurance is also a great tool to give parents peace of mind knowing their child is covered. New drivers are often nervous and tend to get in more accidents. Likewise, auto insurance is there to help defray any costs so that families won’t drown in any medical or damage bills.

The Extent of Auto Insurance

When shopping for auto insurance, agents often try to upsell and give individuals more coverage than they need. Auto insurance is a policy that is purchased by an individual. The policy covers everything that has to do with their car. The coverage is there to help people with the extra costs that come with owning a vehicle. It can assist with losses from an accident or only just your car breaking down.

A person must pay an annual premium that is broken up into monthly payments. Within the time the policy is in effect, the insurance company may pay for any auto accidents or vehicle damage. Vehicle damage is anything from a cosmetic scratch to an internal issue.  

How does a company propose a premium? The premium rate depends on various factors. The main determining factors range from age, sex, driving record, and years of experience. Even though these are the first things a company looks at, the type of policy you choose also depends on the amount of the annual premium. For instance, full coverage is going to be much higher than liability because it encloses more protection for your assets.

What is an essential factor in the company’s decision? Your driving record is the most crucial factor. Most people say not to judge a person by their past, but when it comes to driving, that is not the case. Previous studies show that only 30% of drivers improve their driving skills over some time. By the age of 25, the majority of people have created their unbreakable driving habits. 

While insurance companies try to provide propaganda to help improve an individual’s driving skills, it doesn’t always work. A new trend for most insurance establishments is to offer phone applications that track your driving and save you money. These methods are popular with parents of young drivers and people who have an excellent driving record. For parents, this also gives them an idea of how their child drives without them in the car.

Types of Auto Insurance Coverage

While there are various types of auto insurance, let’s discover what is best for you. There are three basic types of auto insurance; these include coverage for property, medical, and liability. The property portion of insurance covers everything for your vehicle. Medical coverage is there to pay for any medical attention needed in an accident. Lastly, liability ensures you aren’t held reliable when causing damage to someone else. Read on to discover detailed explanations of each type.

Property

Collision Coverage

As stated above, property coverage is here to protect your vehicle and any damage done to it. Within this category, there are multiple options to up your coverage. The most basic class that every policy offers is collision. Collision coverage is for your vehicle’s protection if you get into an automobile accident. The collision is the best asset to have in policy because it ensures that damage done to your car is covered.

Comprehensive Protection

The next category under the property is comprehensive protection. Comprehensive coverage protects everything the is not a collision. Mostly, this coverage helps when it comes to “acts of God,” meaning something an individual cannot control. No one can control the weather and the things it may bring. Comprehensive coverage is there to pay for a range of occasions, such as hail damage. If you are in an area that receives terrible storms or has harsh winters, this is something to add to your policy.

Roadside Assistance

In many cases, roadside assistance is the most used category. It’s not every day you may get into an accident; however, it is more common to have a flat tire. Roadside assistance covers a cost range from $75 to $100. Roadside assistance includes towing, spare tire replacement, and if you run out of gas. Your insurance company pays for any incident when you’re stuck on the side of the road. Whether you need it for towing or labor costs, roadside assistance is your best friend.

Rental Car Coverage

Lastly, this category is not a necessity; however, it may come in handy if you and your family travel often. Rental car coverage is something you can manipulate in your favor. You don’t have to pay for this all the time. You can add to or take off your policy at any given time. Rental car coverage was made so that your policy reimburses the client for the cost of a rental car. There are several reasons that you may need a rental, such as if your vehicle is in the shop or totaled. If you choose to add this to your policy, keep in mind, it raises the premium at least $20, if not more.

Medical

The most common debt of Americans is associated with medical bills. No one wants to pay them because they are so expensive. Each kind of auto insurance policy is required to implement some sort of medical coverage. There are two categories to this that include PIP (personal injury protection) and medical payment coverage. Necessary auto policies include a certain amount of medical payment coverage.

Personal injury protection is the most complicated between the two. Having PIP covers your medical expenses regardless of who is at fault in an automobile accident. The coverage is often referred to as the “no-fault protection.” PIP is an extra blanket of coverage on top of medical payments because it ups your medical allowance in a policy. Nonetheless, adding this coverage can make for an expensive premium.

What exactly does PIP pay for? For example, if you get into an automobile accident and have PIP, you do not have to worry about any medical care or transportation. Personal injury protection is there to pay for ambulance rides, emergency care, follow up appointments, and prescriptions. Also, personal injury protection usually kicks in before your health insurance. This is an excellent option if you have any young drivers on your policy.  

Medical payment coverage is a little different. After an accident, medical bills seem to come flooding in from all directions and can be overwhelming. The coverage is there for you and your passengers if either were to be harmed in an accident. The only bills this protection pays for are the initial medical bills accumulated in the first 72 hours. There are different deductibles to choose from when creating a policy with your agent. The range takes you from liability auto insurance to full coverage insurance.

Liability

The least expensive portion of auto insurance is a liability. Liability is the aspect of auto insurance that takes care of any expenses of someone you may hit. If you were to get into an accident and total someone’s car, this would cover them, but not you.

State Laws About Auto Insurance

Each state has its separate laws about auto insurance. For example, if you live in Florida, you must have PIP on your policy. Sometimes, it seems unfair that state law forces you to spend more money, especially if you have a young driver on your system because the premium is already increased. Whether it seems fair to everyone or not, a law is a law, and unless you want to deal with the consequences, you have to abide by them.

Even though each state requires drivers to have different amounts of coverage, you must have some type of car insurance. The penalty for not having car insurance ranges from a simple warning from police to a hefty ticket and sometimes a court appearance. If this is a recurring problem with an individual, they might lose their license or even face a small amount of jail time.

Tips on How to Decide on Coverage

While it is always an excellent option to do some research online, choosing an insurance company is challenging. The various companies make it challenging due to their competitive rates and the differences in the policy coverage. Consider your family size and how many separate policies you need, then decide on the amount of coverage you want. Never rule out some insurance agent shopping, as receiving a few quotes can make this step a little easier. Next, figure out the budget you have each month for your bills and find your price range. The most challenging part about choosing an insurance policy falls with the price range.

All in all, whether you have a young driver or are just looking to change auto insurance companies, it is always good to understand what is covered. Some agents do an exceptional job of explaining the various types of coverage included in a policy, but some do not. Likewise, do not let an agent upsell you on a plan. Do not get more coverage than you and your family need and can afford.

Getting Your Auto Loan

Walking, riding your bicycle, or riding the bus can get you to many of your destinations. However, depending on the time, distance, and the need to be punctual, these may be inconvenient, impractical, or even impossible to do. It’s so much easier to drive yourself to most places, which is the reason why so many people have cars.

Everyone understands that the various overhead costs associated with vehicle ownership make it more expensive than using public transportation or just walking, but there’s an immense improvement in convenience. While it’s hard to put a price tag on the value of convenience, one could say that being able to drive where you want when you want is very much worth it.

Purchasing a vehicle, however, is not the same as purchasing a stove – the price of a vehicle is usually more than most people can afford to pay at once.

You could opt for the purchase of a much older vehicle, but that may not be the best decision. There is the consideration of natural wear and tear above all else. Additionally, there may not be the kind of support that you need to maintain the vehicle effectively.

Therefore, you’re left with the option of taking a car loan. By the time you’re finished here, you should be very familiar with the process that is associated with doing so, as well as what you need to do to get yourself into that new car you want.

Get a Credit Report Check

A loan is a form of credit. Unless you’re getting a loan that is specifically designed to ignore your credit score, then the status of your credit always forms a big part of your being approved.

It’s practical for lenders to go this route, as they get security from doing so. There needs to be an assurance that you are both willing and able to pay the loan back. The credit score and credit history give an idea of how you are likely to act with this loan since it is based on your behavior with others.

This report is used as a basis to determine the amount that you qualify for, as well as the interest rate that is applicable. Generally, the better the credit score, the more favorable the terms that you are offered.

The institution does a credit check during the processing of your application. That’s one of the reasons why you pay processing fees, as the check is not free. While this is a part of the process, it’s best that you have an idea of where you stand before you complete the application process.

Therefore, it’s best for you to check the score on your own. Even if you’re not so interested in what the score is, sometimes there is erroneous information present that is a detriment to your receipt of any source of credit. It’s possible that there’s an implication of fraudulent activity present that is incorrect. These are the kinds of things that you need to get cleared up before applying for your loan, as you could be turned down.

Each of the major credit reporting bureaus provides a free annual copy of your credit score. There are also many banks and online sources that do the same.

Another recommended action is for you to use a credit score simulator to do a bit of investigative work before you apply for the loan. While this doesn’t have any bearing on your receipt of the loan, it can help you to determine the impact of the loan on your credit score.

The simulator is a measure of how your score is likely to be impacted based on the acquiring of loans or based on certain payment patterns. Consider using a credit score simulator to see how the loan you’re applying for impacts your score and how your planned payment schedule factors in. Of course, the simulator may not be a perfect representation of what may happen, but it gets very close to reality.

Apply for Multiple Loans

Before you get scared here, this isn’t an advisory for you to go and apply for a bunch of loans to get approved for all of them. That would be overkill in the payment department, and all those hard inquiries on your credit score would mean most of your applications would fail unless you do them very quickly.

Your intention is only to go through with one of the applications, but you do need to see the terms offered by multiple lenders so you can make the best possible decision. Apply to dealerships, online lenders, credit unions, and commercial banks.

When you do so, you can get quotes from all these sources. You may find that places where you hold an account, such as a credit union, are willing to give you a discount because you’re a member.

You may not be purchasing your car from a dealer or a broker. If this is the case, find out if the places that you’re considering allow you to purchase a vehicle from a third party. There may be restrictions in this regard, which would eliminate some places as lender options.

As you review the alternatives, pay attention to the fees, taxes, down payment, loan term, and APR.

Get Your Preapproval

After going over your options for some time, you’re likely to narrow things down to a few lenders. This is where things start getting interesting, as you’re getting closer to selecting one to do business with. There are many different areas in your credit report, and lenders view the importance of each differently, so you may find some terms to be quite favorable, while others are plain abysmal.

Getting a preapproval is your next step. Note that this isn’t the same thing as a pre-qualification that estimates your rates. The pre-approval is more of an offer, which allows you to negotiate better at the car dealer.

Organize Your Budget

This is done based on the offer that you get from preapproval. The offer is a statement of how much the lender is willing to lend you and the terms that surround that. Such terms include the APR and the loan term.

What the preapproval doesn’t mandate is the type of car that you should buy. That decision is left up to you, so all you need to do is set out a budget for what the price of the car should be. Remember, taxes and fees are a part of the loan process, so you may want to factor that into your budget.

Locate the Car for Purchase

At this point, you have all the information you need to inform your decision from a financial perspective. With that out of the way, you get to jump into the excitement of picking out your car.

While this isn’t a part of the financial process, you should consider doing extensive research on some of the cars that you consider. You need to know how supported they are, what part availability is like, any known common issues, and how marketable they are for resale.

Even with your preapproval in hand, you may possibly get disappointed when you make a choice and find out that the car you want cannot be facilitated. Though the loan offer may not tell you that you must buy a certain car, there may be some restrictions that you need to pay some attention to.

The first of these is brand exclusions. For many reasons, some lending institutions are unwilling to fund a loan for certain vehicle brands.

Next, there is the dealership. There are lenders that only trust a specific dealer or set of dealers. Therefore, getting the loan means that you must use a stipulated dealer.

There is also the matter of how the funds are provided. This may not be a problem with a dealer, but if you intend to purchase the car from a private seller, you need to ensure that the funds are provided in a convenient way.

Finally, you must consider the time restriction. You have a certain amount of time in which you should use the loan, though this can be extended upon request.

Review the Dealer Generated Offer

Don’t set your heart on the offer you got from the financial institution yet, as you may be able to get one that’s even better. Many car manufacturers have banks that are dedicated to auto purchases via dealers. You may find that the rates you can get are even more favorable than those you could get from traditional lenders.

This process is likely to go even better if you have your preapproval letter to show the kind of rate you’re already getting. Many dealers are willing to try to beat that rate to get your business.

Remember that you just want to get your car with the best terms possible, so there’s no problem if you want to see how favorable things can get for you.

Make Your Loan Choice

At this point, you’re about to buy the car, and you need the money. Therefore, you can’t mess around with rates and lenders any longer. Take the loan that is most attractive to you once the contract doesn’t look like a big issue. Check for any early payoff penalties, unconsented add-ons, hidden fees, or a loan term that’s longer than that which you asked for.

Run through the lender’s required process so the loan can be finalized, and you can get your funds. Note that dealer financing is more likely to have the items discussed above that you should check for.

Pay Your Loan

Now that you’re driving around, remember that you need to pay the loan. The lender made the required commitment, so it’s now time for you to do the same. Remember that making your payments on time contributes to a better credit history report, so try to do so. After about the first six months of on-time payments, you should see your score progressively increasing.

Credit Cards and Rental Car Insurance: What are Your Options?

The most important thing for anyone renting is making sure to have insurance to cover any of those painful accidents that can happen when on the road. We can cover all you need to know about the world of credit card insurance for vehicle and what your best options are depending on your situation.

Two Kinds of Car Rental Insurance

Secondary Coverage

On most credit cards offering rental car insurance, there are both primary and secondary options. The most common form is secondary insurance, which, as its name suggests, offers a range of benefits but only as secondary coverage to your privately bought auto insurance policy. Most policies offered by credit cards give you the option to decline some benefits, such as the collision damage waiver, as well as the loss damage waiver. Removing these two options can save you anywhere from $10-$35 dollars on your rental bill depending on the establishment. This can be great for those who already have good coverage with their private policy and are looking just to cover more bases, but be wary, as any kind of theft or damage has to be filed through your private company and the secondary insurance covers a small amount of the leftover costs.

Primary Coverage

For those looking to truly cover all their bases without having to worry about any problems that might arise from a theft or accident, primary insurance coverage is your best bet. It is the highest standard of car rental protection, and most credit cards have this option available. With primary insurance, you do not need to have your private policy, and even if you do have one, you do not need to file a claim through it, as the credit card coverage covers everything. The main benefit of choosing a primary insurance policy through your credit card is the possible significant savings on collision damage, as well as loss damage, and the ability to avoid any of those pesky premium raises that private policies tend to slap on you whenever an accident occurs.

Important Points to Remember When Using Primary Insurance

The most important thing to remember when choosing your credit card insurance is to read the details of your contract. Finding out what exactly you are covered for is paramount. Does the card include liability? Does it protect your personal property? What happens if you or someone else gets hurt during an accident? Checking to see what is covered depending on location, country, your make and model of car, as well as how long the coverage lasts is a good idea as well. Most credit card companies also require you to pay the entire bill with their card, otherwise they might not cover you, so make sure to read up on that also. All these and more are very important details to keep in mind when choosing your card.

Some of the Best Credit Cards for Secondary and Primary Coverage

With so many options out there, it can be difficult to figure out exactly which credit card is the best match for you. We have put together a list of some of the better-looking card options out there and what they are offering in terms of rewards.

  • Chase Sapphire Preferred: The Chase Sapphire card is a wonderful option for the weary travelers who are on the road or flying around the clock. It has a low annual fee of only $95. For those in business who tend to eat out a lot, it earns two points for every dollar spent on dining and travel, with one point given for every other dollar spent on other things. You can get up to 60,000 bonus reward points with your sign-up if you spend upwards of $4,000 within the first three months of receiving your card.
  • Chase Sapphire Reserve: With a $550 annual fee, the Chase Sapphire Reserve card is a more high-end option for those looking to get big benefits. The card offers $300 in travel credit per year, premium membership access to airport lounges around the world, and triple points for any money spent on dining and travel wherever you go. There is a 50,000-point bonus if you spend over $4,000 within the first three months as well.
  • United Explorer Card: For the frequent flyers out there, the United Explorer Card has some fun benefits. Its $95 annual fee is waived in the first year, and if you use the card enough times in a year, its benefits start to add up. It gives you access to saver-level award space and allows you to check in your bag for free. Like most cards, it offers some bonus points, with people spending more than $2,000 within the first three months receiving 40,000 points.
  • American Express Platinum Card: The Platinum American Express Card has a hefty amount of benefits. Members can earn five points for every dollar with plane tickets and hotels, so frequent travelers love this card. You also get elite status with places such as Hertz, Avis, and National car rental companies, which helps lower your costs and get you access to better deals around the country. The card even allows you to transfer your points to travel partners, so it’s great for couples.
  • Hilton Honors Aspire Card: The Hilton Aspire Card may be the best bang for your buck card out there for those who rent cars on the daily. It offers seven points for every dollar spent on car rental bookings. You also get premium lounge access at airports, credits towards resort stays, airlines, and a free night every year.
  • Wells Fargo Propel American Express: For those looking to get a simple secondary coverage, this Amex card is one of the better choices out there. There is nothing to pay annually, and it covers up to $50,000 for replacements and repairs. It offers three points for every dollar spent on dining, travel, transportation, and even on most streaming services – very nice for the Netflix addicts out there. It offers a nice signup bonus and 0% foreign transaction fees.
  • Ink Business Preferred Credit Card: One of the best offers for those renting for business purposes, the Ink Business Preferred Credit Card has a host of perks. With no foreign exchange fees and a low annual cost of $95, the Ink card is very useful. If you spend $5,000 dollars within the first three months, the company offers you 80,000 bonus points, the highest bonus for any card. They give three points for every dollar spent on shipping, travel, as well as on any purchases made for advertising purposes, and they even cover any internet or phone usage. For those who tend to travel around the country by car instead of a plane, the Ink Business Cash card may be a better choice, as it gives you two percent cash back when you fill up at any gas station or restaurant.

How to Make the Best Choice

When choosing which card to go with, it is important to make an informed decision. You don’t want to get a card that offers you points for streaming services when you’re the kind of person with their nose in a book 24/7 and no use for television. On the other hand, if you and Netflix or Amazon Prime have a love affair that is an intrinsic part of your life, then getting those points for usage can be great. From travel points, to streaming, car rental, and hotel use, every card can be beneficial to everyone depending on lifestyle and where you spend most of your money per month. For those who travel a lot, opting for a card with primary insurance coverage is the safer bet.

When making your final decision, try to keep in mind these main points.

  • When going in for a rental, many car rental companies attempt to get you to buy their own coverage, regardless of what you already have, so be wary of the sales pitch and just make sure that you are aware of what you are already covered for – don’t let them trick you into dishing out more cash than you need to.
  • If you travel infrequently or simply rent a car around your home when you plan on going on a bit of a further trip outside the city, secondary insurance is probably more than enough, so long as you have your own private policy that fully covers you for any problematic scenarios.
  • On the other hand, if you are moving around a lot, especially outside your state or country, primary insurance coverage is the best bang for your buck in terms of protecting yourself from any possible outcome.
  • The main benefit to primary insurance coverage is not needing to waste your time filing a claim through your own insurance, which not only does its best not to pay out, but then raises your premiums, leading to more expenses for you long term.

Keep Your Eyes Open

When it comes to things like credit cards, there is a constant flux of old cards going out of usage and new cards popping in to steal the limelight. Make sure to keep your eyes and ears open for new deals that better suit your needs. Sometimes companies put out a special offer that only stays out on the market for a month or two that can possibly save you hundreds of dollars per year due to it fitting exactly your style of travel, racking you up a ton of points that let you wander around the world in style, maybe even driving that dream car for a day or two you always wanted to try.

Remember to stay informed, and you can use the best options to improve your life and travels all year round.

Comprehensive vs. Third-Party Car Insurance

There are so many unpredictable occurrences that have a slew of implications for your vehicle. It could get damaged or stolen, which would require you to either replace or fix it. There’s also the possibility of getting in an accident, which could have financial implications for covering costs that relate to both the vehicle and medical treatment.

Additionally, you’re not the only person that needs consideration. What happens if you get in an accident in which you’re at fault? If so, you are financially responsible for addressing all damages and issues that arise from the incident.

Sometimes, the costs that arise from these unpredictable occurrences are simply astronomical. People don’t always have the kind of money lying around that is needed. Imagine getting distracted while driving and slamming into the back of a Lamborghini. What if the driver gets injured too? Can you afford to repair or replace his car and to address his medical expense needs?

While there are obviously people who could easily cover such costs, the average person can’t. That’s where insurance comes into play. While drivers can choose to have settlements to address mishaps out of pocket, insurance provides the protection that drivers need to get them through any unfortunate event.

In most countries around the world, insurance is a legal requirement. If you’re caught driving without the correct kind of insurance, you could face hefty fines or even jail time.

Available Insurance Types

There are generally two recognized types of car insurance that are available for drivers to choose from. The first is comprehensive insurance, and the second is third-party insurance. The differences boil down to the pricing and provisions that fall under each. This article explores both kinds of insurance to highlight all the information that you need to understand where both are concerned.

Comprehensive Car Insurance

The first kind of insurance to be covered is comprehensive car insurance. As the name suggests, it is very far-reaching in what it covers, and it can be a real get out of jail free card. In fact, comprehensive policies are built in such a way that they’re akin to providing you protection from terrible luck.

There are many strange and unpredictable events that can happen in the world of car ownership, and you don’t want to be left in a terrible bind because one occurred and you weren’t protected.

While comprehensive insurance has a lot of provisions, it doesn’t cover everything that you can imagine. For example, when you are at fault, many of these policies don’t cover any injuries or damage that occurs. Note, however, that most comprehensive insurance policies cover you when there is no definitive proof that you were at fault in an incident.

There are some locations in which those events can be covered under a comprehensive policy. However, the most likely scenario is that there is separate liability insurance that provides coverages for those occurrences when they pop up.

Here is a list of some of the things that you would normally file a comprehensive insurance claim for:

  • Explosions
  • Riots
  • Fires
  • Vandalism
  • Theft
  • Glass damage
  • Falling objects
  • Disasters including earthquakes, lightning, wind, floods, and hail
  • Hitting animals
  • Objects kicked up by other vehicles

You should not confuse collision insurance with comprehensive insurance. The two terms are used interchangeably by many people, but they are not the same.

Comprehensive insurance coverage tends to provide protection against random events that you have no control over. If there were an explosion at a gas station that destroyed your vehicle, for example, this would be covered by a comprehensive policy. That event is out of your hands and very random.

Collision insurance covers accidents with other vehicles or inanimate objects. Since comprehensive insurance policies cover accidents with animals, collision policies do not. This is because animal accidents fall under the category of being out of your control.

Is Comprehensive Insurance Required?

As far as the law is concerned, a comprehensive insurance policy is not required. If that were the case, then policies such as third-party insurance policies would not exist, since they offer less protection than comprehensive policies.

While there is no legal requirement, you may find that you are mandated to get this kind of insurance for a vehicle based on the way you go about purchasing it.

The most common example is what happens when you purchase a vehicle via an auto loan. While a car is a great investment, just about anything can happen on any day that you drive the car. There are an average of six million accidents per year in the United States alone. This doesn’t even begin to speak to all the other random occurrences that could happen.

A lending agency needs to ensure that the investment is protected. If you are to default on your payment, the institution would simply come and take the vehicle from you. This is the protection that the lender has. However, if that vehicle were to be destroyed, that would no longer be the case. There would be nothing to take if you stopped paying.

Therefore, lenders tend to require that you get a comprehensive insurance policy for the vehicle. It is typically stated as a loan requirement.

If the vehicle is not bound to a loan, you may want to consider a comprehensive policy if the car has substantial value. The thing you need to consider is the extent to which you are willing and able to replace the vehicle if it were to become totaled, stolen, or otherwise inoperable.

If you would replace it but you couldn’t afford to, then it is in your best interest to get a comprehensive policy.

Comprehensive Insurance Deductible

Most comprehensive insurance policies have a deductible. The good thing is that you are typically given freedom of choice where this deductible is concerned. If you choose a higher deductible, it tends to result in a lower insurance cost. While this is advantageous, remember that you are required to pay that deductible out of pocket before the insurance company pays for a claim. So your deductible should be something you can afford.

Third-Party Car Insurance

Now that comprehensive insurance has been covered, it’s time to look at the third-party alternative. Third-party insurance is the minimum legally accepted level of coverage that you can have when driving a vehicle.

Anything that happens to you or your vehicle is not covered under this kind of insurance. However, if you ever damage someone’s vehicle, the insurance policy covers the expenses associated with repairing that vehicle. Medical expenses are also covered. Many third-party policies also cover the passengers that are traveling with you.

There is an alternative type of third-party insurance known as “third-party, fire, and theft,” which covers a bit more, but this basic version is the more popular alternative.

If you are more inclined to pay for any damage to your vehicle without getting your insurance company involved, then third-party insurance is optimal for you.

You can think of this type of insurance as a form of liability insurance to help you cover any damage if you’re at fault in an accident.

Third-Party, Fire, and Theft (TPFT)

This is an alternative to basic third-party insurance. It covers third-parties in accidents where you are at fault, and it also gives you some additional coverage for your own vehicle. If your car is stolen, then you can use your TPFT policy to claim for a replacement.

In fact, even if a theft is unsuccessful, a TPFT policy covers you for any damage that the thief may have caused while attempting to steal the vehicle. So if your windows are broken, your locks are destroyed, or your radio is gone, you can get coverage for that.

Of course, if there is any fire damage to your vehicle, you are also covered. The source of the fire is not much of a consideration, as accidental fires are given the same level of consideration that arson is. If your car was burned as a result of arson though, ensure to report it to the authorities because you cannot make the claim without the crime reference number.

Comprehensive Insurance vs. Third-Party Insurance

Now you’re familiar with both kinds of insurance, it’s time to look at how they differ, and which one is better for you.

Price

The first area of difference is price. Since comprehensive insurance provides so much coverage, it should be the more expensive insurance type, right? Well, in many cases, the comprehensive option is cheaper, but there are cases in which third-party insurance is more expensive.

In fact, TPFT insurance is less costly than third-party insurance in most cases. So, why is the policy that gives the least coverage potentially the most expensive? Well, basic third-party insurance is statistically taken out by people who end up claiming against their policies.

This means that insurance companies see third-party only policies as being high-risk, which leads to a higher cost.

Coverage

This is arguably the most important distinction of all. While comprehensive insurance doesn’t always cover occurrences that you have control over, the incidents that are covered offer protection to you, your passengers, and your vehicle.

A third-party plan only covers the other person when you meet in an accident, and you’re at fault. You can get a TPFT if you want some additional protection. This would give you coverage against fires and theft on top of your basic third-party offerings.

Which Insurance Type Is Better?

There is no universal answer to this question that applies to everyone. The insurance type that you choose depends on the variables that come together to make up your situation. Are you getting a loan to buy the car? If yes, then you must insure comprehensively. Is your vehicle a high value one? If yes, then insure comprehensively, just in case it needs to be replaced.

Are you the type of person to address your own damages out of pocket? If so, then get a third-party policy, so that you can claim if you damage someone else’s vehicle.

Before You Get That Auto Loan

While there are many personal investments that you can make in life, few compare to the feeling that is synonymous with buying a car. It would be awesome to buy your dream car out of pocket; however, most people aren’t that fortunate.

The chances are that an auto loan is needed for you to complete that purchase. Should you decide to get one, that shiny new car can be yours, but this is not a decision to make without careful consideration. If you are deliberating it, you could use some sound information to inform your decision. So here are some things that you need to bear in mind as you decide.

How Strong Is the Need?

A car is not a need in most cases. What’s the worst that can happen if you choose not to get the car? Are the mass transit options available to you that inconvenient? While you may not want to admit it, a car is a luxury item. What you really purchase is the power of convenience in travel. While this can be very advantageous, it’s not always worth taking out a loan.

Of course, auto loans aren’t always used to acquire vehicles for personal use. It is possible that you want the car to help you with your new business venture. Whatever the case may be, it’s a good idea to pencil out the pros and cons of having a vehicle versus not having one.

Depreciation

While a car can be an asset, it is a depreciating one. The moment you turn those keys or push that button, the value of the car begins to plummet. If you’re not using the car for hire, it could even feel like a liability. Is something that continuously loses value worth paying for over an extended period?

A good idea is to create a plan of action that revolves around how long you plan on keeping the vehicle. You could consider selling it after a couple of years to wrap up your loan.

What Fees Are Required?

Loans are usually not free to obtain. An auto loan reinforces this point even more because you almost never get 100% financing for a vehicle. This means that you need to come up with a portion of the total cost.

What’s more, the down payment is typically calculated based on the value of the car. If the value of a car is high enough, even a 10% upfront payment can feel like a nightmare. Bear in mind that this is just one financial prerequisite that is required for the loan.

There is also a processing fee that the bank charges for handling the loan request. This fee covers the bank’s time and monetary costs associated with reviewing your application. One such process is the completion of a credit check, which has a big part to play in acquiring the loan.

Your Credit Score

As the previous point indicates, the lending association usually performs a credit check. You want to ensure that your credit score is as good as possible prior to your application. Not only does this score indicate your ability to repay, but it can also be the key to getting favorable repayment terms.

Continuous Affordability

If you think the cost of a car is equivalent to its price tag or the cost of an auto loan, you’re mistaken. A car is a man-made machine that is comprised of more parts than you can imagine. Most of these parts need changing and servicing at intervals. There are also various fluids that run through a car, which must be monitored and changed when necessary.

As you also know, unless your car is fully electric, it runs on fuel, which is something you must buy consistently. The costs associated with fuel and maintenance must be factored into the disposable income that you have available monthly.

It’s easy to fall in love with the idea of owning a car because of its convenience. However, you must continuously address overhead costs while making timely loan payments. No one needs to remind you that an auto loan is an expensive form of debt.

One of the worst things is getting into a cycle that causes you to routinely pull on your savings just to address your debt. As you can imagine, that cycle can only go on for as long as you have savings to use. Even if you do have vast savings, try to avoid putting yourself into this position, as you deprive yourself of the chance to use your money for more desirable reasons.

Car Type

There are so many factors that vary depending on the type of car you choose to buy. It’s nice to follow your dreams, but it’s also a good idea to choose your vehicle wisely based on your intentions and your financial situation.

Some vehicles lose their value very slowly. In contrast, the value of some vehicles moves with all the quickness of a landslide. This is a very important consideration if you decide to sell the car in the future. Even after you’ve used the vehicle for years, the price tag should still make sense.

The year of the vehicle is also important. Many lending institutions use this as a measuring stick for the financing that they provide to you. Newer vehicles have an advantage here, as you’re more likely to get something like 90% or even 100% financing. The more that the bank covers, the less you need to pay upfront. Additionally, vehicle vendors are more willing and able to support their newer models than they are older ones.

You should also try to find out what maintenance is like for any vehicle that you consider. Are the parts easy to obtain? Are they costly? How many places are qualified and willing to work on such a vehicle? Answering these questions at such an early stage can save you from a huge headache later.

Is the Deal That You’re Considering the Best One?

Every lending institution does its best to encourage you that the deal it offers is some kind of golden opportunity that you can’t get anywhere else in the world. While they could be right about this, they could also be doing nothing more than using a sales tactic.

Don’t commit to anything until you’ve explored all available avenues. You may be able to negotiate a better price with a dealer if you try to. Though dealer offerings can appear attractive, lending institutions are sometimes affiliated with the dealers. This means that the price you get could be horrendous.

You should collect the information you need from the dealer, then compare it to what other loan alternatives are. Ensure that you familiarize yourself with all the conditions that come with each loan.

Interest Rate

This heavily determines how much the loan costs. Once you take an auto loan, the total you repay is always more than the initial loan. That’s obviously how loans work. However, you don’t want to end up paying 150% of the original amount that you borrowed.

It is very important that you ascertain the interest rate for a loan and how it affects the loan balance every time it’s applied. Loan agents are always willing to answer all your questions, since they want to convince you to take a loan. Find out how the principal changes annually so you can decide if getting the loan is worth it.

Pre-Closure Conditions

Even if you take out a loan that’s repayable over six years, the chances are that you don’t want to be paying for a vehicle that long. Most people have a similar mindset, which is why they aim to pay off their loan balances as quickly as possible.

In some cases, this doesn’t affect your balance because the interest is pre-calculated in the monthly payment. In other cases, an early payment could reduce the amount of interest that is applied to the loan. There are also cases where you’re charged a fee if you close out the loan earlier than you agreed to in the contract.

Being done with the bank is a great feeling, but in all of this, you still need to consider what is best for you.

Late Fees

Unfortunately, many loan agents don’t bother to cover this condition, and so many people have been unpleasantly surprised by this. There is usually a monthly payment deadline stipulated in your loan agreements.

If you happen to miss this deadline and make a late payment, you could see an unfamiliar charge pop up. Of course, this is quite an inconvenience when you’re working to lower the loan balance.

Just remember to read through the conditions thoroughly. If you don’t see anything that covers a relevant scenario, don’t be afraid to ask the necessary questions.

Use Pre-Approval to Your Advantage

Being pre-approved for a loan is not a guarantee. However, if you can, try to get pre-approved once you find terms that are acceptable. This is not a confirmation for the loan, which means that you haven’t committed to anything.

The best thing about this is that you are usually given a quote. This quote establishes the loan amount, and you even get a letter to use in your car shopping. This letter could be the thing that helps you get the most favorable rate possible.

When you are considering the purchase, the dealer may seize the opportunity to tell you about a great financing package. Assuming the loan you’re pre-approved for is a better deal, you could use the letter as a bargaining chip.

Life Is Unpredictable

This is something that you need to keep in mind when you make any decision. Are you in a good job now? You could lose it way before your loan payment term comes to an end. It’s also possible that unexpected expenses can pop up and mess with your ability to pay the loan.

What you need to do is consider your situation and determine if you have an alternative method of meeting your loan commitment. Whether you have an alternative source of income or a wealth of savings, you need to be sure that you can take care of your payments if things go downhill.

Car repossession: What is it and how will it affect my credit?

Unlike a flat tire, patching up your credit after your car has been repossessed requires more than a quick fix.

If you miss loan payments that lead you to default on your auto loan, the laws in most states allow your creditor to take the car back at any time. And repossession can linger on your credit reports for years to come.

But that’s
not all. It could also take a toll on your finances.

There are no easy answers if your car has been repossessed. But we can help you better understand what you might face during the repossession process.


  • What does it mean to have your car repossessed?
  • 4 ways a repossession could hurt your credit
  • How much will it cost if my car is repossessed?
  • How can I get my car back?
  • 5 tips to avoid repossession

What does it mean to have your car repossessed?

During a repossession, a
lender or leasing company that holds the lien to your vehicle will take back that
vehicle if you’ve fallen behind on payments. In many states, your lender has
the right to repossess your vehicle as soon as you miss a payment — without
warning or a court order. But some state laws require that a lender send notice
before repossessing your car. This notice should detail the payments that were
missed and provide you a deadline for catching up on payments before the lender
takes the vehicle.

Before taking your vehicle
away, the lender may use a starter interrupt device, or SID, to remotely
deactivate the car’s ignition system (though rules on SIDs vary by state).

While repossession rules can differ from state to state,
tow trucks are prohibited from “breaching the peace” to recover the car. That
might include using physical force, damaging your property or removing the
vehicle from a closed garage.

Typically, the lender must also return any personal
belongings left inside your car.

4 ways a repossession could hurt your credit

There are several ways a vehicle
repossession can ding your credit.

  1. Late payments — If your car is repossessed because you missed a payment, that late payment could stick around on your credit reports for up to seven years.
  2. Repossession — After your car is repossessed, the credit bureaus may include a note about the repossession in your credit reports for up to seven years.
  3. Collections — If you still owe money on your car loan, the lender might eventually hand over the debt to a collections agency. The collections account could show up on your credit reports for up to seven years, even after you repay the debt.
  4. Court judgments — If you refuse to repay the car loan, either the auto lender or collections agency could take legal action against you.

Keep in mind that each of these derogatory items may represent a separate entry on your credit reports. This means that if the auto lender takes away your car, your credit could suffer several blows from the same incident.

How much will it cost if my car is repossessed?

Your credit scores aren’t the only
things that can suffer if your car is repossessed: Your bank account could, too. A car
repossession could cost you thousands of dollars, even after the
bank takes your car away.

You could lose your car — and if the bank resells the
vehicle for less than what you owe, you may be held responsible for paying the
difference. This is known as the “deficiency balance.” It includes the
remaining loan balance, interest and any repossession expenses incurred by the
bank.

Suppose you owe $10,000 on your auto
loan, but you recently lost your job and stopped making payments. The bank pays
a tow truck $300 to take the car back, and auctions it at a steep discount for
$4,000. That means you owe a deficiency balance of $6,300.

You may also be
on the hook for other repossession costs, such as fees associated with ending your
lease or paying off your loan early.

How can I get my car back?

It might not be easy, but there are several ways you can try to get your car back.

You may be able to buy back the vehicle by paying the full amount you owe, according to the Federal Trade Commission.

That includes catching up on missed payments;
reimbursing your lender for the cost of repossessing the car, such as towing
and storage fees; and in many cases paying off the entire remaining loan
balance.

You
could also try to buy back your car at the repossession sale. In some states,
your lender must notify you if the car will be sold at a public auction so that
you have the option of bidding.

5 tips to avoid repossession

When you
fall behind on your car payments, the bank may send a tow truck to repossess
your vehicle, whether you’re driving to work or school, filling up at the gas
station or even parking in your own driveway.

Playing a cat-and-mouse game with the bank will only delay the inevitable — there are better ways to solve your problems.

  1. Talk it out. We recommend you communicate with your auto lender. If you call to let your lender know that you’re struggling to make payments, it may be willing to restructure your loan, develop a new payment plan or defer payments until you’re back on your feet.
  2. Sell your car. You might want to consider selling your car, particularly if the vehicle is worth more than the remaining balance on your auto loan. This could help you avoid being hit with a repossession on your credit reports. Keep in mind that if the car sells for less than what you owe, you may be responsible for paying the difference.
  3. Turn over the keys. You could beat the bank to the punch by returning your car before it’s repossessed. This is known as a “voluntary surrender” or voluntary repossession. While a voluntary surrender will still hurt your credit, it could also show future lenders that you’re taking responsibility for your finances.
  4. Buy used. When you buy your next car, if you pay with cash instead of borrowing money from the bank, you won’t have to worry about your car being repossessed. Used cars are generally cheaper than new cars, so buying a pre-owned auto might help you with this strategy.
  5. Use other modes of transportation. Owning a car is a big financial investment. If you’re not sure you can afford it or you’re worried you might miss payments, consider riding public transportation or use Uber to get around. You could also bike or walk.
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What’s next?

A car repossession is more than a bump
in the road. The situation can take a bite out of your wallet and your
credit.

But with patience, you can rebuild your credit — and put your car repossession in the rearview mirror.


About the author: Tim Devaney is a personal finance writer and credit card expert at Credit Karma. He’s a longtime journalist who prides himself on being a good storyteller who can explain complex information in an easily digestible wa… Read more.