Category: Auto loans

Posted on by Autopay
Home » Auto loans » Page 2

You finally decided it’s time for a new car. That’s fantastic. You’re certainly not alone with more than 272.4 million privately owned vehicles on American city streets. Your next step is to explore your options for financing the purchase. 

And if you’re married, in a domestic partnership or want to explore all your options, you might wonder if it makes sense to take out a joint or cosigned auto loan. 

What’s the Difference Between a Joint and Cosigned Auto Loan?

Before you start shopping for your new car, it’s important to understand the difference between joint and cosigned auto financing options. 

A joint auto loan is when two people take out a loan together to purchase a car. Both borrowers, or co-borrowers, are responsible for making the monthly payments on the loan and have equal ownership in the car. In addition, they are equally responsible for the debt if either borrower stops making payments on the loan and defaults.

A cosigned auto loan is when one person (the cosigner) agrees to be financially responsible for another person’s (the borrower’s) debt if they default on their loan. The cosigner acts as a guarantor for the lender if the borrower can’t repay their debt. They also have no ownership rights to the car.

Both choices have pros and cons, so you must choose the right one for your unique financial situation. 

We’ll help you make an informed decision so that when it’s time to sign on the dotted line, you’ll be confident that you’ve chosen the best option.

Is It Better to Apply for a Car Loan Jointly?

When deciding to take out a joint auto loan with a co-borrower, there are a few key things to remember. We’ve identified two pros and two possible cons to take into account.

what you need to know about joint auto loans

Pro: Lower interest rates

Applying for an auto loan with a co-borrower can help you qualify for a lower interest rate. This is because lenders view joint borrowers as less risky than individual borrowers. Having two incomes also makes it more likely that you’ll be able to afford the monthly payments on the loan. 

Likewise, both credit scores will be considered when qualifying for the loan, so if one borrower has a poor credit score, the other borrower’s good credit score might help offset that.

Pro: Build a positive credit history

A joint auto loan can help you improve your credit score. This is because the monthly payments will be reported to all three major credit bureaus (Experian, Equifax and TransUnion). So, as long as both borrowers make their payments on time each month, their credit scores will gradually improve. 

This is an excellent move for situations when one borrower has little to no credit history. By taking out a joint auto loan and making timely payments, that borrower can begin to establish a good credit history. In addition, this will help with future borrowing needs, such as taking out a mortgage.

Con: Equal ownership can leave one borrower responsible

Both borrowers own the vehicle and are equally responsible for repaying the debt since ownership is jointly held. But if one borrower ceases to make their share of payments on the loan, the other borrower will still be on the hook for the whole of the balance. This can strain relationships, especially if the other borrower can’t afford to make up the difference.

Con: Ending a joint auto loan can be difficult

If you and your co-borrower have decided you want to end your joint auto loan before the loan is paid off, you have two options.

The first is auto refinancing in one borrower’s name only. In this situation, the borrower keeping the vehicle will need to qualify independently for the new loan based on their individual income, credit score and employment history. To decide if that’s a good idea, start by plugging your numbers into a refinance car loan calculator to see what your rates will be.

The other option is to sell the car and pay off the loan with the proceeds from the sale. But this isn’t always easy, particularly if you’re upside down on the loan, meaning you owe more than the car is worth. 

If this is the case, you might need to bring money to the table at closing to pay off the remaining loan balance. Some people think GAP insurance will help them in these situations, but remember that it’s designed to cover you in cases where your vehicle is stolen or totaled, not for voluntary sales.

Is It Better to Finance a Car With a Cosigner?

Taking out an auto loan with a cosigner might be the best option if you have bad credit or no credit history. But it does require finding someone comfortable with the risk and willing to help you finance a car. Here are three pros and two cons to consider before applying for a cosigned loan. 

what you need to know about cosigned auto loans

Pro: Qualify for better interest rates

One advantage of having a cosigner on your auto loan is that it can help you qualify for a lower interest rate. Similar to joint auto loans, this is because lenders, like a bank,  credit union or auto loan company, see cosigned loans as less of a risk than individual loans. 

In this situation, your cosigner’s good credit score will be factored in when qualifying for the loan, which can help offset any negatives in your credit history.

Pro: Higher approval amounts

Another advantage of having a cosigner is that it can help you secure a higher loan approval amount. This is because the cosigner’s income and employment history will be considered when determining how much you can borrow. So, if your cosigner has a good income and a stable job, this might help increase the amount you’re approved for.

Pro: Better chance for approval

A final advantage of having a cosigner is that it can help you get approved for financing in the first place. This is especially helpful if you have bad credit or no credit history. That’s because most lenders won’t approve anyone for an auto loan unless they have good credit or someone else to cosign for them.

Con: Equal responsibility

The main downside of having a cosigner on your auto loan is that they’re equally responsible for repaying your debt if you default on your loan. So, if you can’t afford your monthly payments and end up defaulting on your loan, your cosigner will be stuck with the bill — and their credit score will also suffer. 

Con: Finding a cosigner

A significant challenge with cosigned auto loans is finding someone willing to sign for you in the first place. This is because they’re taking on a lot of financial responsibility if you can’t repay your loan. 

So, you’ll need to find someone who trusts you and is confident in your ability to repay the debt. Of course, this person will also need good credit to qualify as a cosigner. 

car keys on top of an approved car loan letter

Considerations for Joint Car Loans

Before you take out a joint car loan, there are a few things you should consider.

Are you comfortable with being equally liable? 

Signing a joint loan means that you are both equally liable for the debt. If your co-borrower defaults on their share of the loan, you will be responsible for repaying the entire debt. This can significantly impact your finances, so it’s essential to be sure that you are comfortable with this arrangement before you sign on the dotted line. 

Consider your financial situation and whether you would be able to make the payments if the other borrower defaults. If you’re not comfortable with this level of risk, finding another way to purchase your new or used vehicle might be better.

What kind of relationship do you have with your co-borrower? 

It’s important to consider your relationship with the other borrower before you take out a loan together. This person will be equally liable for the debt, so it’s important to be sure that you trust them to make their payments on time. 

It’s also important to be clear about your expectations and ground rules before you sign the loan agreement. For example, discuss how you will make your payments and what will happen if one of you cannot make your share of the payment. Having this discussion upfront can avoid any misunderstandings or conflicts down the road.

Are you confident that you will both be able to make the payments? 

Before you sign a joint loan, it’s essential to be confident that you can both make the payments. Review your budget and make sure that you can afford the monthly payments. Remember that you will both be equally responsible for repaying the debt, so if one of you cannot make a payment, the other will be responsible.

Consider a joint car loan if:

  • You’re in a solid financial position and you’re confident that you can make your share of the payments, but can’t afford the vehicle you want or need on your own.
  • You trust the other borrower and are confident in their ability to make their share of the payments on time.
  • You’re comfortable with being co-owners of the vehicle and equally liable for the debt.
  • You have a good relationship with the other borrower, and you’re clear about your expectations.

Avoid a joint car loan if:

  • You’re not in a strong financial position or not confident that you can make the payments. 
  • You don’t trust the other borrower or are not confident in their ability to make their payments on time. 
  • Your relationship with the other borrower is not good, or you’re not clear about your expectations. 
  • You’re not comfortable with being equally liable for the debt. 

Joint car loans are ideal for:

  • Married couples, domestic partners or close family members who are in a strong financial position and confident that they can make the payments.
  • Those who wish to secure larger loans but have limited income or assets.

If these considerations work for your situation, a joint auto loan might be right for you.

joint car loan vs cosigned car loan

Considerations for Cosigned Car Loans

Cosigned car loans also have several factors to consider.

Do you have bad credit or no credit history? 

If you have bad credit or no credit history, you might not be able to qualify for a car loan on your own. In this case, you might need to find a cosigner who can help you qualify for the loan. Remember that your cosigner will be equally responsible for repaying the debt, so it’s important to choose a loan term and monthly payment that you can afford.

Does your cosigner have good credit?

The whole point of cosigning a loan is to help you qualify for financing you wouldn’t be able to get on your own. So, it’s crucial to choose a cosigner who has good credit. This will help you get a lower interest rate and make qualifying for the loan more manageable.

Can you and your cosigner afford the payments? 

Before taking out a loan, it’s important to review your budget and make sure you can afford the monthly payments. There might be a good reason why you can’t qualify for a loan on your own. Maybe you have a limited income or a lot of debt. 

So, even if you can qualify for the loan with a cosigner, you still need to be able to make the monthly payments. 

Likewise, your cosigner will also be responsible for making the payments if you default, so they need to be confident in their finances. If neither of you can make the payments, both credit scores will be hurt and you risk losing the car.

Consider a cosigned car loan if:

  • You have bad credit or no credit history and need help qualifying for a loan. 
  • Your cosigner has good credit and can help you get a lower interest rate. 
  • You’re confident that you can afford the monthly payments and won’t miss any, which would hurt your cosigner’s credit. 

Avoid a cosigned car loan if:

  • Your cosigner doesn’t have good credit. 
  • You’re not confident that you can afford the monthly payments. 
  • Your cosigner isn’t confident in their ability to make the payments should you run into problems.

Cosigned car loans are ideal for:

  • Those with poor credit or no credit history who need help to qualify for a loan. 
  • Those who wish to secure larger loans but have limited income or assets. 
  • People with good credit who want to help a friend or family member get a car loan, and who understand the financial and credit rating risks involved if the borrower misses payments. 

If these factors work for your situation, you might want to go with a cosigned car loan.

happy young couple standing in front of a new car

Your Credit Score and Agreeing to Be a Co-borrower or Cosigner on an Auto Loan

Before you say yes to being a co-borrower or cosigner on an auto loan, it’s essential to understand how it could affect your credit score.

Higher Debt-to-Income Ratio

Your debt-to-income ratio, or DTI,  is the percentage of your monthly income that goes toward paying off debt. It’s used by lenders to determine how much you can afford to borrow. 

When you take out an auto loan, your DTI goes up because you’re now responsible for making monthly payments on the loan. This can make it harder for you to qualify for other types of loans in the future. 

Possibility of missing payments 

Finally, it’s important to understand the inherent risk in either scenario.

When you’re a co-borrower on a joint auto loan, your co-ownership comes with the legal responsibility of making all monthly payments — even if your co-borrower stops paying their portion. If payments are missed or not made in full, this will show up on both borrowers’ credit reports and damage both credit scores accordingly, regardless of who is at fault. 

As a cosigner, the responsibility for making payments also falls on you if the primary borrower can’t or doesn’t make their monthly payment. In this situation, there is a risk to your credit score with nothing gained in return. Considering the high stakes, you should evaluate your own ability to make monthly payments and comfort level with this responsibility before cosigning an auto loan.

-->
Posted on by Autopay
Home » Auto loans » Page 2

With average payments for new vehicles climbing higher and higher, it’s no surprise that many people are finding themselves in a bad car loan. If your monthly payments are eating into your budget or you’re interested in a new vehicle with better rates, it might be time to get out of your current car loan. 

What Makes a Car Loan Bad?

How do you know if you’re stuck with a bad car loan? Let’s take a look at some of the key characteristics:

New car selling price was too high

The first sign of a bad car loan is an inflated selling price on the new car itself. In many cases, dealerships will inflate the sticker price of a vehicle to leave room for negotiating. 

If you didn’t have a firm understanding of what the car was actually worth, you might have paid more than you needed to. That’s why it’s important to do your research ahead of time, so you know what to expect.

Low trade-in amount

If you traded in your old car as part of the deal, hopefully you made sure that you didn’t get ripped off on the trade-in value. Again, researching before heading to the dealership to get a good idea of your old car’s value is essential. That way, you’ll be less likely to accept a lowball offer from the dealer.

Long loan term 

A loan term that’s longer than average is another red flag. This means you’ll be making payments on your vehicle for a long time, and could lead to you being upside down on your loan. This is where you owe more on your loan than your car is worth.

Also, some loans have a prepayment penalty, so even if you can pay off a long term loan early, you’d have to pay the penalty. You can check with your lender to see if your loan has one or not.

Car loan APR is too high 

The APR is possibly the most important aspect of financing a new vehicle purchase. This is the yearly interest rate on your loan and includes any fees or additional costs the lender charges. It can vary quite a bit from lender to lender. A higher APR means you’ll pay more interest over time, so shopping around for the best rate is essential before deciding on a loan. 

Expensive extras

In many cases, dealerships upsell you on extras in the finance department. These things can add hundreds or even thousands of dollars to the overall cost of your loan, so it’s important to ask questions and ensure you understand exactly what you’re paying for. 

In some cases, these extras might be worthwhile — but in others, they’re nothing more than expensive gimmicks. 

Bait and switch

Some predatory auto lenders will get you to agree to a set of terms, but when it comes time to sign the loan, the loan has different terms and conditions than what was discussed. This is why it’s important to read your loan before you sign it, and make sure you understand what the terms of the loan actually are.

Best Way to Get Out of a Bad Car Loan

Refinancing your car loan is a great way to save money, get yourself into a better financial situation and get out of a bad car loan. It’s not right for everyone, but it is an option worth considering if you find yourself in a difficult car loan situation.

What is refinancing?

Refinancing is the process of taking out a new loan to pay off an existing loan. For example, when you refinance your car loan, you might be able to secure a better interest rate. If it’s significantly lower, this can save you a lot over the life of the loan. You might also be able to extend the loan term, which could reduce your monthly payments. 

Professional woman showing a couple something on a laptop

Why should I refinance my car loan?

There are a few reasons why refinancing your car loan is a good idea. First and foremost, it can save you money. A lower interest rate means that you’ll pay less interest over the life of the loan, and extending the term of the loan can also help lower your monthly payments. 

Additionally, refinancing can help improve your credit score by allowing you to make on-time payments over the life of the loan. Use our refinance car loan calculator to see how much you could save by refinancing your car loan.

When should I refinance my car loan?

The best time to refinance your car loan is when you have improved your credit score or interest rates have dropped. 

For example, suppose you initially secured a loan with a high-interest rate. In that case, you might be able to get a lower rate by refinancing. Or, if your credit score has improved since you originally took out the loan, you might also be able to qualify for a better interest rate. 

But even if your score hasn’t changed and interest rates haven’t dropped, you may still be able to refinance to get better loan terms. This is why it’s a good idea to look into refinancing to see what you might qualify for.

How do I refinance my car loan?

The first step in securing new auto loan financing is to shop around for new loans. Then, compare rates and terms to find the best deal possible. Once you’ve found a lender who you’re comfortable with, the refinancing process is relatively straightforward. 

You’ll simply need to fill out an application and provide some documentation, such as proof of income and employment history. The lender will then run a credit check and, if you’re approved and decide to move forward with the loan, disburse the funds to pay off your existing loan. 

man driving a car

Other Options

What if refinancing isn’t an option for you? Then, there are a couple of other steps you can take to get out of your bad car loan.

Pay it off

Hopefully, your financial situation has improved since you bought your car. If so, you might just want to stick it out and pay it off. Once you do, you’ll have equity in your car.  And then, you can put the money you were using to pay your car payment toward paying off other debt, or put it in savings.

Sell or trade in the car

If your car loan is not under water, you can try to sell it for what your loan amount is (or possibly more) or trade it in for a different car. First, make sure that your car’s value is the same or more than what’s left of your car loan amount.

A Bad Car Loan Is Not the End of the World

According to recently gathered statistics, 35% of Americans had car loans in 2019. This number is not expected to change as the need for personal transportation continues to grow.

If you’re one of the millions of Americans who have taken out a car loan, it’s essential to find out if you have a bad car loan and understand your options for getting out of it. Refinancing your car loan is often the best way to save money and get yourself into a better financial situation.

-->
Posted on by Autopay
Home » Auto loans » Page 2

When you take out an auto loan, your interest rate is typically fixed. However, there might also be the option of a variable interest rate.

Most consumers will choose a fixed rate for their auto loan financing because it offers predictability and stability when budgeting for their monthly payments. Fixed rates are also provided by more lenders, banks and credit unions than variable rates.

However, a variable interest rate could also offer some benefits, especially if interest rates are low when you first take out your loan. In addition, variable rates are potentially advantageous if you don’t plan to keep the vehicle long-term or don’t plan on holding the loan for an extended period.

Here’s what you need to know about both options.

What Are Fixed-Rate Auto Loans and Their Benefits?

A fixed-rate auto loan is based on an interest rate that does not change over the life of a loan. This applies to new loans and those who refinance their car loans. This type of interest rate is the most popular for car loans and is often used for mortgages and personal loans as well.

One of the best benefits of a fixed interest rate is that it makes budgeting easier. You know exactly how much your monthly payment will be, so you can plan accordingly. This predictability can be a big help when trying to add a second vehicle to your household, take on other large financial obligations or simply make ends meet.

woman sitting at desk, using a calculator and smiling

Another benefit of a fixed interest rate is that it protects you from changes in the market. You’re locked in at the lower rate if interest rates go up. But, on the other hand, if rates go down, you’re still stuck with the same payments and forfeit those potential savings.

That said, the biggest downside of a fixed interest rate is that you might end up paying more in interest over time if rates drop, especially if locked in at a higher-than-average rate to begin with. For example, according to research, Americans are paying up to 25 % more for their car loans than they were 10 years ago. So it’s essential to be informed, so you can make the best decision for your individual circumstances. If you do have a fixed rate car loan and the interest rates drop, you can always look into refinancing to lower your interest rate.

What Are Variable-Rate Auto Loans and Their Benefits?

A variable-rate auto loan is based on an interest rate that can change over time in response to market conditions. This movement is tied to an index or benchmark, such as the prime rate. Variable interest rates are also called adjustable interest rates and floating interest rates.

The biggest benefit of a variable interest rate is that it could save you money. When interest rates are low, you could get a lower monthly payment. Additionally, you can take advantage of falling interest rates without having to refinance. However, keep in mind that refinancing could still be an option. If that interests you, check with a refinance car loan calculator to see how much you could save.

If interest rates are unusually high when you purchase your vehicle and are predicted to fall, you might want to consider a variable-rate loan. In this case, you would be “betting” that interest rates will go down, which could save you money in the long run. This would require following governmental interest rate statistics and having both a sense of the market and an understanding of the risks.

stacking coins with percentage symbol over each stack

Of course, the biggest downside of a variable interest rate is that it could go up, resulting in a higher monthly payment. If this happens and you can’t afford the new payment, you might be forced to sell the car or default on the loan, which could hurt your credit score.

In addition, if rates rise sharply and you can still afford payments, you could end up with negative equity, where you owe more on your loan than the car is worth.

Nonetheless, a variable interest rate could be a good choice if you’re planning on selling the car or refinancing the loan within a few years, and interest rates are both low and steady. It could also be a good option if you’re comfortable with a little more risk in exchange for the potential to save money.

How Do You Know Which One Is Right for You?

The best way to decide whether a fixed or variable interest rate is right for you is to consider your plans for the future. For example, a fixed interest rate could be the best option if you plan on keeping the car for a long time and the current interest rates are low. This way, you lock in the low rate and don’t have to worry about market fluctuations.

On the other hand, if you’re not sure how long you’ll keep the car or if you think interest rates could go down, a variable interest rate could be the best option. However, remember that there’s more risk involved, so you need to be comfortable with that before choosing a variable interest rate.

Whichever option you decide to go for, be sure it’s the best fit for your individual circumstances.

-->
Posted on by Autopay
Home » Auto loans » Page 2

Simply put, car loan amortization is the total repayment of your car loan over time. It’s calculated by dividing the loan amount by the number of months in the loan agreement.

This results in a specific amount that is due each month. Car loan amortization also includes interest and any fees, so the total cost of the loan will be higher than the principal amount. Auto loans can include simple interest or precomputed interest, depending on which type of loan you’ve agreed to with your lender (you can always ask them if you’re not sure).

Your monthly payment is determined based on the total loan amount, interest rate and term of the loan. But you might not realize that within that payment, a portion is applied toward both the principal (the borrowed amount) and the interest.

Amortization schedules can be confusing, but understanding how they work can save you money on your car loan. Here’s a quick overview of what they are and how to make them work for you.

Principal and Interest

The initial amount of money you borrowed is called the principal. The interest is what a lender charges you to borrow the money, plus any additional fees. Your monthly payment is divided between these two things based on an amortization schedule.

The amount of interest charged is based on the interest rate, which is set by the lender. There are generally industry trends for finance rates that can be easily tracked.

The greater the interest rate, the more you’ll pay in interest throughout the term of the loan. This is why it’s essential to secure the best auto loan financing possible for your credit score and situation, including a low interest rate.

Amortization Schedule

The amortization schedule is a table that shows how much of each payment goes toward the principal and how much goes toward the interest. In the early years of your loan, most of your payment will go toward paying off the interest. But as you get closer to the end of your loan term, more and more of your payment will go toward the principal.

Paying extra toward the principal can save you money in interest charges and help you pay off your loan faster. If you want to do this, just let your lender know how much extra you want to pay each month and they’ll apply it to your loan accordingly.

Short- and Long-Term Car Loan Amortization

It’s good to understand that you can select the term length for your car loan. The most common are 36, 48 or 60 months. However, some companies offer loans lasting as little as 12 months, although others extend as far as 84 months.

Choosing a shorter loan term will result in higher monthly payments, meaning you won’t be able to afford the same car as you would with a longer loan. But it also means you’ll pay less interest and pay off your loan faster.

signing a contract with key fob and toy car sitting on top

A longer loan term will lower monthly payments, allowing you to afford a more expensive car. But you’ll also pay more interest over time, and it will take longer to repay your loan.

This is a decision that each borrower will have to make based on their budget and financial goals.

Changing Circumstances

Many people choose to use long-term loans because they lower monthly payments. But what happens if your circumstances change and you can afford to pay off your vehicle loan more quickly, or you simply want to get rid of it as soon as possible?

If you find yourself in this situation, you can always make additional payments toward your loan’s principal. This will reduce the interest you pay over time and help you repay your loan faster. Just be sure to check with your lender first to make sure there are no prepayment penalties.

Here are some common ways people pay off their car loans early:

  • Refinance – You can refinance your car loan to get a lower interest rate, saving you money over time. You can also choose to extend or shorten the term of your loan, depending on your current needs. Use a refinance car loan calculator to determine how much you could save.
  • Make a lump-sum payment – If you come into some extra money, you can make a one-time payment toward your loan’s principal. This will reduce the interest you pay over time and help you pay off your loan faster.
  • Pay extra each month – You can also choose to make slightly larger payments each month, which will go toward the principal of your loan. Just be sure to let your lender know that you want the extra payment to go toward the principal — not the interest.

You might not ever need to use any of these, but it helps to be aware of them in case you end up in a situation where you need to pay off your car loan faster.

man sitting on couch smiling while working on his laptop and holding his credit card

How Understanding Car Loan Amortization Can Help

Car loan amortization is the process of repaying your car loan over time. The amount you owe each month is divided between the principal and the interest, and the schedule is set by the lender. You can choose a shorter or longer loan term, depending on what you can afford.

Understanding how car loan amortization works can help you save money and repay your loan faster. Be sure to ask your lender about their amortization schedule so that you can make the most informed decision possible.

-->
Posted on by Autopay
Home » Auto loans » Page 2

Buying a car is a significant financial commitment. In fact, car loans are the second largest financial commitment most people will make (the first being a home mortgage). Learning how to calculate interest on a car loan will help you sift through your options and choose the loan terms that are best for you and your budget.

The Elements of a Car Loan

When calculating how much interest you’ll pay on your car loan, you’ll need three pieces of information:

Amount of loan: Whether you are seeking a new loan or refinancing your existing car loan, you will need to know the exact amount that you will be financing, including the price of the vehicle and taxes, as well as any add-ons that you’ve chosen, such as a GAP waiver.

Your interest rate: When you apply for an auto loan, your lender will use information from your application to determine your interest rate. Interest rates depend on several factors, including economic conditions, as well as your credit score, income and the age of the car that you purchase. Some lenders use other criteria in determining your rate, which could include your educational background and work history.

Length of repayment: You’ll need to know the length of your repayment period. Auto loan terms are expressed in months instead of years, and auto loan terms typically range from 24 to 84 months, though other terms might be available.

Magnifying glass over percentage signs

Calculating Your Monthly Interest Payments

Car loans are amortized, which means that you’ll be paying your loan balance off in installments. This means that the interest you pay over the duration of your loan will be based on an ever-declining principal balance. Because your principal balance changes each month, so will the amount of your interest payment.

If you want to know what you are paying in interest each month, you’ll need to do the following:

  1. Begin with a straightforward calculation: Your interest rate (percentage) divided by how many payments you’ll make on the loan annually.
  2. When you have that number, multiply it by your loan’s balance.

This calculation will give you the amount of interest you’ll be paying each month. It’s important to note that this number reflects only the amount of interest you’ll pay that month. This will change each month during the duration of your loan repayment period.

Another thing to remember is that your monthly interest payment is only one portion of your monthly car loan payment. The other portion is what you are paying against the loan balance.

If you aren’t a numbers person and all this seems too complicated, you can check out the AUTOPAY refinance car loan calculator to get a quick calculation, plus your estimated savings if you opt to refinance at a lower rate.

Man checking credit score on mobile phone

Other Factors That Determine Affordability

If you’ve run these numbers and are experiencing a bit of “sticker shock” at how much interest you are (or will be) paying each month, keep these things in mind:

  1. As you pay down your loan, the percentage of each payment that goes toward interest decreases over time. This is because the amount of interest you pay is based on your loan balance. As the balance shrinks, so does the interest.
  2. There are things you can do to reduce the amount of interest you’ll pay on a loan. These include improving your credit score by making timely payments and paying down existing debt, buying a new car instead of a used vehicle and, if necessary, finding a co-signer for your loan.
  3. The larger your down payment on a vehicle, the smaller your balance will be. This can significantly reduce your interest payments.

Taking out a car loan or refinancing an existing loan can be a challenge, particularly when it comes to understanding your total costs. Make sure to shop around to get the loan you need with terms that you can afford.

-->
Posted on by Autopay
Home » Auto loans » Page 2

Nobody disputes that spouses should make major financial decisions — such as purchasing a car or refinancing an auto loan — together. A more complicated question is whether spouses should be on a car loan as cosigners. Although having a spouse cosign on your car loan might make sense in some instances, it can be a risky personal and financial move in others. 

What Is a Cosigner?

A cosigner agrees to pay a loan if the primary borrower defaults. When someone cosigns a loan, they assume responsibility for making loan payments if the original borrower falls behind on repaying the debt. Once the primary borrower defaults on payments, the cosigner is responsible for paying the balance of the loan, along with any fees related to the late payments. Also, the lender now treats the cosigner as the debtor.

Cosigner vs. Co-Borrower

Cosigners are not quite the same as co-borrowers. Co-borrowers apply for a loan together so that they can purchase (or refinance) an asset that they both own and use. When a married couple takes out a mortgage on a home that they both live in and own, they are co-borrowers.

A cosigner, on the other hand, assumes responsibility for paying someone else’s loan. The cosigner does not co-own the asset that the loan was used to purchase.

Why Do People Need Cosigners for Loans?

Lenders evaluate loan applications using multiple criteria, including income, credit history and current debt. If a loan applicant has poor credit, no credit, doesn’t earn very much or is struggling under a lot of debt, the lender might reject the application outright, offer a smaller loan or a loan at a higher interest rate. Sometimes a lender might ask that the borrower reduce the lender’s risk by finding a cosigner.

man looking upset while sitting at his desk near a computer and calculator

The Risks of Being a Cosigner


The risks of being a cosigner are significant. If you cosign a debt, and the original borrower doesn’t make payments on time, here’s what can happen:

  • The lender can require you to start making payments on the debt.
  • The lender can initiate collection proceedings against you, including a lawsuit. 
  • Your credit score can be damaged. 

In addition, cosigning a loan increases your debt load, impacting your credit score. This affects your ability to obtain a credit card, take out a loan for your own needs or qualify for good interest rates on goods and services. Because of these risks, you might want to check out other alternatives that can help you buy a car or refinance a car loan.

smiling couple standing in front of a new car holding the car keys

Spouses as Cosigners: What You Need to Know

Having your spouse as a cosigner might seem counterintuitive: You share finances and will both benefit from an automobile purchase or refinancing. Co-borrowing might make more sense, as would having the spouse with the best credit apply for the loan.

In some households, however, only one spouse drives and will have ownership of the car. Many people owned a car before getting married and could  want to refinance that vehicle without putting their spouse on the title. In these cases, cosigning might make some sense.

As you make your decision, be aware that some lenders might tell you that your spouse is required to cosign a loan that you take out for your own vehicle. The federal Consumer Financial Protection Bureau makes it clear, however, that although a lender can require you to have a cosigner, it cannot require that person to be your spouse.

The Risks of Cosigning for a Spouse

There are significant risks to being a cosigner of a loan. These risks increase when a spouse acts as a cosigner. Cosigning impacts a spouse’s credit and finances, so your household might not have at least one spouse with pristine credit and financial stability. Should you face unexpected financial difficulties, your household will have to manage the debt that your spouse is obligated to pay.

Cosigning can also negatively impact your relationship with your spouse. Defaulting on your car loan or refinancing could leave your spouse feeling betrayed. 

Alternatives to Cosigners

An alternative to getting a cosigner is to try to improve your credit score. And if your household has more than one automobile, or your current car is still drivable, you could use a refinance car loan calculator to determine whether refinancing could free up some cash that could be used to pay down debt or increase savings. A GAP waiver can also minimize liability for the difference between your car’s value and your current debt obligation.

Whatever you choose, it is worth it to explore all of your options, which could include delaying a purchase or refinance, improving your credit or working with specialists, who will work to help you get good terms on a loan that you can afford.

-->
Posted on by Autopay
Home » Auto loans » Page 2

Chances are, if you’re a licensed driver, you probably have a car loan. Around 85% of all new car purchases and 53% of all used car purchases are financed in the U.S., according to a report by Experian. The average American household also has more vehicles than drivers, and many of those additional vehicles are financed too.

While you can have multiple car loans at the same time, lenders will want to know if you’ll be able to make payments on all of your financed vehicles. Qualifying for an auto loan may be a little harder this time around. Here’s why.

Yes, You Can Have More Than One Car Loan

The simple answer to this question is yes. If you have good credit and can afford another monthly payment, you should be able to finance another car.

Ultimately, a bank, credit union, or another financial institution is likely to provide auto loan financing to any individual they deem credit worthy, regardless of the types of loans they have on their credit history. In order to secure a second car loan and get the most competitive rates, you need to show the banks that you can afford the additional debt and will pay it back.

Lenders will look at the following factors when evaluating your car financing application:

  • Down payment: Do you have enough cash?
  • Credit score: Is it over or below 600?
  • Payment history: Have you been making all of your other payments on time?
  • Debt-to-income ratio: Is your DTI less than 50%?

If you have a relatively high monthly income, enough cash for a down payment, a good credit score, and a solid debt-to-income ratio, a lender may be more willing to give you an additional loan, and with a really great interest rate too.

If you have bad credit, it’s still possible to qualify for another car loan. There are many lenders who work specifically with borrowers with subprime, or poor, credit. Your interest rate may not be as competitive as someone with a higher credit score, but after a few months of on-time payments on your credit report, you may start to see your credit score go up.

A common strategy for borrowers with bad credit is to buy and finance the car, then wait a few months for the on-time payments to make a positive impact on their credit. Once their credit score goes up, they apply for auto loan refinancing to get a lower, more competitive interest rate.

person handing car keys to another individual

Should You Take Out Another Car Loan?

There are many reasons why you might opt to use your credit to finance an additional vehicle, but you want to be sure you weigh all the pros and cons before taking advantage of all your financing options.

Perhaps you need another car for a spouse or child. Perhaps you currently drive a sedan and believe you could benefit from adding a truck or SUV to your fleet. All of these are totally valid reasons why you might seek an additional vehicle loan.

Pros of taking out another car loan:

Taking out an additional loan can help you achieve your goal without saving up a ton of money or waiting until your current loan term is up. But there are some downsides to consider as well.

Cons of taking out another car loan:

Having two or more loan payments can take a significant toll on your monthly budget, which may cause you to default on payments. What’s more, loan applications leave a hard inquiry on your credit report, which could cause your score to drop.

Do Multiple Hard Inquiries Ding Your Credit?

Depending on the circumstance, multiple hard inquiries may or may not hurt your credit.

Remember that each time you attempt to get approved for a new loan, you add a hard inquiry to your credit score. Hard inquiries can bring down your score five to 10 points, and too many can signal to a lender that you’re a high risk or irresponsible with credit.

However, multiple inquiries for the same type of loan during the rate shopping period will only count as one.

person using a calculator

Consider Refinancing Your Loan(s)

If you have a high interest rate on your current auto loan, you may want to consider auto loan refinance. If approved, refinancing will help you get your annual percentage rate (APR) down, which will ultimately lower your monthly payment and free up cash for other monthly expenses, such as a second car loan.

Use our refinance car loan calculator to see how much refinancing could save you during the repayment process. If you have multiple car loans already, you may want to apply for refinancing to get lower auto loan rates and save money over the life of your vehicles.

Weigh Your Options

In theory, you can have as many car loans as a vehicle financing company will grant you, but you will need excellent credit and a high income to qualify for a second loan. There are no laws preventing an individual from taking out more than one car loan, so if it makes sense for your financial situation, it may be a smart option.

Weighing your options and evaluating your own unique financial situation is critical when deciding whether or not to take out an additional loan.

-->
Posted on by Autopay
Home » Auto loans » Page 2

If you’re looking to improve your financial standing and lower your debt, you might want to consider paying off your car loan before the obligatory pay-off date. While doing so can certainly bring some benefits — more money in your pocket and the freedom of owning your car outright — there are a couple of important downsides to consider as well.

close-up of a pen on a desk with a calculator on top of a paper reading "Debts" with a pie chart near it

The Pros and Cons of Paying Off Your Car Loan Early

When you take out a car loan, you agree to pay for the cost of the vehicle (the principal) as well as interest. Your annual percentage rate (APR) is the percentage of interest you pay each month. When you pay more than the minimum, that extra money goes towards the principal, lowering how much you owe in interest. That’s just one of the pros of early pay-off, but there’s more to know.

Pro: Paying the loan off early could save you cash in the long run.

Making an extra payment here and there, rather than making a single lump-sum payment speeds up the repayment process without draining your savings. Just make sure your overage payments go toward the principal of your car loan rather than the interest. These are called “principal-only” payments.

Con: Some loans include precomputed interest, so early payoff may not save you money in the long-run.

It is important to note that some car loans include precomputed interest, or interest that is calculated upfront. In these cases, you may not be able to save money on interest if you pay off your loan early. 

Make sure you determine the amount of interest pay-off will save you in the long run. To find out if your interest was calculated up-front, look at your statement. If your interest is precomputed, it will be lumped together with the principal rather than a separate fee. You should speak to your lender if you aren’t sure.

Pro: More money in your pocket each month.

Another advantage to paying off your car loan before the end of the term is that you will have less money tied up in bills each month. That means, in theory, you’ll have more money to spend in other areas of your life. 

More money in your pocket each month may allow you to save up some extra cash faster for a new car, build an emergency fund, chip away at your student loans, or free up money for a down payment on a house. In many cases, it will help improve your financial situation. But remember that paying off your loan balance can be costly, so while it may lower your monthly budget, it may also put a significant dent in your savings account. 

Pro: Improved debt-to-income ratio.

Simply put, your debt-to-income ratio, or DTI,  is the percentage of credit you use each month divided by your gross monthly income. Your DTI is one of many factors lenders and other creditors use to determine whether you will be able to pay back a loan. If your debt-to-income ratio is too high, a lender might be hesitant to offer you credit since it could indicate that you’ve taken on more debt than you can pay back. 

If you have a debt-to-income ratio above 50% and plan to apply for a new loan or line of credit soon, lowering your DTI can help improve your odds of getting approved. 

So how do you lower it? By reducing your monthly debt obligations. Paying off a loan and eliminating a monthly payment, like a car loan, will improve your DTI. However, if paying off a loan in one lump sum is not possible, you can also try to refinance it to lower the monthly payment. In 2021, borrowers who refinanced their auto loans saved an average of $1,158 per year.

Con: You may have to pay a prepayment fee.

It’s critical you understand the terms of your loan since, although it’s rare, it may include a prepayment or pay-off penalty to your lender. Car loan companies impose these fees to make up for the potential interest lost over the life of your loan. These are more common if you have poor credit and a subprime auto loan (meaning you have a high interest rate on your loan due to bad credit).

Fees vary depending on the company and the terms of your loan, but you can expect to pay a maximum of 2 percent of your remaining balance in prepayment costs. Not all car loan terms include this penalty, so be sure to check yours before you decide what to do.

Con: less ‘positive’ activity on your credit score.

Man using his mobile phone to see his credit report and credit score

Consider All the Factors

Ultimately, deciding whether to pay off your car loan early is a big financial decision that comes down to a few key factors. The amount you owe, your interest rate, and the terms of your loan will have a major impact on whether or not prepayment is the best move for you.

-->
Posted on by Autopay
Home » Auto loans » Page 2

If you’re considering buying a car, there’s a good chance you’ll wind up taking out an auto loan. The majority of drivers rely on car loans to cover all or a portion of their automotive purchase. In fact, Americans have about $1.18 trillion in car loans in total.

The interest rate on your car loan has a big impact on how much you pay over the life of your loan. It’s a percentage of your total balance charged by the lender or financial institution in exchange for the loan. The higher the rate, the more money you’re paying in interest  each month until your loan is paid off. 

That’s why it’s so important to make sure you get a good rate on your loan when buying a car. It raises or lowers the price you pay for the vehicle in total.

Whether you’re buying a new car or hoping to lower how much you’re paying for your current one, here’s how to determine whether you have a good interest rate on your loan.

Why Interest Rate Matters

The interest rate on your car loan is the fee you pay to the auto loan company for loaning you the cash up front. Lenders calculate monthly interest based on the principal or the total amount owed.

Note that interest rate and annual percentage rate (APR) are not the same. While interest rate is the annual cost of borrowing money and is calculated based on the principal, APR reflects the total cost of the car loan and includes the principal, interest, fees, and other things you rolled into the loan.

As you pay down the principal and your total amount owed lowers, so the amount you pay in interest lowers as well.

One of the simplest ways to determine how much you will pay in interest is to use an auto loan calculator online. Simply plugging in a few of the basics — the price of the car, your down payment, the length of the loan, the APR, and sales tax — will tell you the total amount of interest you will pay over time.

credit score report with reading glasses

How Credit Affects Interest Rate

To get the lowest rates possible, you need to make sure you have great credit and are in good financial standing with your current lenders. Credit is rated by tiers, with tier 1 being the highest and tier 3 being the lowest. The higher the tier, the less information you may have to provide when applying for a loan.

Your credit score is determined by payment history, current account balances, length of your credit history, types of credit accounts, and other factors.

Every lender has their own underwriting guidelines, so it’s important to find a lender who will work with your credit profile and offer the most competitive loan terms.

It also helps if you use a cosigner who  has good credit, choose a shorter loan period, or pay a bigger down payment to lower the overall loan amount.

You also want to check with multiple lenders, including online lenders, to “shop around” for the best rate. You may also consider heading into the car shopping process with pre-approval and multiple loan offers so you don’t risk winding up with a higher rate financing at the dealership.

What Criteria Financial Institutions Use to Determine Interest Rate

Financial institutions — such as banks and credit unions — determine loan rates based on a borrower’s credit. Lenders give borrowers with better credit ratings a lower interest rate because they are considered lower risk and they’re much more likely to pay back the loan in full. Every financial institution uses different criteria to determine whether someone is creditworthy.

Although every lender is different, they typically evaluate a borrower’s creditworthiness based on their credit report, which takes into account things like total debt in loans, credit cards, mortgages, and more as well as payment history, credit usage, and other factors. The average loan rates vary widely depending on where a borrower’s credit score falls.

Every financial institution evaluates credit differently and may provide you with a rate that’s higher or lower depending on many unique factors.

The Real Cost of Interest

The Real Cost of Interest

Here is a simple example to help you see exactly how much interest rate affects your monthly payments and total interest paid.

Let’s say you want to buy a used car that costs $20,000 and you put $5,000 down as a down payment. That means your total loan amount is $15,000 plus the cost of taxes and fees, taking it to around $16,000.

If you have excellent credit and are able to secure a low interest rate of 3%, you will pay $354 a month and $999 in interest over the life of the loan.

If you have bad credit or no credit history, you’ll have a higher interest rate on your used car loan. In this example, let’s say your interest rate is 9%. In this case, you will pay $398 per month and over $3,000 in interest over the life of the loan.

As you can see, having good credit and securing a lower auto loan interest rate can save you thousands of dollars over the life of your loan. This means more money in your pocket for savings, monthly bills, and more.

How to Get a Good Interest Rate for a Car

So how do you get the best interest rate on your car purchase or refinance? Before you submit a single loan application, you want to make sure you follow the tips below.

How to Get a Good Interest Rate

Work on Your Credit

Boosting your credit score goes a really long way in securing the best auto loan rates.

So, how do you do that, exactly?

Pay Your Bills on Time

Always pay at least the minimum balance on time on your current loans each month. You may also consider paying debts down more aggressively to lower your overall credit use, which could boost your score.

Keep Accounts Open

As tempting as it may be to close old credit cards you’re not using, especially if they have high annual fees, don’t. Keep them open to help lengthen your average credit age.

Avoid taking out new loans

It’s also a good idea to avoid taking out any new personal loans or credit cards during this time since these can put hard inquiries on your credit and cause it to drop. If approved, it will also shorten your average credit age, which doesn’t look good to the bank.

Build Your Credit History

If you don’t have much credit history, consider putting utility bills in your name, signing up for a secured credit card, or asking a loved one you trust — and who trusts you! — to add you as an authorized user on one of their accounts.

Try Credit Raising Services

Many companies offer services to help you raise your credit score fast. For example, Experian offers an option that claims to raise your FICO score instantly.

stack of money

Put More Money Down

Increasing your down payment is another great way to get a lower interest rate and smaller monthly loan payments. Not only will a higher down payment help convince the bank of your creditworthiness, but it will also lower the amount of interest you pay in total and each month since your interest payment is based on the principal loan amount.

Consider a Cosigner or Co-Borrower

To get a better rate, you may want to consider partnering with a cosigner or co-borrower. Though similar, a cosigner and co-borrower are not the same.

A cosigner is a person who signs the car loan alongside you, agreeing to pay the loan if you fail to do so. A co-borrower is similar, but will share ownership of the car as well as responsibility for the payments. Co-borrowers should both have access to the money used to buy the car.

Note that lenders may not allow a cosigner, only a co-borrower. This is because, in general, lenders don’t like when someone else’s credit is used to secure a loan for someone else. They expect the person on the loan to be the one who will own the collateral.

Often a parent, friend, aunt, or uncle, the cosigner signals to the automotive finance company that you are worthy of a lower interest rate. This is a huge thing to ask because you’re effectively asking someone else to put their credit on the line for you, so make sure to only use this option if you’re sure you can pay it back.

This is a great route to take for anyone without a strong credit history or those with poor credit who have improved their financial standing and are now able to pay loans on time each month.

Take a Shorter Loan Term

Auto loans are generally offered in different term lengths ranging from 24 months (two years) to 84 months (seven years). When you stretch your loan across a longer time period, it lowers your monthly payment, which means more cash in your pocket.

But there is a downside — If you take too long to pay off your loan, you may end up with a loan that exceeds the value of your car. That puts you and the lender at risk should your car be totaled and you owe more on the loan than the car is worth. If you have a guaranteed asset protection (GAP) waiver, you’ll be protected if your car is totaled and you still owe money on it.

Opting for a shorter loan period may be a great way to get the best interest rate based on your credit. When looking at your loan options, play with different terms to help determine how the rates vary depending on the loan term length you choose.

Sign and Refinance Later

If you aren’t able to secure the lowest interest rate possible that doesn’t mean you shouldn’t take out a car loan at all.

One great strategy is to take your less-than-ideal loan rate and refinance later. Having an auto loan can help you build good credit and ensure that you get a better rate later. After a few months of timely payments, you may see your credit score improve, and you may qualify for better rates than when you first bought your car.

You can refinance your new car loan in two or three months from the time you sign on, but it may be more beneficial to wait until you’ve boosted your credit history and score so you secure a lower rate.

Plus, if the interest rate savings are large enough, you may even end up paying less for the car by the time you’ve paid off the loan, just by getting a lower rate Use an auto refinance calculator to see how much you can save with a better interest rate.

Find a Rate You’re Comfortable with

Find a Rate You’re Comfortable with 

If you’re a new borrower or are working on your credit score, taking a higher rate isn’t always a bad thing since it can help you boost your credit standing and helps get you on the road faster. Ultimately, there’s no magic number when it comes to the ideal APR. A good interest rate is one you’re comfortable with and one that fits into your budget.

-->

Resources

Customer Login

Auto Loan Calculator

Customer Reviews

Make a Payment

Glossary

FAQ

Licenses

Company

About Us

Referrals

Careers

Learn

Contact us

Legal

Terms of Use

Privacy Policy

California Collection Notice

Legal & Disclaimers

Agreements & Compliance

AC Auto Pay BBB Business Review

* This value was calculated by using the average monthly payment savings for our customers from [payment_savings_range].

** For well-qualified borrowers.  Rates are subject to change and may not be available in all states. Customers must meet income qualifications, debt to income requirements and other vehicle restrictions such as loan to value, age, and mileage.

© The Savings Group, Inc., All Rights Reserved