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How Many Times Can You Refinance a Car?

Posted on January 10, 2023January 10, 2023 by Autopay

Quick Answer:

Most people assume there is a restriction on the number of times you can refinance a car, but there is no legal limit. You can refinance your vehicle as many times as you want. However, that doesn't mean that you should refinance your car every chance you get. There are other factors to consider, such as the impact on your credit score and the amount of money you'll save.

Refinancing a car means taking out a new loan to pay off the balance of your existing loan. This can be done for various reasons, such as getting a lower interest rate or extending the loan term. While there are some advantages to refinancing, there are still some risks. For example, if you extend the duration of your loan, you pay more interest in the long run. And if you refinance multiple times, you could end up with a negative equity in your car (meaning you owe more than the car is worth).

Let’s explore why refinancing a car might be a good idea and some of the top questions people have about refinancing multiple times.

Table of Contents:

Why Would You Refinance a Car?
Why Refinance a Car Again?
Top Questions About Refinancing a Car Multiple Times
The Bottom Line on Refinancing More Than Once

Why Would You Refinance a Car?

Most people refinance their car when they can no longer afford their monthly payments or want to lower their interest rate. When you refinance your car, you take out a new loan with new terms to replace your old loan. Remember that refinancing does not eliminate your debt. Still, it may help you lower your monthly payments or save on interest. And with auto debt continuing to rise, according to the Federal Reserve Bank of New York, it’s no wonder folks are trying to find ways to lower their payments.

Man leaning out of the driver side window with his arms crossed on top of the driver's side door. The text lists reasons why car owners would refinance, which is also outlined in the following paragraph

Let’s take a closer look at these three reasons to refinance a car.

1. You can no longer afford your monthly payments. If you struggle to make your monthly car payments, refinancing may be a good option. By refinancing your car, you may be able to lower your monthly payments and free up some extra cash each month.

2. You want to lower your interest rate. If you qualify for a lower interest rate, refinancing may help you save money on interest over the life of your loan. A lower interest rate could also help you pay off your debt sooner.

3. You want to change the terms of your loan. If you originally agreed to a 60-month loan but now want to pay off your debt sooner, refinancing for a 48-month or 36-month loan could be a good option. Or, if you originally agreed to a 36-month loan but now want to lower your monthly payments, refinancing for a 60-month loan could be a good option for you.

Male hands with one holding a pen while typing on a calculator, while the other is on the keyboard of a laptop

Why Refinance a Car Again?

If you’ve already refinanced your car once, you may wonder if it’s worth refinancing again. The answer to this question depends on a few factors, such as your current interest rate, the terms of your new loan, and your financial goals.

High-Interest Rates – If you’re currently paying a high-interest rate, refinancing may help you save money on interest over the life of your loan. For example, let’s say you have a $20,000 loan with an interest rate of 15 percent. Over 60 months, you would end up paying $6,000 in interest. However, if you could refinance for a lower interest rate of 10 percent, you would only end up paying $4,000 in interest, a savings of $2,000.
Change of Loan Terms – This is no different than the first time you refinanced. If you want to change the terms of your loan, such as the length of the loan or the monthly payments, refinancing may be a good option for you.
Financial Goals – If you have other financial goals, such as saving for a down payment on a house or taking a much-needed vacation, refinancing may help you free up some extra cash each month. For example, let’s say you have a $15,000 loan with an interest rate of 10 percent and monthly payments of $350. If you refinanced for a 60-month loan with an interest rate of 15 percent, your monthly payments would decrease to $308. However, you would end up paying $3,000 more in interest over the life of the loan, but the trade-off could be worth it if you need the extra cash each month to reach your financial goals.

The Bottom Line on Refinancing More Than Once

If you’re considering refinancing your car, there’s no limit to how many times you can do it. However, keep in mind the lender’s policy on refinancing, the administrative process of title transfer, and the impact on your credit score. Refinancing can be a great way to save money on interest or change the terms of your loan, but make sure to consider all the factors before making a decision.

How to Get a Car Loan with No Credit

Posted on December 8, 2022January 10, 2023 by Autopay

Quick Answer:

Getting a car loan when you have no credit can be difficult, but it is possible. We'll show you how to get a car loan with no credit so you can get behind the wheel and on the road to building your credit. It starts by understanding what credit is and then working through the strategies to get a car loan with no credit.

Table of Contents:

Understanding Credit
Getting a Car Loan with No Credit
Beware of Financing Through the Car Dealership

Understanding Credit:

For many, “credit” probably conjures up a reasonably nebulous mental image. But, of course, you may know that it has something to do with borrowing money and paying it back over time. Still, beyond that, the details are probably pretty fuzzy. Well, consider this your crash course.

What is credit?

In a nutshell, credit is simply the ability to borrow money. When you have good credit, lenders are more likely to loan you money – and they’ll probably give you more favorable terms, like lower interest rates.

What is no credit?

Having no credit is actually not as bad as it sounds. If you have no credit, you don’t have any active accounts that are being reported to the credit bureaus. This usually happens when you’re young and haven’t taken out any loans or opened any lines of credit yet. It’s also common among immigrants who may have established financial history in their home countries but not in the United States. So having no credit is not necessarily a bad thing. In fact, some lenders may actually see it as a positive sign since you don’t have any negative marks on your record.

Two people looking at a computer screen on a website for no credit

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What is inactive credit?

Inactive credit is similar to having no credit in that it means you don’t have any active accounts being reported to the credit bureaus. However, the difference is that inactive credit generally refers to people who have had credit accounts in the past but are no longer using them. This could be because they paid off their debts and closed their accounts or because they’ve become “zombie” accounts that still exist but aren’t being used. Inactive credit can be seen as both good and bad by lenders. On the one hand, it shows that you can manage debt responsibly. Still, on the other hand, it can make lenders worry that you’re not actively using your lines of credit.

What is low credit?

Having low credit is precisely what you think it is. It means you have active accounts with negative marks being reported to the credit bureaus. This could be because you’ve made late payments, exceeded your credit limit, or defaulted on a loan. Low or bad credit can make it challenging to get approved for new loans or lines of credit. If you get approved, you’ll almost certainly pay higher interest rates than people with good credit scores. That’s why it’s so important to stay on top of your payments and keep your debt under control. Missing just a few payments can tank your score for years to come.

Are no credit and low credit the same thing?

Absolutely not. As we’ve explained, having no credit means you don’t have any active accounts being reported to the credit bureaus. That’s not necessarily a bad thing. On the other hand, low or bad credit means you do have active accounts with negative marks being reported. This will make it harder for you to get approved for new loans and lines of credit — and if you are approved, you’ll probably pay higher interest rates.

Inforgraphic explaining the credit scores that are considered high credit

What is a good credit score?

A good credit score is any score that falls in the “good” or “excellent” range on the major credit scoring scale. For FICO scores, that’s a score of 670 or above. For VantageScores, it’s a score of 700 or above. Generally speaking, having a good credit score means you’re a low-risk borrower, which means you’re more likely to get approved for loans and lines of credit. In addition, you’ll probably get more favorable terms, like lower interest rates. So if you currently have no credit, this is what you should aim for.

Getting a Car Loan with No Credit

You’ve finally saved up enough money for a down payment on a car, but there’s one more obstacle in your way: you have no credit history. But don’t worry — it is possible to get a car loan with no credit. Here are a few things you’ll need to do.

Collect All the Proper Documents

One of the first things any lender will want to see is proof of your employment history and current pay stubs. They’ll also want to see previous addresses and how long you lived there. If you have any bills that you’re regularly paying, such as rent or utilities, those can also help build trust with the lender. Finally, they’ll need to see your driver’s license. Collecting all of these items ahead of time will help speed up the loan process once you find a lender.

Woman standing at a table looking through paperwork

The lender will want to see all of this information to verify that you are who you say you are and that you’re capable of making regular payments on the loan. For example, your employment history and current pay stubs show you have a steady income. In addition, an address history indicates stability, and you’re not at a high risk of defaulting on the loan.

Find a Cosigner

You may need to find a cosigner for your loan if you don’t have any credit history. A cosigner is someone who agrees to take on the responsibility of the loan if you cannot make the payments. This is a significant risk for the person, so make sure you can make the payments before asking someone to cosign for you. If you default, they’ll be stuck with the bill, and their credit will also suffer.

Speaking of credit scores, it is also important that your cosigner has good or excellent credit. Since you have no credit history, the lender will heavily rely on your cosigner’s credit score to decide the interest rate and whether or not you qualify for the loan. On the other hand, if your cosigner has low or bad credit, you may still be eligible for a loan, but it will have a higher interest rate which may defeat the purpose.

Inforgraphic on what to do it you have zero credit

Now is The Time to Refinance Your Car Loan

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Save for a Bigger Down Payment

A down payment is the money you put down when you get the loan. The bigger the down payment, the less money you’ll need to borrow, and the lower your monthly payments will be. Lenders often like to see a down payment of 10 percent or more, but if you can swing 20 percent or more, that’s even better.

A more significant down payment also shows the lender that you’re serious about making regular payments on the loan since you have more skin in the game. This can help offset some of the risk associated with lending to someone with no credit history.

Be Prepared to Pay a Higher Interest Rate

Unfortunately, you will likely be charged a higher interest rate on your loan if you don’t have any credit history. This is because you’re seen as a higher risk to the lender, and they want to be rewarded for that risk.

If you have a cosigner with excellent credit, their good credit can help offset some of the risk, which may result in a lower interest rate. But if you don’t have a cosigner or your cosigner has bad credit, you’ll likely be stuck with a higher interest rate.

Build Credit and Wait

If you cannot get a car loan with no credit right away, don’t worry. You can take some steps to build your credit to get a loan in the future. This is more of a long-term strategy, but it will help you get better terms when you’re ready to apply for a loan. There are easy and sure ways to build your credit score, so researching and finding what works best for your situation is a good place to start. General ways people begin to develop a good credit score include:

Opening a secured credit card – A secured credit card involves a deposit, which becomes your credit limit. For example, if you put down a $500 deposit, your credit limit — and maximum balance — will be $500. This is an excellent way to build credit because it shows that you can manage a credit limit and make regular, on-time payments.
Becoming an authorized user – You can also become an authorized user on someone else’s credit card account. This means you’ll have your own card that you can use, but the account will be in someone else’s name. As long as the account is in good standing, this will help build your credit score.
Applying for a credit-builder loan – A credit-builder loan is where the money you borrow is deposited into a savings account. Once you make all your payments on time, you’ll have access to the money in the account, plus any interest earned. This is a good way to develop a credit history because it shows that you can make regular, on-time loan payments.

Beware of Financing Through the Car Dealership

Many car dealerships offer in-house financing, which may seem convenient if you don’t have any credit. In addition, they often claim they can finance anyone, no matter their credit score. But beware — these loans frequently come with high-interest rates, and you could pay more for your car than it’s worth.

Why do they do this? In truth, dealerships make very little profit from the vehicle sale. Instead, their profit comes from other products they sell, such as extended warranties, gap insurance, and — you guessed it — financing. So while they may claim to be helping by financing you, they’re really just trying to make more money off you in the long run.

Woman looking frustrated and looking at bills while sitting at a table with her head in her hand

If you decide to finance through the dealership, shop around at different dealerships for the best interest rate. And if you can get pre-approved for a loan from a bank, credit union, or another third-party lender before going to the dealership, that’s even better. This way, you’ll know exactly how much car you can afford and what interest rate you’ll be paying. Otherwise, you’ll be looking at a much higher interest rate and could end up in a loan you can’t afford. And that will leave you looking for tips on how to get out of a bad car loan.

Bottom Line

Getting a car loan with no credit is possible, but it may not be easy. You’ll likely need a cosigner or a sizable down payment, and you can expect to pay a high-interest rate. If you cannot get a loan right away, take some steps to build your credit to get better terms in the future. Whatever you do, beware of financing through the dealership. They often try to make more money off you by offering loans with high-interest rates.

Used vs. New Car: Which One Is Right for You?

Posted on November 2, 2022November 10, 2022 by Autopay

Purchasing a car is a big decision. It’s not only a major purchase but also a long-term commitment. Whether shopping for a new or used car, both options have pros and cons.

So, which one is right for you? From considerations like auto financing to vehicle history reports, we’ll help you make the best decision for your needs. Here’s a look at the pros and cons of buying used versus new cars and what you need to consider before deciding.

Pros of Buying a Used Car

There are many reasons why buying a used car can be a good idea.

Upfront savings – You can often get a used car for significantly less money than a new one. This is especially true if you buy from a private seller or an auction. Dealerships typically charge more for used cars. That’s because you might have more negotiating power when purchasing a used car than a new one. This varies depending on the dealership or seller, but it’s generally easier to haggle over price on a used car.
Less depreciation – A used car will usually have already taken its biggest depreciation hit. New cars lose significant value as soon as they’re driven off the lot. This better insulates you from negative equity situations if you need to sell the car.
Monthly savings – You can expect lower monthly car payments and insurance rates with a used car. And often, you can save even more down the line with auto refinancing if interest rates drop.
More personality – Some people prefer driving a used car. There’s something about knowing that your car has lived a little that can make it feel like more of a companion than a brand-new machine.

Now let’s take a look at the cons of buying a used car.

Cons of Buying a Used Car

There are a few potential drawbacks to consider before buying a used car.

Maintenance history – It’s impossible to know the vehicle’s complete history. Even if you buy a used car from a reputable dealer, it’s difficult to know how the previous owner(s) treated it. If previous owners haven’t maintained it properly, unseen damage might lead to repairs in the future. To assist you in identifying any potential concerns, get a pre-purchase inspection from a professional mechanic.

Man pointing out a blemish on a used car

Potential problems – In addition to maintenance issues, there could be other car problems that you’re unaware of. For example, the car might have been in an accident that wasn’t reported, or there could be hidden damage from a previous owner. Again, a pre-purchase inspection can help you identify any potential problems.
No warranty – Used cars usually don’t come with a manufacturer’s warranty. If something goes wrong, you’ll be responsible for the repairs.
Less choice – When you buy a new car, you can choose the model, color and options you want. When you buy used, you’re limited to what’s available on the market. Also, used cars generally have fewer features than new cars and might not have the latest safety technology.

Now let’s examine the pros and cons of buying a new car.

Pros of Buying a New Car

There are some significant advantages to buying a new car.

Up-to-date features – New cars always have the latest technology, safety features and creature comforts. If you’re looking for the latest and greatest, a new car is the way to go.
Warranty and lower maintenance costs – New cars usually come with some type of warranty that covers maintenance and repairs for a certain period. This can help decrease costs if something goes wrong with the car.
Financing options – You might be able to get a better financing deal on a new car than a used one. This is often true if you’re buying from a dealership. It might offer promotional rates or other incentives that make financing a new car more attractive. In addition, you can increase these savings later if you refinance when rates drop. You can use a refinance car loan calculator to see how much you can save.
New car smell – There’s something about that new car smell that some people can’t resist. It signifies a fresh start and a clean slate. So if you’re looking for that new car experience, getting that new car smell might be essential.

Now that we’ve taken a look at the pros, let’s discuss the cons of buying a new car.

Smiling, happy couple accepting keys to their new car

Cons of Buying a New Car

There are also some potential drawbacks to consider before buying a new car.

Higher cost – The cost is the biggest downside to buying a new car. They’re simply more expensive than used cars. This can be due to supply chain issues, production costs and marketing expenses.
Higher insurance rates – New cars also tend to have higher insurance rates than used cars. This is because they’re more expensive to replace if stolen or totaled in an accident.
Availability – Thanks to supply chain issues and chip shortages, specific models might have limited availability. This makes it challenging to find the exact car you want, and you might find yourself waiting for up to a year until it’s available.
They don’t stay new – This might seem like an obvious point, but it’s worth mentioning. No matter how well you take care of your new car, it will never be brand new again. It will eventually show signs of wear and tear, and you’ll have to deal with the inevitable repairs and maintenance that come with owning a vehicle.

The list seems to be pretty evenly split.

Which Is Right for You?

Ultimately, the decision comes down to your needs and preferences. A new car is probably the way to go if you’re looking for the latest features and technology. However, if you’re on a budget or prefer a used car’s personality, you might want to consider going that route. Whatever you decide, be sure to do your research and shop around to get the best deal.

Can You Refinance a Car Loan With the Same Bank?

Posted on October 19, 2022November 7, 2022 by Autopay

If you’re considering refinancing your car, you’re probably asking yourself “what is the easiest and cheapest way to refinance my auto loan?” If that leads you to wonder if you should ask your current lender to refinance your loan, there are some things that you should consider first.

Can I refinance a car loan with the same bank?

Refinancing your car loan with the same bank or credit union that issued you the original loan is often a possibility since lenders don’t want to lose your business to a bank offering more competitive rates.

However, not all lenders will allow you to do so, so you may need to check your lender’s policies. It may also depend on changes to your financial profile and credit score since you were granted your original loan.

How Long Do I Have to Wait Before I Can Refinance My Auto Loan?

With auto loan refinancing, there is no official waiting period required between taking out a loan and refinancing it. You can refinance your loan as soon as you can find a lender willing to do so.

However, you might have a hard time convincing your current lender to refinance your loan if you just recently took it out. That’s unless loan rates drop quickly and they are afraid to lose your business to a different lender.

The Pros and Cons of Refinancing With the Same Bank

When done responsibly, refinancing your car loan could come with many pros, like lower monthly payments, and very few cons. You most likely won’t even lose your car’s warranty should you decide to move forward with refinancing, but make sure to confirm with your provider beforehand.

However, refinancing your auto loan with the same lender offers a unique set of pros and cons that could affect your financial situation.

Let’s examine the pros:

You might have less paperwork to fill out. Since your lender already has you on record as a borrower, you might have to provide less information in order to refinance your existing loan. This could save you paperwork and time, but that all depends on the lender and their underwriting policies.

You might be more familiar with your current lender’s policies and customer service. If you’ve been using your loan provider for some time, you’re likely familiar with their policies and customer service. If you like your current lender, refinancing your loan through them ensures that you keep the same great service.

Your loyalty might be rewarded with discounts. In an effort to keep you as a customer, a bank might offer you discounts on fees and interest rates when you refinance with them. You will need to contact your lender to ask them if they offer any refinancing discounts for existing customers.

You might be able to keep your online account. Keeping your current lender usually means that you can keep your online account and the documents stored within it. This will keep you from needing to learn a new lender’s systems and keep all of your auto lending documentation in one place; that way you have less to keep track of.

Now, let’s examine the cons:

You might miss out on lower interest rates and loan terms. Refinancing with the same bank, although convenient, isn’t always best if you’re after a better interest rate. If your loan terms are the reason you’re refinancing, it’s likely that you can find a loan company that will beat the loan terms that your current lender will offer you in their refinancing offer.

Your current lender might charge prepayment penalties. Prepayment penalties help keep lenders from losing out on profits should you close the loan early. If your lender requires them, this will need to be paid before you can proceed with another loan.

If you don’t like your current lender’s service and policies, refinancing with them will prolong your bad experience. If you don’t like your current lender’s service or policies, refinancing your car loan with them will only mean that you have to deal with them longer.

Whether the pros or cons weigh heavier with you is based on your individual situation.

Is It Cheaper to Refinance an Auto Loan Through Your Current Lender?

Even though there is a possibility that refinancing your current loan through the same lender can save you some time, it might not save you much money. In fact, it might cost even more, since some lenders charge prepayment penalties.

A prepayment penalty ensures that the lender receives at least some of the profits that they would make off the interest of the original loan, should it be cut short because it’s paid off early.

These penalties are often 2% of the outstanding loan balance. So, if you refinance your $10,000 loan and your lender charges a 2% fee, you’ll pay $200 just to pay off your loan early and replace it with a new one.

Plus, even if your lender offers you a discount on fees required to close on your new loan, the savings might not outweigh what you’ll save on interest with a better loan.

It largely depends on factors like your financial profile and credit score, and whether or not they have improved since you originally took out the loan. You don’t need a perfect credit score to refinance your loan, but if it’s not very high, you should try to improve it even slightly before you consider refinancing.

To find out how much money you could save by refinancing your auto loan, you can use our auto loan refinance calculator to estimate potential savings.

Is It Easier to Refinance an Auto Loan Through Your Current Lender?

Whether or not refinancing with your auto loan’s current lender is any easier than doing so elsewhere depends on your experience with your lender. If you have made consistent, on-time payments throughout the life of the loan and have a positive credit history, refinancing with them will likely be straightforward.

Depending on your lender’s refinancing process, this could mean that you don’t have to fill out a lengthy application, provide as many financial documents, or learn an entirely different online platform for managing your loans.

On the other hand, if your lending experience has been difficult, especially if you have missed or late loan payments, you can expect that the refinancing process might be as well.

If your lender finds you to be a higher credit risk, your refinance offer from your current lender might not be the best. Luckily, you have many other refinancing options.

Should You Refinance Your Car Loan With the Same Lender?

Whether or not you should refinance your car loan with your current auto lender depends on if there is a better refinancing deal out there for you. To make sure that you don’t miss one or have to refinance more than once, you should compare loans offered by multiple lenders to your current lender’s refinance offer.

Shopping through a marketplace like AUTOPAY lets you compare loan terms from multiple lenders, so you can feel confident knowing that you’re getting the best deal. To find the best refinance loan for you, start by filling out our auto refinance form.

How to Know if You Shouldn’t Refinance With the Same Lender

You’ll know that you shouldn’t refinance with your current lender when you find a refinance offer that beats the one that your current lender offers. Since lenders are always looking to attract new customers, it’s likely that there’s a lender out there willing to give you better terms.

If the terms of your loan aren’t your reason for refinancing your auto loan, a negative experience with your lender might be. Whether that negative experience is a bad customer service experience or unexpected fees, you shouldn’t refinance with the same lender if you haven’t been happy with your lending relationship.

How to Refinance Your Auto Loan With the Same Lender

When you refinance your auto loan through the same lender, you can expect the process to be similar to that of applying for your original loan. However, each lender will be different. You can expect the refinancing process through your current lender to look something like this:

You will fill out an application. Your lender should have all of your personal, loan, and vehicle information on file, like the current loan amount and if you have a cosigner. So, the application process for current borrowers is often simple, but it kicks off the rest of the process. This is your chance to update any financial or personal information that might affect whether you will be approved or denied for refinancing.

Your lender will review your eligibility. Once your lender has received your application, they will work to figure out if you qualify for a new loan. To do so, they will review your proof of income, credit history, current auto loan standing, vehicle value and more.

You will receive your lender’s decision. Once your lender has determined whether or not you qualify, they will issue you an approval or denial. This can come by way of email, phone call, an in-person discussion or even a text, so make sure to confirm which method your lender will use before decision day.

If you’re approved, you’ll follow your lender’s instructions to close on the loan. Depending on whether you are working with an online lender or an in-person one, your lender will either instruct you to complete the loan process online or to meet them in person. During this process, you should be prepared to sign the loan contract and provide any last-minute documents that your lender might need.

Your loan funds will be distributed. If you’re refinancing through the same lender, they’ll handle paying off the old loan and bringing your balance back to current, so you won’t need to handle distribution.

All in all, refinancing an auto loan should not take more than a couple of weeks from start to finish.

Is Refinancing With Poor Credit Worth It?

Posted on October 12, 2022November 2, 2022 by Autopay

Yes, you can refinance your car loan even if you have a lower credit score. But is it worth it? When refinancing with a lower credit score, you must consider all your options. However, there is potential to save money by refinancing your car loan.

You need to begin with understanding how credit scores work and what you can do to improve yours. A higher credit score is essential for getting the best interest rates on a loan because a higher interest rate means you’ll pay more in the long run.

You also need to ask yourself some important questions like what are your refinancing goals, can you secure a lower interest rate and are the new loan terms better than your current one?

If you’re unsure whether refinancing is worth it or want to explore it as an option, we’ll examine how a lower credit score affects your chances of getting approved for a car refinance and how you can increase your chances.

Understanding Credit

We’ll discuss credit scoring and what factors influence your score. Knowing more about credit can help you make better choices when borrowing money.

Credit scores explained

Your credit score is a number that shows your level of creditworthiness — or how likely you are to repay a loan. The higher your score, the better your chances of being approved for a loan with a lower interest rate. A FICO® score is the most widely used credit scoring model and assigns a number between 300 and 850.

Excellent: 800–850
Very Good: 740–799
Good: 670–739
Fair: 580–669
Poor: 300–579

A lender takes more than just a credit score into consideration – so even if your score falls in the lower range, it’s still possible to qualify for refinancing.

How credit scores are determined

Credit scores are calculated using many factors, each weighted differently. The following is a list of considerations that affect your credit:

Payment history (35%) – The less payments missed, the better.
Utilization rate (30%) – How much of your total available credit is free.
Length of credit history (15%) – 12 months or more is best.
New credit (10%) – Recently acquired loans, credit lines and credit cards.
Credit mix (10%) – Showing you can manage different kinds of credit well.

It’s always a good idea to check your credit each year to make sure all of these factors are reported correctly.

How to check a credit score

If you’re considering auto loan refinancing and you think you have a low credit score, the first thing to do is check your credit score. You can check your credit score online for free or use this form to check it by mail for free. You can do this free credit check once every year.

Checking your credit score tells you where you stand. You might also be fortunate enough to find that your score is not as low as you thought. If that’s the case, you might have a better chance of being approved for a loan with a lower interest rate. On the other hand, if it’s lower than you thought, don’t worry — there are still things you can do to improve your chances of being approved.

The important thing is having the information, as it will allow you to make informed decisions.

The reasons for a poor credit score

There are several reasons why your credit score might be low, including:

Late or missed payments – When you miss payments on your bills, it can negatively impact your credit score. In addition, repeatedly missing payments can result in your account being sent to collections, damaging your score even further.
Collection accounts – If you have any unpaid debt that has been sent to collections, this will be added to your credit report and lower your score.
High balances – Carrying a high balance on your credit cards can also lower your score.
Length of credit history – If you haven’t been using credit for very long, you might not have much credit history to show.
New accounts – Opening too many new accounts at once can lower your score.
Bankruptcy filing – A bankruptcy filing will stay on your credit report for seven years and will significantly impact your credit score as lenders will see you as a high-risk borrower.

According to Forbes, there are also reasons why responsible people might have low credit scores. One way is having a single credit card that drives up utilization, which is the amount of credit you’re using compared to the amount of credit you have available.

For example, if you have a $5,000 credit limit and use $3,000 of that, your utilization ratio is 60 %. According to Experian, the average utilization rate is 17.0 % among consumers with FICO® credit scores of 780, which is in the “very good” zone for credit ratings.

An excellent way to control this ratio is to keep your balances low. You can also grow your available credit if you open a new line of credit or get a credit limit increase.

Knowing why your credit score is low can help you make a plan to improve it.

Improving your credit score

There are many things you can do to improve your credit score. Try these tips:

Make all your payments on time – This is the most important factor in determining your credit score, so it’s crucial to make all your payments on time, every time.
Keep your balances low – Keeping your balances low will help improve your credit utilization ratio, which is important for determining your credit score.
Avoid opening too many new accounts at once – Opening too many new accounts at once can cause you to appear riskier to lenders and lower your credit score.
Check your credit report regularly – Checking your credit report regularly can help you catch any errors or inaccuracies that might negatively impact your score.
Consolidate your debt – Consolidating your debt with a bank or credit union could help you pay off debt faster.

Once you’ve done everything in your power to improve your credit score, it’s time to consider what your goals are with refinancing and some other important factors.

Before Refinancing Your Car Loan

Think about your goals, the terms of your current loan and other important factors with refinancing your car loan.

Goals for refinancing

It’s important to know what your goals are. Ask yourself questions like:

Am I looking to lower my monthly payment? – This can help to alleviate some financial stress, but keep in mind that it could extend the length of your loan. You might also pay more in interest over the life of the loan.
Am I looking to save on interest and pay off the loan faster? – A shorter-term loan can help pay off your loan sooner and save on interest, but it might mean that your monthly payments are higher. This is advisable if you can afford the higher payments.
Am I looking to get cash out? – You might be able to get cash back when you refinance your car loan, but keep in mind that this will likely increase the interest you pay over the life of the loan.

Knowing these goals will help you determine what type of loan is best for you. In addition, it will give you direction when working with a lender.

Terms of your current loan

You’ll need to know the terms of your current loan before you can refinance. This includes things like:

Balance of your loan
Interest rate
Length of the loan
Monthly payment

You’ll also need to know the value of your car so you can determine how much equity you have. You can use a car valuation tool to get an estimate.

Be aware of fees

There are a few fees to be aware of when refinancing your car loan. These can come from the new lender or the old one. The new lender might charge application, processing and origination fees. The old lender might charge an early termination fee or other fees. You might be able to negotiate these away in some cases, but they’re still something to be aware of.

Understand what you can afford

Knowing what you can afford before starting the refinancing process is important. Remember that just because you’re approved for a loan doesn’t mean you have to take it. Only borrow what you need and what you can afford to pay back.

Calculate your monthly car payment by considering the loan amount, interest rate and length of the loan. Or use a refinance car loan calculator to get a quick idea. Then, use a budgeting tool to see if you can comfortably afford the new payment.

Strategies to Get Approved for a Refinance Loan

If you’re looking to refinance your car loan with a low credit score, you can do a few things to improve your chances of approval. Here are a few strategies.

Improve your credit score

We’ve already discussed how you can start to improve your credit. However, improving your credit score will take time and depends on why it’s not so great.

So, if your lower credit rating is due to a lack of credit history, you might be able to fix that by using a credit builder loan or becoming an authorized user on another person’s credit card. If your credit score is low because of high utilization, you can try to pay down your debt or get a debt consolidation loan.

On the other hand, if you have a history of non-payment, it will take some time and effort to improve your credit score. So the most important thing is to make all your payments on time going forward.

Shop around

Shopping around is essential when looking to refinance your auto loan with a low credit score. Not all lenders have the same standards, and some might be more willing to work with you than others. Therefore, it’s a good idea to compare offers from a few different banks, credit unions and other lenders before you make a decision.

When you’re comparing offers, be sure to look at more than just the interest rate or monthly payment. Other factors like fees and loan terms can affect the overall cost of the loan. For example, a low-interest rate with a long loan term might cost you more in the long run than a higher interest rate with a shorter term.

Of course, if your goal is to save on interest, this won’t work. However, it might be a good option if you’re hoping to decrease monthly payments to relieve financial pressure.

Get a cosigner

If you’re having trouble getting approved for a loan on your own, you might be able to get approved with a cosigner. A cosigner is somebody who agrees to sign the loan with you and is responsible for making payments if you can’t.

This will help improve your chances of being approved because it shows that you have someone else who is willing to take on the risk. Your prospective cosigner should have a good to excellent credit score and show enough monthly income to make the payments if necessary.

Is Refinancing Worth It?

Refinancing your car loan with poor credit can be a good way to save money on interest, lower your monthly payments or both. However, it’s not always the best option, and there are a few times when you shouldn’t refinance.

Refinancing is probably not a good idea if you’re upside down on your loan, meaning you owe more than the car is worth. This is because you could still owe the same amount of money (or even more) after refinancing.

You should also avoid refinancing if you’re close to the end of your loan term. This is because you’ll likely have to pay fees and closing costs, negating savings from a lower interest rate. If you’re only a short time away from paying off your car loan, you’ve also already paid most of the interest.

This is because most auto loans front-load interest, meaning most of the interest is paid at the beginning of the loan. If you’re nearing the end, you’re working on the principal.

Refinancing When It’s the Best Option for You

Refinancing your car loan with a low credit score can be a good way to save money on interest, lower your monthly payments or both. However, it’s not always the best option, and there are several factors to consider before refinancing.

For example, if you’re upside down on your loan or close to the end of your term, refinancing might not be worth it. In addition, it’s important to shop around for the best deal. Lastly, always keep your financial goals in mind and ensure that refinancing is the best option for you.

5 Dealership Red Flags and How to Avoid Them

Posted on September 28, 2022October 27, 2022 by Autopay

Buying a new car is stressful. It’s a major purchase, costing thousands of dollars – which doesn’t include having to pay for repairs if the car develops mechanical problems. There’s also the concern about purchasing a car that is simply unsafe to drive.

Your best protection against overpaying for a vehicle or purchasing a “lemon” is selecting an ethical car dealership. Learning to identify red flags early in your interactions can help you walk away from a bad deal.

Shopping for a Dealership

Wise car buyers shop for a dealership before shopping for a car. Working with the right dealership will save you stress, money and time – particularly when it comes to auto loan financing.

Talk to friends, family and colleagues about their experiences with local dealerships and ask for referrals. Research online reviews and Better Business Bureau reports before narrowing your list of dealerships to contact.

Another thing you can do to protect yourself is to research car sales laws and regulations in your state. You can find this information through your state attorney general’s office. Keep an eye out for lemon laws, a consumer’s bill of rights and other consumer protection laws that your dealership must follow when doing business with you.

Once you have your list of dealerships, get in touch. Some dealerships might offer online consultations — though in most cases, you’ll visit the dealership to talk to a salesperson and see what they have to offer. Once there, take note of how you are treated and how the dealership does business.

Red Flags to Watch Out For

Below are some unethical business practices that some dealerships use to rush you into a purchase or financing deal that is not in your best interest:

Demands an on-the-spot decision

It is difficult to make a good decision while under pressure. You’ll be driving and paying for your new car for years to come. There is no reason why you shouldn’t be able to take as much time as you need to choose a car and negotiate a financing plan that works for you. If you feel like you are under pressure, leave the dealership.

Rushes through paperwork

Purchasing agreements and loan notes are contracts. You are responsible for understanding all purchasing contract terms before signing. This means that you should be able to read and understand everything in the contract.

If you need help understanding what you are signing, ask questions and, if necessary, take a copy of the paperwork to your attorney for a consultation. If you are taking out a car loan, make use of a new purchase or refinance car loan calculator so that you’ll know exactly what you are going to pay over time.

Salespeople at unethical dealerships might try to rush you through the process of signing a contract by telling you that the language in the contract is “boilerplate” or “simply a formality.” Don’t believe them.

Contract packing

Contract packing happens when dealerships add a bunch of different options, such as extended warranties, GAP insurance, roadside assistance plans and other extras to your contract without your consent or knowledge.

All of these add-ons can be great options, but you should know what is being added to the purchase price of your car. You have the right to approve or reject an optional product or service.

Bait-and-switch

The bait-and-switch is a consumer scam in two parts: First, the dealership advertises an attractive vehicle and financing plan to catch your interest. When you visit the dealership, however, you find that the vehicle isn’t available or that you “don’t qualify” for the financing plan you thought you’d be able to get. The car, price or financing option is the “bait.”

Next, the salesperson tries to sell you a vehicle that is not of the same quality as the advertised car, or attempts to persuade you to either pay more for the car or agree to financing terms that will cost you a lot more money over time.

This is the “switch,” and it is pre-planned. The dealership never intended to sell you the car you saw in the ad at the terms you thought you were going to get.

Yo-Yo Scam

The Yo-Yo Scam is a variation on the bait-and-switch. You visit the dealership, find a car you like and the salesperson offers you a fantastic financing deal. You drive your new car off the lot and all seems to be well. Except a few days (or even weeks) later, you get a call from the dealership.

They have some bad news: You didn’t get approved for the financing deal, so you’ll either have to return the car or agree to a higher interest rate. After some back and forth, you realize that the “contract” you signed was conditional on your financing being approved.

As with a standard bait-and-switch scam, the dealership is relying on the fact that you really do need the car and that you’ll just agree to the new loan terms because you don’t want to go through the bother of taking the car back and looking elsewhere.

Protecting Yourself

Some dealers use these tactics because they work. Many people find the car buying process stressful and want to get it over and done with. Dealers know this, which is why many of these practices rely on you not carefully reviewing documents, clarifying language or questioning why vehicles or loan terms are so different from what was advertised.

When possible, try to schedule car buying at a time when you aren’t under a lot of pressure and never feel obligated to accept an offer that doesn’t sit well with you. If red flags start to pop up, move on to another dealer.

If you do end up purchasing a car with a not-so-great car loan, don’t worry. You have the option to apply for a refinance to try to get a better rate or better loan terms.

Joint vs. Cosigned Auto Loans: What You Need to Know

Posted on September 23, 2022November 1, 2022 by Autopay

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.

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.

Trade in vs. Refinancing: What Makes Sense for You

Posted on September 21, 2022October 11, 2022 by Autopay

Making the decision to trade in your car or refinance your auto loan is a big one. However, there are several things you’ll want to consider before making a decision. In this article, we’ll explore some key factors you should examine when choosing.

How Trade-Ins Work

When you trade in your car, you’re essentially selling it back to the dealership (or whoever you’re trading it in to). They will then give you a certain amount of money to purchase your new car. A major advantage of this is that it can save you time and hassle in trying to sell your car on your own.

Another benefit is that you might be able to save on taxes. For example, when using your trade-in toward the purchase of a new vehicle, your state might tax you on the full value of the new car or the difference of the new car value minus the trade-in value.

If it’s the latter, you’ll be able to lower your taxes and overall price tag. And according to Consumer Reports, the majority of states do tax the difference.

And finally, if you still owe money on your trade-in, the dealership might be able to roll that amount into your new loan. Just keep in mind that you’ll be paying interest on that amount over the life of your new loan.

When you trade in your car, keep the following in mind. Private sales usually result in more money than trading it in to a dealership. Dealerships need to make a profit off your vehicle, so they typically give less money than the car is worth.

You’ll also be subject to the laws of supply and demand. If the dealership is flooded with trade-ins of the same make and model as your car, they might not give you as much money as it’s actually worth. However, this could work in your favor in some cases if the dealership is desperate for your type of car.

woman signing for a new car at a dealership

Refinancing Your Auto Loan

When you refinance your car loan, you’re essentially taking out a new loan with a new interest rate. A great benefit of this is lowering your monthly payments, saving you money in the long run.

And with 47 percent of Americans extending their car ownership beyond their original forecast, according to Deloitte, you might find yourself in this position. However, remember the following when considering auto loan refinancing.

If you have good credit, you might be able to qualify for a lower interest rate than what you’re currently paying. This means you could save money on your monthly payments. However, if you have bad credit, you might not be able to qualify for a better interest rate, so refinancing might not be your best option.

Although, in some cases, you could still get better loan terms or lower your payment. You can use a refinance car loan calculator to help you figure out if refinancing makes sense for you.

Also, when you refinance your loan, you’ll likely have to pay some fees to do so. These fees can include an application fee, an origination fee and a prepayment penalty. Make sure you understand all the fees associated with refinancing before you make a decision, and shop around to find the best deal.

Lastly, you’ll want to consider the length of your loan when deciding whether or not to refinance. If you have a longer loan term, you might not save as much money in the long run by refinancing. On the other hand, if you have a shorter loan term, you could save quite a bit of money by refinancing.

Which Option Is Best?

There’s no right or wrong answer when it comes to trading in your car or refinancing your auto loan. It really depends on your individual situation and what makes sense for you. Here are some scenarios to consider.

You might want to refinance your car loan if you:

Are happy with your car and would like to keep it but want to lower your monthly payments
Have good credit and can qualify for a lower-interest rate
Don’t mind paying fees to refinance

You might want to trade in your car if you:

Are looking to get rid of your current car and upgrade to a new one
Would like to save time and hassle by not having to sell your car privately
Are okay with getting less money for your car than it’s worth

If you’re still unsure which option is best for you, we recommend reaching out to see what we can do to help you decide.

Buy a Car With Cash or Finance? Which Option Is Best for Your Personal Finances?

Posted on September 14, 2022October 11, 2022 by Autopay

When you’re in the market for a new car, you have two main options for paying for it: cash or financing. Both have pros and cons, so it’s important to weigh your options carefully before deciding. We’ll break down the key differences between paying cash for a car and financing one, so you can make the best decision for your personal finances.

Paying Cash for a Car

Buying a car outright with cash has some great benefits. Foremost, paying cash means you won’t have to worry about monthly car payments. In addition, this can free up some extra money each month to put toward other financial goals, like saving for retirement or building an emergency fund.

As well, if you pay cash for a car, you won’t have to worry about interest charges eating into your budget. So, in the long run, this method can save you money and, if you’re wise, even make you money by investing the extra cash you have each month.

However, there are also some downsides to paying cash for a car. To begin with, if you barely have enough to cover the total cost of the vehicle, you could end up overspending and putting yourself in a tight financial spot.

For example, if you pay cash for a car and something unexpected comes up (like an unexpected medical bill), you might not have the reserves on hand to cover it.

Not to mention, dealerships who are keen on selling financing packages might not be happy to hear you want to pay cash. To you, it sounds like a good deal for them and an easy sale, but they make a lot of money with those financing packages. So, don’t expect to use paying cash as a bargaining chip to get a lower price — it might not work.

Ultimately, you should only pay cash for a car if you have the full amount saved and you’re confident you won’t need to tap into those savings for other purposes. If this isn’t the case, auto loan financing might be a better option for you.

Financing a Car

When you finance a car, you’re taking out a loan to cover the cost of the vehicle. You’ll make monthly payments on this loan — a combination of the principal, interest, and any other fees charged by the lender — until it’s paid off.

For many people, financing is the best way to buy a car because it allows them to spread the cost of the vehicle over time. This can make it more affordable in the short-term and give you some flexibility if you need to tap into your savings for other purposes.

One of the most significant benefits of financing a car is that it allows you to purchase a more expensive vehicle than you could if you were paying cash. With average new car prices topping $45,000 in 2021, according to Forbes, financing is often the only way to afford a new vehicle.

Another benefit of financing a car is that it can be an excellent way to build your credit. As long as you make your monthly payments on time, you’ll be building a positive credit history that can help you down the road when you’re looking to take out a mortgage or another type of loan.

Of course, there are also some drawbacks to financing a car. To begin with, you’ll have to pay interest on your loan, which will increase the total cost of the car over time. If you get locked into a bad loan, this could cost you thousands of dollars in the long run and require you to refinance your car loan down the road.

Of course, this can be avoided by shopping around for the best interest rate and being mindful of the terms of your loan. Still, it’s something to be aware of nonetheless.

Additionally, suppose you have trouble making your monthly payments. In that case, you could risk damaging your credit score or even losing your car to repossession. This will make it difficult or costly to get another car loan in the future or secure other types of financing.

That’s why it’s vital to secure an interest rate and loan term that works for your budget and make sure you have a plan for making your payments on time each month.

Lastly, if you finance a car and later want to sell it before the loan is paid off, you might end up owing more money than the car is worth (this is known as being “upside down” on your loan). In these situations, you’ll have to cover the difference between what you owe and what the car is sold for to pay off your loan in full.

Make the Decision That’s Right for You

There’s no right or wrong answer when it comes to deciding whether to buy a car with cash or finance it. It all depends on your personal financial situation and what makes the most sense for your budget and comfort level with large financial expenditures.

woman sitting in the drivers seat of a car smiling while being given keys to her new car

If you have enough money to pay for a car outright, paying cash might be the best option for you as it can help free up extra money each month. However, if you don’t have enough saved up or want to purchase a more expensive vehicle than you could afford with cash, financing might be the better option.

Consider all your options and use an auto loan calculator to estimate your monthly payments before deciding. This will help ensure you choose the car-buying option that makes the most sense for your personal finances.

How to Get Out of a Bad Car Loan

Posted on September 12, 2022October 11, 2022 by Autopay

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.

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.