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Can Credit Card Companies Repossess My Items If I Don’t Pay?

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One of the biggest perks to using a credit card is that you can buy an item now and pay for it later. If you need money upfront for a large purchase, you can get what you need and repay it over time. But what happens if you don’t pay off the balance? Will someone knock on your door demanding the products back? In most cases, no, but that doesn’t mean you’re off the hook.

Unsecured Debt vs. Secured Debt

Before we can tackle the topic of repossession from credit card debt, we need to examine two common debt categories: unsecured debt and secured debt. Unsecured debt comes from a line of credit that is not backed by any collateral. Secured debt is ‘secured’ by a tangible item, such as property, a vehicle, a piece of furniture, etc. If you don’t make your car payment for a certain amount of time, your car may be repossessed because a car loan is a secured form of debt. Most forms of credit card debt are considered unsecured, so there is no specific item connected to the debt.

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Perfect credit not required; Reports to major credit bureaus

When you purchase something with your credit card, that does not become collateral for the debt. There is one exception to this rule, and that’s if the card agreement has a security interest clause. We’ll explain more about that later. In the vast majority of cases, your credit card debt remains unsecured. The credit card company is not going to ask for your coffee, combo meal, or gas station candy back if you don’t pay your bill.

What Will Most Likely Happen If You Don’t Pay Your Credit Card Bill

If you miss one or two payments on your credit card, all you’ll incur is a late fee and extra interest. The credit card company will still keep your account open, and you can continue to pay off the debt. After three missed payments (90 days delinquent), the credit card company may close your account and sell the debt to a collection agency. That’s when the fear of repossession may start to kick in.

At this point, you can try to settle your debt with the collection agency or make a payment arrangement for the debt. If you are unable to do this, the collection agency can file a lawsuit against you. If the judgment goes in their favor, you could have your wages garnished, a lien put on your property, your bank accounts frozen, and other possible consequences. The items you bought with your credit card may not be at risk, but you could lose much more along the way.

Worried about liens and garnishments? We’ve got plenty of advice to help you pay off credit card debt and avoid debt collection altogether.

Security Interest Clauses in Credit Card Agreements

Some credit card agreements include security interest clauses, which are essentially terms for repossession. These clauses are most common among store credit cards, where the card can only be used with that specific merchant. The Costco credit card once had a security interest clause that said, “each good you buy using your account secures your entire account balance until that good is paid in full and may be taken from you if you don’t pay on time.” Most clauses are not that clear, but the intentions are the same. Making a purchase with the card turns the item purchased into collateral.

Read your card terms closely and look for any verbiage related to security interest. You can use the database of card agreements from the Consumer Financial Protection Bureau to find your card agreement, if you don’t have access to it otherwise.

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Unpaid Debt Could Lead to a Lien on Your Home or Vehicle

There is a bigger issue at hand than losing credit card purchases for failure to pay. If a judgment is issued against you for credit card debt, the collection agency may issue a lien on your home, vehicle, property, or anything else you own with a title. You cannot sell or refinance this property until the lien is repaid. The lienholder can force you to sell the property in order to fulfill the judgment, but you will only receive whatever the profits are in excess of the lien amount.

It’s important to note that the collection agency doesn’t want your property. Neither does the credit card company you originally had the debt with. They just want their money back, along with applicable court costs and fees. If they issue a lien on something you own, that doesn’t fulfill the debt right away. They’re more likely to garnish wages or settle for a reduced amount so they can recoup their losses quickly.

Installment Agreements for Specific Items (Rent-to-Own, Store Financing, etc.)

If you have an installment agreement for an item, that is a secured debt. The item is collateral for the debt, and the lender can repossess the item if you fail to pay for it. This is most common with rent-to-own furniture or store financing. Let’s say you buy a mattress on a six-month payment agreement but only make three payments. The store or third-party lender can repossess the mattress because you did not complete the installment agreement.

Will Creditors Repossess My Items If I File Bankruptcy?

If you plan to file bankruptcy, you may or may not be able to keep your purchases. It depends on the type of bankruptcy you file and the overall status of your debt. With Chapter 7 bankruptcy, a third-party trustee liquidates your nonexempt assets to pay off as much of your debt as possible. Everything else is forgiven. You can keep one vehicle, one home, and most personal belongings, but additional assets may be sold for debt repayment. The regulations for nonexempt assets vary from state to state.

With Chapter 13 bankruptcy, you develop a payment plan to cover your debts in a 3-5 year period. You make monthly payments to a third-party trustee, and that person disburses funds to your debt collectors. Chapter 13 bankruptcy does not create the instant ‘clean slate’ that Chapter 7 yields, but it protects your property from repossession.

Before you consider filing bankruptcy, look into debt consolidation. You might be able to consolidate credit card debt on a balance transfer card, or get a loan to cover your existing debts. This loan turns your old debt into new debt, which buys you time to avoid repossession. As long as you maintain your credit card payments or loan payments, you can keep your property and rebuild your credit.

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How to Manage Your Credit Card Debt

The fact that you’re reading this shows you might be in over your head with credit card debt. That’s alright. You still have options left. Whether your financial situation changed or your just weren’t smart with your spending, you can take small steps to get out of credit card debt.

  • Analyze your monthly budget, including everything you make and everything you spend. Take a hard look at your finances and get a grasp on how much money you’re spending each month. It may be time to make some sacrifices to devote more money to debt repayment. At minimum, this will give you an idea of how much you can pay on your credit cards and how quickly it will take to pay off credit card debts. See: How to Set a Monthly Budget
  • Choose one credit card to pay off first. This could be the card with the smallest balance, the highest interest rate, or whatever card you want. The goal here is to get you motivated about paying off your debt. Make minimum payments on all your cards, but pay extra on your target card each month. Repeat this until you’ve paid off the one card completely.
  • Use the money from your first card to pay off the second card. If you were paying $50 a month toward your first card and $15 a month on your second card, pay the full $65 to your second card now. This will pay off your debts even faster, and you can use the momentum to get out of credit card debt.
  • Avoid unnecessary purchases. Think carefully about any purchase you make with your credit card, especially if it’s not a necessity. Every $5 charge adds up, and that’s money you could use to become debt free.
  • Ask for a lower APR. After six months of on-time payments, contact your credit card company to request a lower interest rate. Most cardholders are successful with this request, and a lower interest rate means lower debt over time. In a worst case scenario, they say no and you maintain your current interest rate.
  • Learn from past mistakes. Review the decisions that led to your current debt situation. What could you have done differently? What habits do you need to break? You cannot undo the past, but you can prevent a repeat in the future.

If you’re trying to rebuild your credit, consider a secured credit card or a credit card for bad credit. Be sure to make your monthly payments on time each month. Better yet, pay off your balance each month so your debt doesn’t accrue interest. Keep up with these smart money habits, and you’ll be on your way to a fruitful financial future.

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How to Buy a House With Bad Credit: Guide for 2021

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Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

Having bad credit makes it harder to get a mortgage. A low credit score makes you look riskier to lenders; it suggests you might be financially unstable or unwilling to repay your debts.

A poor score, however, can also simply be the result of not knowing how the scoring process works or having gone through a brief rough patch that required you to take on debt.

If you think you’re ready for homeownership despite your bad credit, here’s what you need to know:

What counts as a bad credit score?

How do you know if your credit is bad? Once you know your score, see where it falls in the ranges below:

  • Poor (less than 640): Lenders consider borrowers in this credit score range to be high risk. Having poor credit means you probably won’t qualify for a conventional mortgage, but you might be able to get a government-backed home loan.
  • Fair (640 to 699): Lenders see borrowers in this credit score range as less risky. You might have less debt or a stronger payment history than borrowers with poor credit. You can qualify for a conventional mortgage with fair credit, but you might need to be stronger in other areas to make up for it, and you could be saddled with a higher mortgage rate.
  • Good (700 to 749): With good credit, you’ll have a much easier time qualifying for a mortgage and getting a low interest rate. You’ll probably secure offers from more than one lender.
  • Excellent (750 and above): An excellent credit score demonstrates your ability to manage debt. You consistently make your payments on time and don’t use too much of your available credit. Combined with a steady income, you’ll qualify for a mortgage from multiple lenders and have the luxury of choosing the least expensive option.

While potential borrowers with poor credit will find it challenging to get a home loan, it can be done. You just need to learn about the options available and how lenders will look at your application.

Find Out: 800 Credit Score Mortgage Rate: What Kind of Rates Can You Get?

Credit score needed to get a mortgage

While your credit score is an important factor in your home loan eligibility, it’s not the only one. Here’s what else lenders care about:

  • Down payment: Depending on the loan and the lender, you’ll need a minimum of 0% to 5% down.
  • Debt-to-income ratio: Typically, you want a debt-to-income ratio of 36% or less when applying for a mortgage. In most instances, it can’t total more than 45% to 50% of your income.
  • Cash reserves: You might need up to six months’ worth of mortgage payments in the bank with a low credit score and/or low down payment.

Minimum credit score by loan type

Loan type
Description
Min. credit score
ConventionalA home loan not insured by the federal government620
FHAGovernment-insured mortgage for borrowers with low credit scores580
(with 3.5% down; 500 with 10% down)
VAGovernment-backed mortgage for military service members (including qualified reservists) who meet length and character of service requirements, and their unmarried surviving spousesNone
(though individual lenders might impose limits)
USDAGovernment-insured home loan for low- and very-low-income applicants in eligible rural areasNone

What having bad credit means for your mortgage rate

The lower your credit score, the higher your mortgage rate, all else being equal. If you have poor credit, expect to pay at least 1.5% more than someone with excellent credit.

The result will be a higher monthly mortgage payment and a higher long-term borrowing cost.

Assuming you’re able to secure a loan with bad credit, you won’t necessarily be stuck with the same rate forever. It might be possible to refinance to a better rate after improving your credit score.

Keep in mind: You’ll have to pay closing costs when you refinance, and if market rates increase, having a higher score might not actually translate to a lower rate.

It’s safer to only take on a mortgage now if you feel confident you can afford it long term, even if you hope to refinance or sell your home in a few years.

Learn More: What Is a Mortgage Rate and How Do They Work?

How to get a mortgage with bad credit

You might already be able to get a mortgage despite your bad credit. For example, if your score is at least 580, you can put down just 3.5% and get an FHA loan.

However, working to improve your score and other aspects of your finances gives you more options and can save you money. Follow the steps below to increase your chances of getting a mortgage:

1. Keep an eye on your credit

It’s never been easier to get a free copy of your credit report. You can receive a free copy of your credit report from each of the three national credit reporting agencies at AnnualCreditReport.com.

Tip: Some sites make it look like you need to pay for your report. You don’t. The three national credit bureaus — Equifax, Experian, and TransUnion — are required by federal law to provide you with a free annual credit report.

Analyze your reports to make sure all the information is accurate. If you find a mistake that could be weighing down your score, dispute it with the credit bureau or with the company that reported the incorrect data.

Check your score weekly as well. This allows you to see how your financial activity is affecting your score. If it’s moving in the wrong direction, frequent checks will help you take quick corrective action.

2. Pay your bills on time

Payment history is the most important factor that determines your credit score, making up about 35% of it.

Make sure all your credit card, auto loan, and other debt payments post to your account by the due date to boost this part of your score.

3. Work on paying down debt

How much you owe makes up 30% of your credit score. Specifically, your credit score evaluates your balance relative to your available credit, often referred to as your credit utilization ratio. The lower that ratio, the better.

For example, your score will look better if your balance on a $5,000 credit line is $500 (10% utilization) instead of $2,500 (50% utilization).

If you rack up a high credit card balance one month, try to pay it down before your next statement is issued to keep your credit utilization down on your credit report.

Tip: If you’re looking to improve your credit score, it’s important that you use at least some of your available credit. Low credit utilization impacts your score more positively than 0% utilization.

4. Stay away from hard credit inquiries

Applying for a loan or credit card will usually ding your credit score if the creditor conducts a hard credit inquiry.

Credible lets prospective homebuyers shop for rates without impacting their credit scores. We’ll show you actual, prequalified rates from our partner lenders — our process is secure and simple, and it only takes a few minutes to complete.

Credible makes getting a mortgage easy

  • Instant streamlined pre-approval: It only takes 3 minutes to see if you qualify for an instant streamlined pre-approval letter, without affecting your credit.
  • We keep your data private: Compare rates from multiple lenders without your data being sold or getting spammed.
  • A modern approach to mortgages: Complete your mortgage online with bank integrations and automatic updates. Talk to a loan officer only if you want to.

Find Rates Now

Opening a new account — or closing an old one — will also decrease the average age of your accounts, a factor that accounts for 15% of your credit score.

There are situations, however, where the benefit of applying for new credit might outweigh the impact on your credit score.

One example of this is transferring high-interest debt to a lower-interest card, which could help you pay down debt faster.

5. Consider a rapid rescore

If you’re in a hurry to boost your credit score, a rapid rescore might help. Normally, your credit report and score get updated each billing cycle.

This means that after you pay down a credit card balance, for example, your new credit utilization rate might not be reflected in your score for up to a month.

Rapid rescoring can speed up the change to your credit score. Your lender might recommend it if you’re close to having a good enough score to qualify for a loan or better rate.

Tip: Only your lender can request a rapid rescore; you can’t do it yourself.

Keep Reading: Credit Score Needed to Get a Home Loan

6. Save up for a larger down payment

A larger down payment gives you more skin in the game, which makes you look less risky to lenders. It also means you won’t need to borrow as much.

If your income is too high to qualify for other low-credit-score conventional loan programs such as Fannie Mae’s HomeReady, you may still qualify for a conventional loan with a credit score of 620. You’ll need to put 25% down and your debt-to-income ratio must be 36% or less.

In this case, you won’t have to pay for private mortgage insurance. Your monthly mortgage payment will be smaller and your long-term interest expense will be lower. So, while you’ll pay more up front, you’ll pay less each month and over time.

7. Bring on a co-signer

A co-signer whose credit is better than yours could help you get approved for a mortgage or lower interest rate.

However, they will be taking on a huge responsibility: the obligation to pay your mortgage payments if you default. If they can’t, their credit score will be impacted.

In other words, a co-signer must put their savings and their credit reputation at risk to help you. That’s a big ask.

8. Consider a loan type with less stringent credit requirements

As we’ve noted, FHA loans have low credit score requirements. VA loans and USDA loans technically don’t have a minimum credit score requirement. However, these two loan types do have stricter eligibility requirements:

  • VA loans: Only available to military service members who meet length and character of service requirements, and their unmarried surviving spouses
  • USDA loans: Only available to low- and very-low-income applicants in eligible rural areas

9. Shop around to find the best offer

Even with poor credit, you should shop around to find a great mortgage rate. With Credible, you can check prequalified rates from multiple lenders for free, all on one platform.

You might be eligible for better rates than you think. And if you’re not, you now know the steps to get your score into better shape.

Get started today by checking out the table below, and see what rates you prequalify for from our partner lenders.

About the author

Amy Fontinelle

Amy Fontinelle

Amy Fontinelle is a mortgage and credit card authority and a contributor to Credible. Her work has appeared in Forbes Advisor, The Motley Fool, Investopedia, International Business Times, MassMutual, and more.

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More accountability among council proposals for Akron police

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Akron City Council wants more resources for the city’s only independent police auditor and more public access to police records, from use of force reports to citizen complaints and logs that track the race of everyone stopped by police.

Those are among the recommendations to be released publicly on Monday by council’s special committee on Reimagining Public Safety. Members are trying to answer a community call for a police force that better reflects the demographics and lived experiences those it serves and protects following the police killing of George Floyd in Minnesota last year.

There would be no age limit for police cadets, which the city recently upped from 35 to 40 years. A new “Pathway to Law Enforcement” would ask community and education leaders to steer young adults into careers with the city and the Akron Police Department.

More so than they do now, social workers would help police handle 911 calls involving mental health and addiction. Officers would spend more time walking or biking their beats in an effort to build trust and understanding with the neighborhoods they police.

And council would keep up with the latest in law enforcement technology as city police deploy drones or consider feeding camera footage into crime-solving software that can scan faces and license plates, which would prompt leaders to weigh public safety against personal privacy.

Council President Margo Sommerville will present the full list of recommendations and special committee findings during council’s regular public meeting Monday. The 22-page document is the culmination of 22 subcommittee meetings, each averaging about an hour.

But the report is not the end of the road to “Reimagining Public Safety,” Sommerville explained. The end goal is “more equitable” policing systems and stronger bonds between police and the policed.

As he searches for a new police chief, Mayor Dan Horrigan and his deputy mayor for Public Safety, Charles Brown, express agreement with council in recognizing the best elements of policing in Akron while considering improvements outlined in the listed recommendations.

Next, Sommerville said council will take its newfound knowledge of policing in Akron to the public and rank-and-file officers.

University of Akron President Gary L. Miller said he’s honored and excited that council has asked his faculty and students to develop a community engagement process of surveys and virtual town hall meetings. The information gathering process will solicit feedback from residents, officers and the police union, which as an organization was not given an opportunity to address council’s special committee.

“We know at the end of the day, when we really begin to finalize these recommendations, we’re going to need the Fraternal Order of Police (Lodge #7),” Sommerville said, pinning successful implementation of any reform or enhancement on the commitment of everyone impacted.

FOP President Clay Cozart will see the recommendations Monday. While continuing to disagree with the prominence given to police reform in the wake of Floyd’s death, Cozart said he’s watched every minute of the 22 meetings discussing the work of his members, and he appreciates Sommerville’s willingness to work with the union.

Informed by Akron police officers serving as “liaisons,” the special committee involving every member of council broke out into four working groups.

Police oversight

The Accountability and Transparency group, which met seven times, delved into issues of external oversight, officer discipline and public access to records, drawing on the expertise of police auditors, civilian review board members and national experts on the subject from coast to coast.

Background: Who polices Akron police? Auditor says his office is understaffed, under-resourced

“In our society, we entrust police with the critical responsibility of protecting public safety, including by using force, if necessary,” the working group concluded. “External oversight recognizes that the seriousness of this delegated power requires particular scrutiny in order to ensure that the rights of the public are protected. On both a national and local level, historic injustices have created a trust deficit in how the public, particularly communities of color, interact with law enforcement, and government more broadly. Community trust is essential for effective policing.”

The group settled on two formal recommendations:

  1. Give Akron Police Auditor Phil Young, who answers to the mayor, a role codified in city law with “sufficient authority to access information, adequate staffing and funding and independence from the political process.”
  2. Ensure “that more police data and information is made publicly-available online and updated on a regular basis.”

Prevention

The prevention working group discussed community policing and best practices around responding to mental health, addiction and other 911 calls that can end tragically for officers and citizens.

While identifying funding as the greatest barrier to more robust training, the group recommended that every officer undergo Crisis Intervention Team training. Currently, 76% of officers lack the 40-hour training.

More: Akron’s police chief to retire in 2021

To “help solidify stronger relationships between police officers and the communities they diligently patrol and serve,” the group also recommended more walking and biking for beat cops, something previous councils and mayors have tried to achieve.

The final recommendation recommended a shifting, or at least sharing, of the burden of solving society’s problems, which armed officers encounter daily.

There’s some appetite for the concept, even among officers. Police1, an online source of information and resources for law enforcement, surveyed 4,000 American officers for a special report called “What Cops Want in 2021.” Officers named serving their community as the top reason for becoming officers. They also ranked the types of 911 calls they’d rather see other agencies handle: housing for homeless people (93%), animal control (88%), nuisance abatement (64%), parking enforcement (61%) and dispute mediation (53%), responding to mental health crises (45%) and drug overdoses (29%).

“Throughout our working group meetings, there was a continuing discussion of whether it may be appropriate for social service agencies to respond to some 911 calls relating to mental health or other issues, the idea being that a social service-focused approach might be more effective in some cases, and could also free up APD to focus on issues that clearly need a police response,” the group concluded. “Our APD liaisons made clear that they believe there should be a police response to all calls, as situations are fluid and could endanger non-police responders.”

We also heard from the Police Chief in Alexandria, Kentucky, a small city south of Cincinnati, who described a program in which the department employs two social workers, who follow up on calls (and in some cases respond to calls where the scene is deemed safe).”

The group heard from a Kentucky police chief who sends social workers out on many calls, sometimes without an armed officer. They said Akron, as a community, should involve more social service providers on 911 calls, when “appropriate,” and expand programs where counselors and health professionals follow-up after the fact.

Personnel and culture

A third committee tackled hiring and staffing as commanders must take officers from their patrols to fill specialized units like Neighborhood Response Teams — the backbone of community policing in Akron — or Quick Response Teams that respond to overdoses.

The group recommended more ongoing training and identified potential problems with hiring like not testing for steroids in the screening process because it costs twice as much or disqualifying applicants because they have or lie about a history of bad credit or minor drug offenses.

Background: Akron police force struggles to reflect city’s diversity

To get a more diverse and broader pool of candidates, the group recommended abolishing the current 40-year maximum age for cadets, as other large cities have done.

They also recommended bringing back an Akron Urban League program that prepared candidates for the city’s civil service exam and the creation of a Pathway to Law Enforcement program.

The Pathway program would use neighborhood “figureheads” and public educators to recruit 18 year olds and hold their interest in becoming cops until they turn 21 and are allowed by state law to carry a firearm as a civil servant. For a couple years, they would get city jobs dealing with the public while earning criminal justice credentials through UA or Stark State.

The group added two suggestions: APD should update its mission statement “to include the need for a workforce that reflects community and the need for diversity” and bring in an outside group that would take confidential and “unvarnished opinions” of officers “that could provide constructive feedback for further institutional change.”

Technology and equipment

No formal recommendations, aside from getting a body-worn camera for every officer who interacts with the public, came out of the technology and equipment committee.

More: Akron is ‘Reimagining Public Safety’ with drones, diversity and license plate readers

This last group learned about policing gadgets and systems like unmanned aerial vehicles (drones), “less-lethal” weapons (tear gas, pepper spray, tasers) surplus military rifles and body-worn cameras.

City information technologists informed them of existing software that allows detectives to stake out drug houses or solve crimes by accessing 277 cameras mounted around the city on buildings, lights and traffic poles. The footage is recorded 24/7 and kept for 21 days. And they discussed emergent technology like Briefcam, a program of computer algorithms that scans faces and reads license plates then automatically generates turn-by-turn video of stolen cars or suspects.

“Going forward, it will be important to gauge public opinion about how cameras in public spaces should be used,” the committee cautioned. “With Ring doorbells and other consumer camera systems becoming ubiquitous, it may be that the public is willing to accept greater surveillance by police within public spaces. Still, there should be transparency and clear rules on what is and is not permitted.”

Reach reporter Doug Livingston at dlivingston@thebeaconjournal.co or 330-719-1756

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Everything You Need To Know About Financing A Car In 2021

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Thinking about financing a car? Depending on your job and where you live, owning a car may be the easiest way to get around. But reliable vehicles can be expensive, which is where car financing comes in.

We’ve reviewed several of the best auto loan providers and researched everything you need to know about the car financing process. This article summarizes the most important information into an easy-to-understand guide to help you find your best auto financing options.

We’ll explain why you would finance a car, how car financing typically works, tips for finding the lowest interest rates, and recommend top lenders to get you started. Read on to learn everything you need to know about financing a car in 2021, and click below to start comparing rates from multiple lenders at AutoCreditExpress.com.

 

In this article:

Is Financing A Car A Good Idea?

If you have the cash to purchase a new car without a loan, take this approach. Unless your annual percentage rate (APR) is zero percent (which is rare), it is cheaper in the long run to purchase a car with cash. Of course, this is not practical or possible for many people. If you need a vehicle soon and don’t have the money saved up, financing may be the only way to purchase a car.

You should finance a car if:

  • You need a car and can’t afford to pay for the full value of the car in cash.
  • You want a car and can’t afford to pay the full value, but you can budget for the monthly expense of your payments.

You should not finance a car if:

  • You cannot afford monthly payments.
  • You can afford to pay for the full value of the car in cash.

 


 

How Does Car Financing Work?

Car financing is a type of loan. A lender will pay for a certain amount when you purchase the car, which you will be required to pay back, with interest, at a predetermined monthly rate. There are several important variables to any auto loan:

  • Purchase price
  • Fees
  • Down payment
  • APR
  • Financing term length

The purchase price is the final agreed-upon cost of the car. Typically, the purchase price is set by a dealer but can be negotiated. On top of this price, you will also be required to pay taxes and other fees depending on the state and dealership. Taken together, these represent the total cost of the car.

Most auto loans do not pay for the entire cost of your vehicle. A typical down payment is 20 percent of the car’s total cost. The higher your down payment, the lower the amount you need to finance. The more you can pay as a down payment, the better, as you will be charged interest on the remaining amount.

APR represents the amount of interest you will pay. In the United States, there is no standard for how APR must be calculated for auto loans. This means that depending on how often the interest is compounded, the same APR for the same loan amount can result in a different total interest paid. For this reason, it is difficult to compare offers between lenders based solely on advertised APR.

Luckily, many car financing offers will clearly state your monthly payment amount. If you multiply this number by the number of installments you will pay, you can determine the total price you will pay. If you subtract this total amount from the amount that you financed, you can figure out exactly how much you will pay in interest.

For example, imagine the total cost of the car you purchase is $20,000. You place a 20-percent down payment of $4,000. This means you take out an auto loan of $16,000 to pay the remainder. If your contract requires you to pay $250 per month for 4 years, you will end up paying a total of $20,000 to your lender. This is $4,000 more than the amount you financed – $16,000 – and represents your total financing fee (how much extra you had to pay in order to get a loan).

Beware of dealerships that advertise zero percent APR. Typically, when a dealer advertises this rate, it may give you no interest on your loan but tack on other fees that increase the total amount you must pay back. For example, rather than saying you must pay $16,000 plus 4 percent APR, the dealership will add a “service fee” on top of the sticker price so that the amount you must pay back is much higher, even though your debt does not accumulate interest.

If your loan contract does not clearly indicate the total amount you will need to pay back, do not sign it. Only agree to an auto loan you fully understand. If you have trouble understanding your loan terms, you aren’t alone. Many loans are intentionally confusing so that the customer has a more difficult time realizing if they are being scammed. Consider enlisting the help of a friend or even a loan professional to review your contract’s terms and conditions before signing.

Your financing term is the length of time it will take for you to pay off your auto loan, assuming that you meet all monthly payment obligations. The longer your finance term, the more you will ultimately pay. This is because the longer your loan remains unpaid, the longer you will accumulate interest. Try to pay off your loan as quickly as possible.

 


 

How To Get Car Financing

Along with deciding on a vehicle and determining your budget, you’ll need to choose where to get your auto loan from. There are several places to request car financing from, and each has its benefits and downsides:

Option For Financing A CarHow It Works
Dealership financingMost dealerships offer vehicle financing, typically through third-party lending partners. This is the most convenient option, as you can compare multiple offers at the dealership and see if there are any special rates for certain vehicles. However, be aware that dealer loans may include high fees.
Bank financingWhile it may be more of a hassle to visit a separate location from where you will buy your car, local banks and credit unions can help work within your budget, won’t pressure you to buy, and will likely offer some of the best terms. Credit unions in particular are likely to be less predatory.
Online lender financingThe easiest way to browse financing offers is online. Many online lenders partner with dealerships so that you can prequalify for a loan and shop for eligible vehicles on the same website. However, there are a lot of online auto lenders out there, so you’ll need to look for one that’s credible.
 

 


 

Tips For Financing A Car

When you are financing a car, there are several best practices to keep in mind to get the lowest rates:

  • Decide how much you can pay beforehand: Before even deciding which car to buy, determine how much you can afford to finance. Think about what monthly payment you can comfortably pay, and work backward from there. Cars depreciate in value, so you can quickly find yourself in debt if you take out a loan you can’t afford. After a few years, is not uncommon for the value of a car to be less than the amount you owe on your loan.
  • Check your credit score: Interest rates are largely based on your credit score. You are entitled to a free copy of your own credit report at least once a year. You can request this at AnnualCreditReport.com and other websites. If you have a poor credit score, you might need a bad credit auto loan. One way to get a better APR if you have a low credit score is to have a cosigner with good credit.
  • Reduce finance charges: Your goal should be to lower the total amount you will pay on top of the cost of your vehicle. This means looking for a low APR and a short payment term. Also, try to reduce the amount you must finance by making as large a down payment as possible. Twenty percent is standard for a down payment, but if you can afford to pay more upfront, you will pay less later.
  • Compare offers: It’s a good idea to compare auto loan offers before you visit the dealership. When doing so, be sure to only request loan offers from lenders that offer pre-qualification that does not include a hard credit check. Hard credit checks lower your credit score, so do not agree to one unless you are ready to finalize a loan offer.

 


 

Recommended Lenders

When financing a car, it can be difficult to know which lenders are credible. To help you sift through the hundreds of choices available, we’ve narrowed down the best loan providers in the industry.

Read on to learn more about some of our top picks, or read our full review of the best auto loans for a longer list of recommended lenders. If you’re ready to start comparing loan offers right away, you can do so via AutoCreditExpress.com.

 

PenFed Credit Union offers some of the lowest auto loan rates we have seen. However, it has stricter credit score requirements than other lenders and may not be an option for some. The company is well-regarded and has a positive reputation online.

PenFed Credit Union ProsPenFed Credit Union Cons
Offers exceptionally low interest ratesModerate customer service reputation
A+ rating from the Better Business Bureau (BBB)Does not offer loans to drivers with poor credit
 Customer reviews describe a slow application process
 

Auto Credit Express is a good choice for those with bad credit. Even if you are undergoing bankruptcy or repossession, Auto Credit Express will work with you. Plus, Auto Credit Express will help you build your credit score if it is low.

Auto Credit Express ProsAuto Credit Express Cons
Offers financing for customers with bad or no creditCurrently has a BBB alert regarding licensing issues
Pairs customers with loans based on credit profilePoor customer reviews
Offers special rates for military members 
 

To learn more about this provider, read our full Auto Credit Express review.

myAutoloan.com is not a direct lender but a portal that connects lenders with customers. It’s a good way to browse loan offers and even find loans for private purchases.

myAutoloan.com ProsmyAutoloan.com Cons
Offers loans for drivers with bad credit historyNot available in Alaska and Hawaii
Offers loans for private purchasesNot available to drivers with credit scores below 575
Good customer service reputation and an A+ rating from the BBB 
 

To learn more, read our full myAutoloan.com review.

 


 

Alternatives To Financing A Car

If you need a vehicle but do not want to take out an auto financing loan, you have a few alternatives.

  • Lease: If you lease a car, you will pay a monthly fee that is likely to be lower than an auto loan payment. However, at the end of the lease term, you must return the vehicle and will be charged for excess damages. Some lease contracts have the option to buy the vehicle at the end of the lease.
  • Private loan: You might ask for a loan from an individual rather than a loan provider. An individual that you know may loan you money at a much better rate than auto lenders (or with no interest at all).
  • Cash payment: If you can avoid making a monthly car payment, it’s the best route to go. Cash payments are the cheapest way to purchase a vehicle in the long run, but most people do not have the funds to take advantage of this option.

 


 

Frequently Asked Questions

What happens if I miss a car payment?

If you think you are going to miss a car payment, contact your lender right away. You may be able to request an extension or have your contract terms changed. If you are able to negotiate any changes, be sure to get them in writing. If you miss too many car payments, your vehicle can be repossessed.

How long should you finance a car?

You should try to finance your car for as short a time as possible. A typical auto loan term is five to six years. Longer auto loans are not recommended because the value of your car may depreciate below the amount you have left in payments.

Can you finance any car?

Which cars you can finance depends on the lender. Many lenders will not provide auto loans unless you buy your car from a dealership, but this is not always the case. A lender will not provide a loan for an especially expensive car if the borrower has a poor credit score or low income. Likewise, if the value of the car is too low, a lender may not offer an auto loan and you’ll need to look into personal loan options.

Which bank is best for car financing?

There is not a single best bank for car financing, though we generally recommend Chase and Capital One – which are generally good banks for auto loans. Typically, a local bank or credit union is your best bet for auto financing.

What credit score do you need to get zero percent financing on a car?

Few lenders offer zero percent financing on auto loans. To be eligible for this interest rate, you would likely need a credit score above 720, as well as a stable income. Most of the time, if a dealership advertises zero percent APR, you will end up paying more in hidden fees.

Is a 72-month car loan bad?

While 72 months is long for a car loan, it’s not uncommon. If you can, try to sign up for an auto loan that does not exceed 60 months (5 years).

What car dealerships are offering zero percent financing?

Few car dealerships offer zero percent financing. Some dealerships advertise “0 percent APR,” but this is usually just a way to get people in the door and doesn’t always equal saving money on your purchase. Rather than charge an interest rate, the final contract may include additional fees that are not legally considered “finance charges.” This has been a common practice among U.S. automakers since the 1980s.

 

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