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
- Down payment
- 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 Car||How It Works|
|Dealership financing||Most 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 financing||While 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 financing||The 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.
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 Pros||PenFed Credit Union Cons|
|Offers exceptionally low interest rates||Moderate 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 Pros||Auto Credit Express Cons|
|Offers financing for customers with bad or no credit||Currently has a BBB alert regarding licensing issues|
|Pairs customers with loans based on credit profile||Poor 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 Pros||myAutoloan.com Cons|
|Offers loans for drivers with bad credit history||Not available in Alaska and Hawaii|
|Offers loans for private purchases||Not 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.
16 Key Signs That You Will Always Be In Debt
Getting into debt is easy — and the numbers prove it. About 80% of Americans across generations are currently in debt, a 2019 Nitro survey found. And the total amount of household debt in America is nearly $13.95 trillion, according to the Federal Reserve Bank of New York’s most recent report on household debt and credit.
There are plenty of ways people fall into debt, way too easily. The hard part can be getting out of debt, especially if you don’t recognize — or resist admitting — how you racked up debt. Here are 16 reasons you might have fallen into debt and how to avoid being stuck with it forever.
Last updated: May 13, 2021
You Believe Debt Is Part of Life
One of the biggest reasons people get stuck in debt is because they believe that debt is just a part of life, said Debbi King, owner of the personal finance coaching firm The ABC’s of Personal Finance. In fact, a 2015 Pew study found that 7 out of 10 people said debt is a necessity in their lives. “However, debt is a result of wanting or needing something that you don’t have the cash to buy at the moment,” King said.
If you are determined to get rid of debt, you can rid yourself of these wants. “You have to not want debt so bad that you refuse to use it no matter what,” King said.
You also need to give yourself a wake-up call by keeping close tabs on your spending to see how much you’re relying on debt to maintain your lifestyle. “You may be using your credit card more than you realize,” said Bruce McClary, vice president of marketing for the National Foundation for Credit Counseling (NFCC).
Once you figure out how much you owe, make a plan to pay off the debt. Having a goal of getting out of debt might give you the motivation you need to stop relying on it.
You Use Credit To Cover Emergencies
Many people assume they will never fall deeply into debt, said Matt Cosgriff, a certified financial planner and wealth management group leader at BerganKDV. “But it can happen so easily if you aren’t financially prepared,” he added.
For example, if you don’t have cash reserves to cover unexpected expenses, you might have to rely on credit cards. You will end up paying more than the original cost of the emergency if you do not pay off the balance quickly because of the interest on your card charges. Plus, you might not be able to build savings to cover future emergencies if your money is going toward paying off debt.
You can avoid this situation by creating an emergency fund, Cosgriff said. Ideally, you should save enough to cover up to six months of expenses. If necessary, start by setting aside a little each month, then increase the amount when you can. And make sure you have adequate insurance to cover catastrophic events, such as a medical emergency or car accident.
You Make Only Minimum Payments
It’s hard to eliminate debt if you’re only paying the minimum you owe. In fact, McClary said it can become unmanageable if your balance continues to grow while you’re paying the minimum amount required.
For example, if you have a $5,000 balance on a card with a 17% rate and make a minimum monthly payment of 3% of your balance, it will take you 189 months — or nearly 14 years — to pay off your debt. Meanwhile, you will pay more than $4,000 in interest, according to Navy Federal Credit Union’s minimum payment calculator.
Simply increasing the amount you pay can make a big difference. For example, you can cut the payoff time and interest in half by boosting your monthly payment to 5% of your balance.
You Allow Expenses To Rise With Income
Andy Brantner, a certified financial planner and partner at BKLM Financial Services Consulting, knows financial discipline does not come easy. “It’s hard not to buy a better car or a bigger house when you get a raise,” he said. “But failing to keep your expenses steady when your income goes up creates a vicious cycle.”
It can be especially dangerous if you are still carrying debt from the days when you were earning less, and now are taking on more loans to help pay for that bigger house or a better car. Your debt will balloon, leaving you unable to pay if off despite the bigger paycheck.
To avoid this, identify goals and review your spending to see if it’s in line with your priorities. If it’s not, you will need to create a spending plan that will align your expenditures with your values.
More Solutions To Paying Off Debt: 10 Best Personal Loans for People With Good Credit
You Use Payday Loans
If you get a payday loan to cover an emergency, it doesn’t mean you will be stuck in debt forever. After all, most of these short-term loans typically have to be paid back within 14 days.
But most people who get payday loans use them to cover everyday expenses, according to a report by Pew. And they often take advantage of rollover features that allow them to extend the amount of time they have to pay off the loans. Because the interest rates on these loans are so high — the average annual percentage rate is 391%, according to the Center for Responsible Lending — the debt can mount quickly.
If you roll over a typical payday loan of $325 eight times, you’ll owe $468 in interest and have to repay a total of $793, according to the center. Do that often enough and you will be stuck in debt forever.
Make a plan to quickly pay off any payday loans you might have, even if it means getting a second job. Then take steps to improve your credit so you can qualify for lower-rate conventional loans going forward.
You Don’t Track Your Finances
“If you aren’t paying attention to where your money is going, it’s easy to overspend in certain areas and then not have enough for those unexpected expenses or your regular bills, which puts you in debt and keeps you there,” said Andrea Woroch, consumer and money-saving expert.
“Stay on top of your finances by checking your accounts daily,” Woroch said.
It’s easy to do this from your phone by using your bank and credit card apps, or you can use a tracking app like Mint, which links all your financial accounts in one place.
“When you see how much you’re spending in one area, it’s easier to cut back,” Woroch said. “Remember, you can’t change what you can’t see, so it’s important to actually look at your money regularly to make sure your spending aligns with your budget and goals.”
You Disregard Your Credit Score
“If you don’t have a healthy credit score, your interest rate on your credit cards and/or loans is likely really high,” Woroch said.
The higher the interest rate you have to pay on your debt, the harder it will be to pay it all off.
“Get on track by committing to improve your credit score, which you can do in a few ways,” Woroch said.
These ways include always paying all your bills on time, keeping your credit utilization rate below 30% and using a credit-building loan to boost your score.
“For example, Self is an app that helps you build credit while you save,” Woroch said. “It’s a credit-builder loan, which is an affordable and accessible loan you take out in your name — but you don’t receive the money upfront. Instead, you make payments to yourself over the course of one to two years, and Self reports the payments to all three credit bureaus. In the end, the money you’ve put aside every month unlocks in the form of savings minus fees. It’s a unique product that is an accessible option.”
You’re Not Maximizing Your Earning Potential
“There are only so many ways you can cut back on your day-to-day and monthly spending,” Woroch said. “Sometimes you have to make more money to really get ahead financially and get out of debt.”
That means that if your only source of income is your day job, you probably aren’t doing enough to get yourself out of debt.
“People often limit their ability to make more money because they don’t think outside the box,” Woroch said.
“If you can’t ask for raise or find a better paying job, then take on a side hustle,” Woroch said. “For instance, you can make up to $1,000 a month by simply petsitting in your own home via sites like Rover.com, which makes it super easy to set up a schedule that works best for you. This doesn’t require any special skills or really any time commitment because you can do this from home when you’re already home. Plus, you can double your side income by doing another side hustle at the same time as petsitting, like freelancing via Upwork.”
You Are Overwhelmed by Student Loans
Student loan debt has reached $1.5 trillion, and payments on more than 9% of this student loan debt are at least 90 days late, according to the Federal Reserve Bank of New York. “So many people right now are burdened with student loan debt,” McClary said.
If your student loan debt is unmanageable, McClary recommends talking to a certified student loan counselor to identify your options, such as income-based repayment or loan consolidation. You can visit studentloanhelp.org to find an NFCC member who will offer student loan counseling at little or no cost.
To avoid racking up student loan debt, McClary recommended that parents and students look for sources of free money for college, such as grants and scholarships. And families should weigh the costs of the schools their child wants to attend against the child’s earning potential after graduation. That will help the family determine whether the child will be able to pay off student loans.
You Allow FOMO To Dictate Your Spending
“One of the biggest things that causes people to overspend and brings them into debt is FOMO — the fear of missing out is a real thing,” said Ande Frazier, CEO of online financial community MyWorth. “It’s easy to get anxious when other people are having fun without you, especially when it’s happening in real-time on social media. This feeling might have you saying ‘yes’ to more dinners, drinks, activities and vacations than you want or can reasonably afford to attend.”
Frazier recommends using cash instead of credit so that you really think about your spending decisions, rather than mindlessly swiping to keep up with the Joneses.
“The tangible nature of cash gives more value to the decision to spend that money, rather than just swiping a credit card, because you can see it and feel it,” she said. “It’s a form of mental accounting.”
You Have Your Financial Priorities Mixed Up
If you’re not allocating your money wisely, it will take you longer to pay off debt than it should.
“The most common mistake when it comes to short-term debt (i.e., credit card debt) is the belief that one needs to save and invest simultaneously,” said Roi Tavor, CEO and co-founder at Nummo, a personal finance management platform.
Any money you are putting toward saving and investing accounts is money you aren’t putting toward paying down debt.
“Before putting money in a savings account that yields 1% or 2%, make sure to pay off credit cards that charge you 10% or more on outstanding amounts,” Tavor said.
You Set Unrealistic Goals for Yourself
If you’ve been in debt for a while, maybe you’re constantly telling yourself that this will be the month you pay off all your debt. But if you have thousands of dollars of debt, this goal likely isn’t realistic.
“Having a plan to pay down debt is a great starting point; however, if you make your goals too lofty, you’ll set yourself up for failure,” said Leslie Tayne, founder and head attorney at debt solutions law firm Tayne Law Group. “In doing so, you’ll likely get discouraged and may even give up, preventing you from reaching your goal of paying off your debt.”
“While you, of course, want to pay down your debt as quickly as possible, keeping your goals reasonable will help keep you motivated and on track to get that debt paid off,” Tayne said.
Start by making it your goal to pay off one credit card or loan at a time. Ideally, start with the card or loan with the highest interest rate, and move down the line in order from highest to lowest interest until they’re all paid off.
You Justify Credit Card Spending Because of the Points You Earn
Many credit cards offer rewards systems that can be beneficial if used correctly.
“Many people charge almost all of their everyday purchases to their credit cards to take advantage of these rewards,” Tayne said. “However, if you’re carrying debt, the interest you’re paying will be negating the value of your points. Keeping the mindset that you’re always working towards the point may also be keeping you in debt if you’re not paying off your balances in full every month.”
“Consider switching your everyday purchases to cash or debit, or ensure that you’re paying off each of your credit card purchases in full while you’re working to pay down your debt,” Tayne said.
You Don’t Differentiate Between ‘Wants’ and ‘Needs’
Sometimes there can be a fine line between “wants” and “needs.” Let’s say your TV breaks and you need a new one. You head to the store and see a brand new 65-inch TV and decide that’s the one that you “need.”
“Sure it’d be nice to have in your living room, but do you need a $2,000 item for entertainment? Especially if you are going into debt for it and it’s going to cost $3,000 with interest by the time it’s paid off?” said Brandon Neth, credit card and award travel expert at FinanceBuzz.
“When you’re at Best Buy, you may be able to tell the difference between a 55- and a 65-inch screen mounted right next to one another, but once you’re home, you realize you’ll likely be fine with a smaller TV,” he continued.
Set a budget for yourself before you walk into a store, and consider buying items that aren’t name-brand.
“As a former Magnolia/Best Buy employee here’s a friendly piece of advice: Many of the non-brand-name TVs use the same panels and technology as the big brand TVs,” Neth said. “Often they’re just calibrated differently out of the box. They can be adjusted to create almost the exact same picture in many cases. Save the money, invest it and build wealth — not debt.”
You Go Overboard During the Holidays
Nearly half of those surveyed in 2019 by Discover said they plan to rely on credit to pay for most of their holiday spending. That can lead to starting off the new year in debt. If you don’t pay it off quickly and turn to credit again every holiday season, your debt will mount.
“It’s really important at this time of year for people who might have a weakness to find support,” McClary said. Find a credit counselor through NFCC.org or look for a workshop to get support for building a habit of saving rather than spending, he said.
McClary also recommended avoiding spending time around others who have a tendency to overspend and “getting in situations where you’ll be melting the plastic at the register. Lock up the credit cards this time of year.”
Your Focus Is On the Short Term Rather Than the Long Term
“People don’t think long-term,” Neth said. “They are too focused on the now and looking for instant gratification.”
He gives the example of regularly charging coffee to your credit card — even if it only costs $5.
“If you’re doing that twice a week, that $10 adds up quickly,” Neth said. “Even worse, if you’re putting this on a credit card that you’re not paying off in full each month, paying interest on your two cups of coffee may raise the cost to over $20. Although it’s convenient and tastes good, remember how much further your money can go.”
A change in your spending mindset can help you break this debt-causing behavior.
“The one thing we don’t get more of in life is time, so look at your expenses as time,” Neth said. “How much are you actually making an hour once you deduct taxes, expenses and other related costs? A $15-an-hour job is probably closer to $9. Stop and think, is two cups of coffee worth an hour of my time?”
This is an especially important mental exercise for larger purchases.
“How many extra years must you work to pay off that car or TV? These numbers just get higher as you account for accruing interest,” Neth continued. “Don’t stall your financial future by making impulse decisions today. Set goals for the future and remind yourself of them daily. It takes hard work to get out of debt and stay out of it, but when you do, you take back control of your life.”
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Cameron Huddleston contributed to the reporting for this article.
Rtbshopper Announces Partnership with Acima Credit for Better Shopping Experience without Credit
Rent-to-own store RTBShopper has partnered with financial service provider Acima Credit so their customers can have access to additional leasing finance option while purchasing goods
Winter Garden, FL – RTBShopper is proud to announce its partnership with Acima Credit, a reputable company that offers financial and leasing solutions for shoppers. Acima employs proprietary technology to help consumers find the merchandise they’re looking for, acquire the item, and get immediate approval. Customers get a tailored payment schedule that is flexible, convenient, and affordable.
The partnership means that RTBShopper.com is now an online store that accepts Acima Credit. It’s a massive development that gives customers additional access to simple lease-to-own financial solutions.
“We’re excited about our partnership with Acima because we know they’ll provide our customers with the best options when purchasing electronics, furniture, and appliances through rent to own payment plans,” said Tony C, Chief Operating Officer at RTBShopper.com.” “Acima Credit specializes in affordable financial solutions for lower-income consumers, and this agreement will help us to provide flexible payment plans from a company everyone knows and can trust.”
RTBShopper is an online store offering rent to own opportunities for shoppers, even those with bad credit. The company’s philosophy is that no one should be judge by their credit history. That’s why they don’t require credit score when shopping. To shop on site, the customer must be 18 years or older. They will also have to provide social security number or individual taxpayer identification number, debit or credit card, checking account, and government-issued photo ID.
Customers can shop thousands of products in different categories, including computers, TV, cameras, furniture, home appliances, toys, cell phones, smartwatches, electronics, etc. Add the merchandise to the shopping cart, checkout, fill out the no-obligation lease form, pay the initial deposit, and get the item. Customers get an email when the item is ready for pick up or shipping.
RTBShopper.com help consumers get approved for up to $5000 worth of brand name electronics. They serve low-income consumers who can’t afford to pay one-time for these items, allowing for monthly or weekly payment plans.
As a store that accepts Acima, they hope to make shopping more fun and exciting for customers. The application of Acima’s technology and versatility combined with their customer service and the vast collection of products offers an innovative approach for product financing.
For more information, please visit https://www.rtbshopper.com/.
RTBShopper.com is an online store offering consumers rent to buy opportunity without considering their credit. They have a huge collection of brand name products in their store arranged in categories. The store offers competitive monthly payment plans and free shipping on all orders.
Acima provides instant credit and financing for people looking to buy products on lease. Using machine learning technology, they empower merchants and consumers with point-of-sale leasing solution with no credit needed. They have a partnership with many stores and merchants, helping them grow their business using modern technology.
7 questions from first time home buyers that every broker needs to answer
Buying a home is a huge investment for first time home buyers – and their inexperience means that they often have a lot of questions.
The good news is you don’t need to do something heroic to get buyers to trust you. You just need to be ready to address their concerns and answer their questions. So below, we answer seven questions first time home buyers may ask their mortgage brokers.
1. “Buying a house is expensive. Is it worth it?”
The first thing you should do is understand the reason why the buyer is thinking of buying a house. Are they buying to build their asset portfolio? Or are they looking for a place to live and settle down in?
If they’re buying a house to build wealth, then yes it’ll be worth it – though you have to be clear that they shouldn’t expect their investment to see immediate growth.
If they’re looking to buy a primary residence, then it depends – after all, the process of buying their dream home could potentially stretch their funds a bit. In that case, you can steer them towards considering a more affordable starter home that they can trade up in the future.
Get to know their reasons first so you can answer honestly and professionally.
2. “I’ve owned a house before. Am I still considered a first-time home buyer?”
The US Department of Housing and Urban Development (HUD) defines a first time home buyer as:
- an individual or person who hasn’t owned or bought a principal residence in the last three years;
- a single parent who previously owned a house while still married to their former spouse;
- a displaced homemaker (such as a stay-at-home spouse) who owned property with their former spouse;
- an individual or person who owned a principal residence or property that wasn’t affixed to a permanent place or foundation in accordance with applicable regulations (such as a mobile home); and
- an individual or person who owned a property that was not in compliance with local, state, or model building codes, and whose property can’t be brought into said compliance for less than the cost of building a permanent structure.
As you can see, the term has a bit more leeway than its name suggests. For example, if the buyer has owned a property or house within the last three years but their spouse hasn’t, then both of them can still buy a house as first time home buyers.
This is important because there are many government incentives for first home buyers, especially if they’re part of the remote workforce.
3. “I have a 401(k). Can I use it to buy property?”
The short answer is yes – but should you? That’s the real question.
A buyer can tap into their 401(k) if they’re short of the funds they need. They can do it two ways – either as a straight withdrawal or as a loan.
However, a buyer can only withdraw from their 401(k) after turning 59 and a half years old (or 55 years old if they lost their job or have retired). Younger buyers can still withdraw their funds, but they’ll have to pay an early withdrawal penalty of 10% of the amount they take out. They’ll also owe income tax on the funds they take out, regardless of their age.
Meanwhile, if a buyer opts to borrow from his or her 401(k), then they’ll have to pay it back – with interest. And the repayments won’t count as contributions, meaning no reduction on their incomes.
So, to put it simply, yes they can use their 401(k). But the trade-off isn’t ideal, so it might be better to look for other options.
4. “I have no cash so can I put $0 for down payment?”
Yes, but there could be some work involved.
A first time home buyer can only put $0 down payment if another entity foots the bill. In this case, it’s the federal government through what’s called a government-backed mortgage.
Three US federal agencies can give mortgage assistance to first time home buyers: the Department of Veteran Affairs (VA), the US Department of Agriculture (USDA), and the Federal Housing Administration (FHA). These agencies will insure all loans given, so lenders are protected in case the borrower can’t pay their debts.
However, you may still have to check if a lender accepts USDA loans. Quicken Loans, for instance, stopped accepting applications since July 2020.
5. “Am I qualified for the $15,000 tax credit?”
The bill hasn’t passed yet, but if it becomes law, the First-Time Homebuyer Act will require participants to be:
- a first-time homebuyer, with the same conditions mentioned above; and
- an individual who doesn’t earn more than 160% of the median income in their area.
Additionally, the price of the house they purchase must not be more than 110% of the median price in their area. The house should also have been purchased after Dec. 31, 2020.
6. “I don’t have a good credit score. Can I still buy a home with bad credit?”
The short answer is yes, you can still buy a home with bad credit.
Lenders often don’t have a minimum credit score requirement because no two credit scores are the same. A buyer might have a credit score of 400 – a poor score according to the main credit bureaus – but the circumstance behind that score is different from what another borrower with the same score has gone through.
Additionally, lenders often take other things into consideration in their decisions – such as the amount of debt accrued, income, debts in collections, and the size of the down payment.
Different lenders have other requirements but having plenty of cash available for down payment is always a plus. The buyer can always repair their credit and refinance down the road.
7. “I’ve heard 2021 is a bad time to buy a house. Should I go for it or just wait?”
Again, it’s best to assess the buyer’s needs and know the reason why they’re looking into buying a home.
They might be thinking of purchasing because the mortgage rates are so low. But you must remind them that the cost of buying a house goes beyond the purchase price. They also need to consider property taxes, insurance, and upkeep costs. Maintaining a house isn’t cheap and so many new homebuyers fail to realize that.
On the other hand, mortgage rates will likely rise once the pandemic eases up. So, if the buyer is looking into buying a house to cater a growing family, they might have to seriously consider buying regardless of market conditions.
The key is knowing your client’s priorities and going from there.
A first time home buyer is eager, but undoubtedly full of questions. They will be leaning on your advice for their final decision. Getting to know them, building a strong rapport, and answering clearly, honestly, and professionally will instill the trust that will help build lasting bridges for years to come.
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