As Jalopnik’s resident car buying expert and professional car shopper, I get emails. Lots of emails. I’ve decided to pick a few questions and try to help out. This week we are discussing the impact of the Coronavirus on car prices, getting loan approval with bad credit, and is it worth buying an extended warranty on a well cared for Audi
First up, how is COVID-19 affecting car sales?
Do you think the overall financial slowdown caused by the COVID-19 virus will lead to better deals on new and/or used cars soon?
The Mrs. and I would like to replace my 2003 Honda Accord with something reliable that can haul our two dogs and camping gear on road trips. Since we live near Portland, OR a 2018-’20 Subaru Outback seems like an obvious choice with plenty of stock available. However, I’m in no hurry as my old Honda is still trouble-free and we weren’t planning to drive East until June or July. I see Subaru recently extended 0.9% financing through the end of March, but do you think that fear and market conditions will continue to escalate to the point dealers will be more eager to make a deal if I wait another month or two? Are there any indicators I can track at my local dealerships that would show me if they might be getting desperate?
By all current indicators, the COVID-19 situation is not currently having a dramatic impact on car sales in the U.S. However, in China, where COVID-19 is hitting the hardest, the slow down in the auto market is very real.
Even without the virus, most analysts are predicting that 2020 will not be as strong as previous years and the overall situation may result in better deals. What you want to keep in mind is that for certain cars, especially ones that are relatively popular like Subarus, there is a floor at which you aren’t going to get it any cheaper regardless of when you buy it.
For example, I just helped a client with a new Ascent and the discount was somewhere in the ballpark of $6,500 off the MSRP. That is an incredibly aggressive offer and waiting a few months is not likely to get that much lower. There are only so many discounts dealers can put on the hood until the math no longer makes sense.
My suggestion is that if you are in the market now shop your deals, if not wait it out until you are ready. As for your question on tracking deals, I don’t see an easy or reliable way to do that. You can look at advertised prices, but they don’t tell the whole story.
Next, is a dealer more likely to approve me for a loan on a new car versus a used one?
Why would a dealership be more willing to get you into a brand new vehicle versus an older cheaper vehicle, outside of pure profit at the end of the deal, on the basis of your credit being so bad?
There are a lot of factors that determine whether or not you are approved for a loan. First, I want to clarify that it’s not the “dealer’s decision” regarding your approval or denial. There are a lot of reasons to be mad at dealers, but if you get denied a loan approval, that’s not the fault of the salesperson.
If your credit is not great, sometimes a lender may be more likely to approve you on a new car because something brand new with a warranty is less risky from the bank’s perspective. However, the approval (or not) really comes down to your credit score, the loan amount and your income. If you are shopping for a $15,000 used car, a lender isn’t more likely to approve you for a $20,000 new car. The bank’s primary concern is how much you are borrowing versus how much you are making and if you are more likely to keep up with the payments on something cheaper over a more expensive car.
As always, it’s imperative that you shop around on your own for loans before you go to the dealership. This is especially true for folks that don’t have great credit.
Is it worth buying an extended warranty on a German car that is well-cared for?
I just purchased my manual, 2017 Audi A4 at the end of the lease, there are 25k miles on the car. I have been leasing for over a decade and have, fortunately, never had to deal with any mechanical problems in any car I’ve ever had. The list of things I don’t know is long:
Should I go to the dealership and buy a warranty? Can I call Audi and avoid the dealership altogether?
Are those 3rd party warranties my dad saw on TV a rip off? They have to be trash if “the ghostbuster” is hawking them, right?
Do I even need to worry about a warranty? It’s still pretty new, has low miles and I didn’t beat on it.
Should I just go lease something new so I can stop thinking about this?
Are Audi’s as expensive to fix as every boomer has told me they are?
Am I overthinking this because I’m freaking out about committing to owning a car for the first time in years?
I’m going to answer these questions out of order. If you like what you have, keep it. No need to get another car because you are scared of the warranty running out. Generally, warranties that are advertised on TV are probably not the ones you want to buy.
If you did want an extended warranty you would likely need to do so through a dealer but it always pays to shop around. A4s are generally reliable and, while they aren’t a Toyota Camry, a well cared for car shouldn’t break your bank.
My suggestion would be to set aside that money you would have spent on the warranty int a “ rainy day” or “fix the car” fund. Unlike a warranty, that savings doesn’t expire.
Got a car buying conundrum that you need some assistance with? Email me at firstname.lastname@example.org!
Pros And Cons Of Using A Personal Loan To Pay Off Credit Card Debt – Forbes Advisor
Editorial Note: Forbes may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations.
People use personal loans for so many different reasons—from buying an RV to paying off medical bills—but consolidating your credit card debt may be one of the most popular uses. By taking the proceeds of a personal loan to pay off credit card debt, you can eliminate multiple monthly highinterest card payments and consolidate the debt into one monthly personal loan payment—often at a reduced cost.
There are benefits to using a personal loan to pay off a credit card, but it’s not always the best option for everyone. Before you choose a personal loan to pay off your credit card, make sure you know the pros and cons.
4 Benefits to Using a Personal Loan to Pay Off Credit Card Debt
If your goal is to get out of debt faster than you’d be able to by simply making the monthly minimum credit card payments, applying for a personal loan could be helpful. But a personal loan offers other benefits, as well.
1. You May Earn a Lower Interest Rate
You could pay 20% APR or more if you carry a credit card balance, although borrowers with excellent credit could pay roughly 12% to 17%, depending on the type of card they own.
Personal loans, on the other hand, charge an average interest rate of less than 10%. The best personal loans are even cheaper than that if you have a high credit score. That means you could cut your total interest payment in half and even pay off your debt sooner since you’ll be paying less in interest.
2. Consolidation Streamlines Payments
If you make many different credit card payments every month, it could be difficult to keep track of all the due dates and minimum amounts owed. If you miss a payment or don’t pay at least the amount due, you could face late payment fees and your credit score could drop.
By taking out a personal loan to consolidate your credit card payments, you’ll make one monthly payment to your loan rather than many payments. Reducing the number of payments can free up time and space for other responsibilities.
3. You Could Boost Your Credit Score
Taking out a personal loan increases your credit mix, which makes up 10% of your score. It shows creditors and lenders that you’re responsible with money by carrying many different types of credit and debt.
You’ll also lower your credit utilization by paying down your debt. Your credit utilization is the ratio of how much credit you’re using vs. how much credit is available to you. If you pay off your credit cards, your utilization will go down to 0%. Under 30%—and ideally under 10%—is considered great credit utilization and can help you improve your score.
4. You May Pay Off Debt Sooner
If you’re only making minimum credit card payments every month, it could take you years or even decades to pay off your balances, depending on how much you owe.
With a personal loan, you can pay off your credit card debt right away and set up a payment plan to repay your one personal loan. Terms vary based on how much you borrow and your lender. If you were on track to pay off your credit cards in 10 years, you could take out a personal loan and pay it off in less than five years. Just be sure you don’t restart the cycle by rebuilding credit card debt.
3 Drawbacks to Using a Personal Loan to Pay Off Credit Card Debt
There are some potentially negative consequences to consolidating credit card debt by taking out a personal loan, including the cost. Consider these drawbacks, as well, before making a decision.
1. Taking Out a Personal Loan Could Lead to More Debt
A personal loan means you’re borrowing more money. If you take out a personal loan to pay off your credit cards and start to carry a balance on those credit cards again, you’re racking up more debt than you had before.
A personal loan for credit card consolidation isn’t a debt eliminator; use it only if you’ve gone through other options, like increasing credit card payments every month or opening a balance transfer credit card.
2. You’re Not Guaranteed a Lower Interest Rate
Personal loans tend to offer lower interest rates compared to credit cards, but that might not be the case for everyone. If you don’t have stellar credit, you might not qualify for a personal loan. If you qualify for a personal loan with bad credit, your interest rate may not be any lower—and could be higher—than what you’re paying now.
3. Personal Loans Have Fees, Too
Some lenders charge many different fees, like a late payment fee, origination fee and insufficient funds fee, for example. Be mindful of this as you’re comparing personal loan lenders.
How to Choose the Best Personal Loan
There are many different personal loan lenders that charge different interest rates and fees and offer various repayment terms. There’s no one set of standards that personal loans follow, which means you could see a wide range of offers based on what you qualify for. When exploring personal loan options, consider:
- Interest rates. The best personal loans will offer the lowest interest rates to those with the highest credit scores. The higher your credit score, the lower your monthly payment will be and the less interest you’ll owe over the life of your loan.
- Terms. Your repayment terms also vary greatly depending on the lender. Some offer repayment terms as short as six months while some are upwards of five to seven years. If you want to pay off your loan sooner, find a lender that offers shorter repayment terms. If you need to keep your monthly payments lower, see if you can find a lender with longer repayment terms.
- Fees. The better your credit score, the more loans you can qualify for that don’t charge origination fees or other charges. If you don’t have great credit, evaluate each lender’s fees and see which ones you’re comfortable with in case you have to pay them. For instance, if you miss a payment, is the late fee $15 or $30?
- Loan amount. Some people don’t need to borrow a lot to pay off their debt, while others need to take out a substantial amount. Each lender offers different minimum and maximum amounts. Along with that, your credit score could impact how much you’re allowed to borrow. The higher your credit score, the more trustworthy you look to lenders, allowing you to borrow more.
Alternatives to a Personal Loan
While a personal loan is a great option for debt consolidation, it’s not your only one. Review all your options to see which one is the best fit for your finances.
Credit Card Balance Transfer
You may be able to apply for a new credit card that allows you to transfer balances from existing credit cards, perhaps as a lower interest cost to you. The benefits of a credit card balance transfer include:
- Interest-free payments. If you qualify for a 0% APR balance transfer, you won’t pay any extra interest charges for the promotional period, which would allow you to pay down your balance more cheaply.
- No balance transfer fee. Most credit cards charge a fee when you transfer a balance, but you can find a few that waive the balance transfer fee.
- New perks. If you have decent credit, you might qualify for a new card that offers cash back, travel perks or other types of deals for cardholders.
The drawbacks of a credit card balance transfer include:
- Eventual interest charges. If you don’t pay off the balance by the end of the promotional period, you could face interest charges on the remaining balance.
- Loss of promotional offer. Even though interest isn’t accruing, you’re still responsible for making minimum payments every month. If you don’t, you could lose your promotional offer and interest will start to add up on your entire balance.
- Missing out on qualification requirements. If you don’t have decent credit, you may not qualify for a new credit card line.
- Not having a high enough credit limit. Even if you do qualify, your entire balance might not transfer over because the card issuer offers you a lower credit limit than you need. This means you’re on the hook for the balance on your new card and any old cards that carry the remaining balances.
Debt Snowball Or Avalanche
You may also decide the best way for you to tackle your credit card debt is by focusing extra payments on one of your cards. There are two primary ways people go about this: either the debt snowball or debt avalanche method.
The benefits of using one of these methods include:
- Avoiding new credit lines. If you don’t have great credit or don’t want to take on additional debt, these methods let you focus on paying down your debt with what you have, not adding to your burden.
- Focusing on high interest. With the debt avalanche method, you pay off your debt with the highest interest rate first. This could save you more in the long run.
- Focusing on little wins. The debt snowball method focuses on paying off the debt with the lowest balance first. If you need a quick win, this might be your best bet.
Of course, these payoff methods also have their drawbacks. You may find:
- It’s a slow process. Increasing your payments with only the cash you have on hand right now means you may pay off your debt slower compared to a personal loan.
- Your budget doesn’t work with it. If your budget is already stretched thin as it is, you may not have any extra money to put toward higher credit card payments.
What Is a Bad Credit Score?
It can be depressing when you’re on the bottom rung of the credit ladder, but it doesn’t have to stay that way.
You can increase your bad credit score if you use the right techniques and you’re persistent. And I promise it won’t take the rest of your life to build a solid credit score, either. So let’s get started.
Here’s what you’ll learn just ahead:
What Is Bad Credit?
Here’s a broad definition: A consumer who has bad credit, also referred to as poor credit, has a FICO score of 579 or less. With a bad credit score, you might only be approved for credit cards, mortgages or personal loans that come with high interest rates.
In fact, if your score is way less than 579, there’s a chance you can’t get approved for credit at all. But consider this a temporary problem. Once you start working on your score, your ability to get credit will improve.
Understanding how credit scores work can help you make better credit decisions. There are two credit scores that are used most often by lenders: FICO scores and VantageScores. FICO also has score versions for different industries.
About 90% of lenders use a version of the FICO score to help determine an applicant’s creditworthiness. FICO Score 8 seems to be the version used most often, but there’s also a new version called FICO Score 9. It takes lenders a long time to use a new score, so that’s why FICO Score 8 is still so popular.
What You Need to Know About FICO Scores
FICO scores range from 300 to 850. According to myFICO.com, these are the values for each credit score range:
- Exceptional: 800 and higher.
- Very good: 740 to 799.
- Good: 670 to 739.
- Fair: 580 to 669.
- Poor: 579 and lower.
The average FICO score as of October 2020 is 711, which qualifies as good credit. It might seem impossible right now, but possessing good credit will be within reach after you spend time rebuilding your credit.
Let’s take a look at the factors that make up the FICO score:
- Payment history: 35%.
- Amounts owed: 30%.
- Length of credit history: 15%.
- New credit: 10%.
- Credit mix: 10%.
If you have a poor credit score, it means that lenders think you have a high risk of delinquency. In fact, about 61% of consumers with credit scores below 580 are likely to become delinquent on a credit-related account, FICO says. So this is why it’s difficult to get approved for credit without having to pay high interest rates.
What You Need to Know About VantageScores
VantageScore ranges from 300 to 850, just like the FICO score does. But since VantageScore weighs the options a little differently, a 700 FICO score can’t be directly compared with a 700 VantageScore. Plus, FICO scores have different ranges for each credit rating.
Here are the VantageScore ranges:
- Excellent: 750 to 850.
- Good: 700 to 749.
- Fair: 650 to 699.
- Poor: 550 to 649.
- Very poor: 300 to 549.
As you can see, there are two categories that could be considered a bad score. With VantageScore, poor credit is from 550 to 649. And very poor credit is less than 550. You’ll need a score of 650 to climb into the fair credit range.
Rather than using percentages like FICO does, VantageScore focuses on how influential each factor is in the algorithm. Factors that make up the VantageScore include:
- Available credit, balances and credit utilization: extremely influential.
- Credit mix and experience: highly influential.
- Payment history: moderately influential.
- Age of credit history and new accounts: less influential.
How to Improve Bad Credit
Now that you know more about how credit scores work, you’re ready to start improving your credit score. Your short-term goal is to move up into fair credit, which for FICO is 580.
Your long-term goal? To get the lowest interest rates, you’ll need a FICO score of at least 760, which puts you in the very good FICO score range. This won’t happen right away, of course, but it’s a possibility if you use the right strategies.
Here are four strategies for improving a bad credit score:
If you don’t have a budget, you need to set one up today. Once you remedy that situation, you also need to track your spending, which is easy to do with an app or online money management tools.
It’s difficult to stay on budget if you don’t know how much you spent and where you spent it. Getting into debt or increasing the debt you already have could make your credit score even worse. So think of this as your financial foundation. A strong foundation helps you build good credit.
With a bad credit score, you’ll have a hard time getting approved for a decent credit card. Before you decide to get an unsecured credit card with a high annual percentage rate and monthly maintenance fees, take a look at secured credit cards.
You will have to put down a deposit to secure the credit card. But you’ll get a regular-looking credit card to use for purchases. These cards are listed on your credit report as a revolving credit account, and as long as your issuer reports your payment history to the credit bureaus, you’ll build a better credit score. That is, as long as you use the card responsibly.
Many people aren’t aware that this option exists. You can check with your local bank or a credit union to see if credit-builder loans are offered. Every institution has its own set of rules and rates for credit-builder loans, but in general, you’ll deposit a small amount, such as $1,000, in the bank or credit union.
You then pay the “loan” back in monthly payments. This type of loan is identified as an installment loan by the FICO score algorithm, so that also gives you a small boost in the “mix of credit” category.
You have a credit utilization ratio, which is the amount of credit used compared with the amount of credit available. If you are carrying balances on your credit cards from month to month, your ratio could be high.
A ratio that exceeds 30% can drag down your credit score. As you pay down debt, your credit score will start to rise. As already noted, available credit is 30% of your credit score. To get the biggest positive impact on your score, keep your balances less than 10%.
Make it a priority in your life to improve your credit, and over time, you’ll see the results of your hard work.
Mortgage platform matches rejected borrowers to specialist broker
Borrowers who are struggling to get a mortgage because they are self-employed, have a complex income or are burdened with bad credit can now access specialist deals through a new platform.
Haysto matches customers, based on their profile and financial situation, to a mortgage broker with expert knowledge of securing loans for borrowers in their particular situation.
Traditional lenders and some automated online mortgage platforms may reject some borrowers if they have a less-than-traditional income stream or have a history bad credit.
There are lenders who offer deals to these customers – but they are usually only available through brokers.
Therefore the Haysto platform provides an introduction to these brokers for anyone who has been rejected for a mainstream product or who is worried they may not be approved by going direct to a lender.
Paul Coss, co-founder of Haysto, explained: “Self-employment and poor credit histories are on the rise in the UK, so a growing number of people applying for mortgages simply don’t fit the traditional financial mould.
“Many are being rejected by traditional lenders and online mortgage brokers that can’t see past their situation, while others will be put off from applying at all.”
Coss explained Haysto didn’t simply rely on the ‘computer says no’ approach. Instead the platform provided a personalised mortgage experience by matching customers to specialist mortgage brokers based on their unique situation.
“We want to help everyone access their dream home,” he said.
“Even if they have been rejected before, there are specialist lenders and brokers specifically for self-employed and bad credit mortgages who can help.”
Research carried out by Haysto as part of its launch has found 22% of people turned down for a mortgage blamed their bad credit history and 17% thought it was because they ran their own business.
Coss, who was a specialist broker himself, co-founded Haysto earlier this year after seeing a clear gap in the market for an online platform for customers with complex incomes or credit histories who had been turned down elsewhere.
Udara Bandera, 52, is just one of the customers he helped. Indeed Bandera turned to Haysto after finding himself £25,000 in debt and with a poor credit rating due to a sustained period of unemployment.
He had been turned down by his bank for a mortgage despite eventually securing a permanent job that allowed him to start paying off his debts, but is now getting ready to move his family into their new home.
He said: “I spoke to six or seven mortgage advisers but they were all telling me different things and it was so confusing. They didn’t seem to understand my situation and I didn’t know who I could trust.”
“I had a lot of support from my specialist Haysto broker and I didn’t feel judged like I had previously. My broker took me through all my options, gave me honest advice and completely put my mind at ease for the first time in ages.
“Thanks to this mortgage and the support I have received from Haysto, I have been able to start my life again. I need to keep slowly building up my credit, and the marks on my credit file won’t go away – even once the debt is paid back – but I am in a much better position compared to any other time over the last five or six years.”
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