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Is Paying Off My Car Loan Early Worth It?

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Paying off your car loan early can really be worth it, especially if you have a high interest rate. The longer you wait to pay off an auto loan, the more it costs you, so doing everything you can to cut down on those costs can benefit you in the long run.

Early Car Loan Payoff Can Save You Money

Is Early Auto Loan Payoff Worth It?One of the biggest advantages of paying off your car loan early is that you can save money overall.

All loans come at a price, and interest is the cost of borrowing money. Unfortunately, interest isn’t a set fee – your credit score is the biggest factor in determining just how much it’s going to cost you to borrow money. The lower your credit score, the higher your interest rate generally is.

When you have a high interest rate, you can save in interest charges by paying off your loan early. Paying ahead of schedule reduces your interest payments because most auto loans use simple interest. This means that interest charges accrue daily based on the total amount of principal (the amount you borrowed not including interest charges) you owe. Therefore, the longer you owe on the loan, the more interest charges can stack up.

One of the most efficient ways to avoid paying too much in interest is to borrow less money. This isn’t always the easiest answer, but the more money you can use as a down payment, the less you have to borrow. In fact, putting money down is one of the best things you can do for yourself when it comes to taking out a car loan.

Ways to Pay Off Your Auto Loan Early

Though a substantial down payment can save you money because you’re borrowing less, it can still be a good idea to pay off a loan as quickly as possible if you want to save even more in interest charges.

If you’re looking for a way to pay off your loan early, you have some options:

  • Split your payment – If you split your monthly payment in half and make a half payment every two weeks, you actually end up making 13 monthly payments in a year instead of 12.
  • Make extra payments – Paying extra on your loan outside of your scheduled payments is a great way to take advantage of any extra money that comes your way, such as a tax refund, stimulus check, or an unexpected windfall.
  • Round up – Anything helps when you’re trying to pay off your auto loan early. If you want to make an extra impact with each payment, round up to the next highest dollar amount you’re comfortable with. For example, if your car loan payment is $379, you could make a $400 payment each month, and knock off some of the balance that accrues interest.

Once you decide which method works for you, you can set yourself up to save. The beauty of simple interest auto loans is that there’s typically no penalty for prepayment. So, even if you don’t choose just one method of early payment to stick to, you can simply make the decision that helps you the most in your situation.

Does it Matter How Early I Pay Off My Car Loan?

In general, if you’re prepared to pay your loan off early, there aren’t any stipulations on how long it takes you.

Getting the right balance of loan term and monthly payment can really make an impact on your budget, which you should know going into a vehicle financing situation. As a general rule, this is something you should take into account before you sit down with a dealer or lender.

However, as a bad credit borrower, even if you have enough money to pay off your loan quickly, it may be in your best interest to give the loan a little time to work to your advantage. By using that money thoughtfully, you can build your credit score with on-time loan payments for one or two years.

In fact, if you have the funds to do so, you can take out a loan with a shorter term, perhaps only 36 or 48 months. A shorter loan term typically means a higher monthly payment, but it could be worth it if you need to improve your credit score with the car loan.

If you don’t have the money to afford a higher monthly payment, a longer loan term could help. Stretching your loan term may be necessary to get into the auto loan you need. But, it’s still worth it to aim for early loan payoff to save yourself money in interest charges.

You have to weigh your own risks and benefits when it comes to how early to pay off your loan. If you need to build credit, take it a little slower so you have time to amass a solid payment history, which is key to a better credit score. If you’re not as concerned with your credit score and just want to keep your car loan costs low, it’s worth it to save on interest charges by paying off your loan ahead of schedule.

No matter how early you pay off your loan, it’s a good way to get your credit rolling, and prepare for better rates and terms on your next auto loan.

Build Your Credit With an Auto Loan

If you’re trying to build your credit and you need a car loan, we want to help. At Auto Credit Express, we know how difficult it can be for consumers to find a lender that can work with a lower credit score.

We’ve built a network of special finance dealerships, and we can match you with one near you. Fill out our fast, free, and zero-obligation auto loan request form, and we’ll get to work matching you with a local dealer.

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What is a Subprime Mortgage?

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What is a subprime mortgage? If you’re asking this question, chances are good you’re either trying to borrow for a home with poor credit or you’ve been offered a loan you’re concerned is a subprime loan. We’ll explain the answer to the question “what is a subprime mortgage?” and discuss some of the risks and alternatives.

What is a subprime mortgage?

Prime loans usually offer competitive interest rates to well-qualified borrowers. A subprime mortgage is similar to a conventional mortgage, except it has a higher interest rate. Subprime loans are geared toward borrowers with bad credit who can’t qualify for a prime mortgage at the best rates. Lenders take a bigger risk with subprime loans, so they charge substantially higher rates due to the borrower’s poor credit history.

If you have a credit score below 620, you may not be able to qualify for a prime mortgage, but you might get a subprime mortgage.

Types of subprime mortgages

There are multiple types of subprime mortgage loans. However, one particular type of loan — an adjustable-rate mortgage — is especially common for subprime mortgages.

Adjustable-rate mortgages

Many subprime mortgages are adjustable-rate mortgages, or ARMs. The introductory rate on an ARM is fixed for a limited time. For example, a 5/1 ARM provides a fixed rate for five years. After that, the rate adjusts based on a financial index.

That means your interest rate may go down — but it could go up, too. ARMs carry more risk than fixed rate loans. If interest rates rise, monthly payments could increase. If you take out an adjustable loan, find out how high your payment could go. Don’t assume you’ll always be able to refinance or sell your home before it adjusts.

Fixed-rate mortgages

With fixed-rate subprime mortgages, the interest rate remains the same for the entire repayment period. Since the rate doesn’t change, payments don’t change.

The important question is, what is a subprime mortgage interest rate you’d qualify for? You need to make sure the rate is reasonable and that monthly payments are affordable.

Shop and compare rates from multiple mortgage lenders for poor credit to find the best subprime loan rates. And use a mortgage calculator to see how much your monthly payment would be for any loan you’re considering.

Interest-only mortgages

Interest-only mortgages allow you to pay only interest for a limited time, such as the first five years. This makes monthly payments more affordable, but you don’t make progress in reducing your loan principal.

At the end of the initial period, you’ll begin paying both principal and interest. Your payments may rise substantially because you’ll have a shorter timeline to pay your loan off. If you took a 30-year mortgage and only paid interest for the first 10 years, you’d have just 20 years to pay off your entire principal balance.

Most interest-only loans are also structured as ARMs, so you take the added risk of rates going up and payments rising.

Dignity mortgages

Dignity mortgages are a specific type of subprime loan offered by some lenders. With this type of mortgage, you’ll initially have a high interest rate. But if you make on-time payments for a period of time, your interest rate will eventually be reduced to the prime rate.

Subprime mortgage risks

It’s important to also consider if you’re willing to take on the risk of this type of loan. Some of the biggest risks include:

  • Interest costs will be high: You will pay significantly more mortgage interest over time than if you took out a conventional mortgage.
  • Finding a lender may be difficult: Not all mortgage lenders offer loans to subprime borrowers. You could be limiting your potential loan options.
  • Payments could increase: If you choose an ARM, you face the risk of interest rates going up and payments rising.
  • Foreclosure is possible: If you don’t pay your subprime mortgage loan, your lender will foreclose. Your credit could be severely damaged.

Lenders are required under Dodd-Frank financial reform laws to conduct an “ability-to-repay” assessment. This ensures borrowers are capable of paying back their loans. These mandates can reduce the risk for borrowers. But the bottom line is buying a house with bad credit can create a host of complications.

Alternatives to subprime mortgages

You may be wondering if there are other options. The good news is that there are multiple solutions for borrowers with bad credit. Some of the best options include these government-back loans:

  • FHA loan: FHA lenders often work with borrowers with lower credit. FHA loans are available to borrowers with credit as low as 500 as long as they make a 10% down payment. Borrowers with scores of 580 or higher can get approved with a 3.5% down payment.
  • VA loan: A VA mortgage loan is available to eligible service members and veterans regardless of their poor credit history. The VA doesn’t set a minimum score, but some lenders do.

USDA loan: These allow you to purchase eligible homes in rural areas. More stringent underwriting is required to qualify borrowers with credit scores below 640. But it may still be possible to qualify.

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Indigo Platinum Mastercard Review | NextAdvisor with TIME

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We want to help you make more informed decisions. Some links on this page — clearly marked — may take you to a partner website and may result in us earning a referral commission. For more information, see How We Make Money.

Indigo® Platinum Mastercard®

Indigo® Platinum Mastercard®

  • Intro bonus: No current offer
  • Annual fee: $0 – $99
  • Regular APR: 24.90%
  • Recommended credit score: 300-670 (Bad to Fair)

The Indigo Platinum Mastercard can help you build a better credit score (if you practice good credit habits) with monthly reporting to the three credit bureaus. Unlike many other options for building credit, this is an unsecured credit card, so it doesn’t require a cash deposit as collateral. But you may incur an annual fee, depending on your creditworthiness when you apply.

At a Glance

  • Monthly payment reporting to the three credit bureaus for people with limited credit history or poor credit
  • Annual fee of $0, $59, or $75 the first year, depending on your creditworthiness ($75 version charges a $99 annual fee after the first year)
  • Unsecured credit card with no security deposit required
  • Standard variable APR of 24.9% 

Pros

  • Available to individuals with no credit history or low credit scores

  • Unsecured credit card

  • Annual fee could be as low as $0 depending on your creditworthiness

  • Monthly payments report to all three credit bureaus

Cons

  • No rewards

  • Annual fees vary depending on creditworthiness, and you won’t know your fee until you apply

  • High variable APR

  • $300 credit limit

Additional Card Details

The Indigo Platinum Mastercard is geared toward people with “less than perfect credit” or minimal credit histories. Like other credit-building card options, it doesn’t offer a lot of perks.

You will get a few benefits, like online account access and reporting to all three credit bureaus (Equifax, Experian, and TransUnion). You can also choose from multiple card designs for no extra charge.

Prequalification is another benefit of the Indigo Platinum Mastercard. Prequalifying is a great way to gauge your approval odds and the terms of your offer without filling out a full application and undergoing a credit check, which can temporarily hurt your credit score. If you do choose to apply after pre-qualifying, you’ll still be subject to credit approval with a hard credit inquiry.

Should You Get this Card?

Many credit cards available to people with bad credit scores are secured credit cards that require a cash deposit as collateral. The Indigo Platinum Mastercard offers an alternative to secured cards for building better credit, but has its own drawbacks.

For one, your credit limit is capped at $300. If you’re approved for a version of this card with an annual fee, it’ll be automatically applied, which means your starting limit could be as low as $225. 

The annual fee itself is another drawback. The amount you’re charged will depend on your creditworthiness when you apply. If your approval comes with an annual fee, that $59 or $99 ($75 the first year) charge can quickly add up over time. Consider other cards with no annual fee (and even no annual fee secured credit cards) that may make better long-term options for building a healthier credit profile.

How to Use the Indigo Platinum Mastercard

Because the Indigo Platinum Mastercard doesn’t offer any rewards and your credit limit is just $300, you should use this credit card for the sole purpose of improving your credit score. Only make purchases you can afford to pay off when your statement is due, and pay your bill on time to avoid up to $40 in late fees and a penalty APR up to 29.9%. 

Pro Tip

Building a great credit score, whether you’re starting from no credit history or repairing damaged credit, requires a foundation of good credit habits your credit card can help establish — such as timely payments, low credit utilization, and paying off your balances in full each month.

The Indigo Platinum Mastercard’s low credit limit means you’ll need to be extra careful with your spending to improve your credit score. Using more than 30% of your available credit can hurt your credit utilization rate — one of the most influential factors in your credit score. With a credit limit of $300, that means you should keep your charges below $90.

The goal of a card like Indigo Platinum Mastercard is to, over time, improve your credit score enough to qualify for a better credit card. Use this card to establish and maintain the healthy credit habits (like timely payments in full, low utilization, and consistently paying down balances) that will improve your credit long-term, and help you qualify for a card that’s better suited for your spending habits in the future.

Indigo Platinum Mastercard Compared to Other Cards

Indigo® Platinum Mastercard®

Indigo® Platinum Mastercard®

  • Intro bonus:

    No current offer

  • Annual fee:

    $0 – $99

  • Regular APR:

    24.90%

  • Recommended credit:

    300-670 (Bad to Fair)

  • Learn moreexterna link icon at our partner’s secure site
Citi® Secured Mastercard®

Citi® Secured Mastercard®

  • Intro bonus:

    No current offer

  • Annual fee:

    $0

  • Regular APR:

    22.49% (Variable)

  • Recommended credit:

    (No Credit History)

  • Learn moreexterna link icon at our partner’s secure site
Capital One QuicksilverOne Cash Rewards Credit Card

Capital One QuicksilverOne Cash Rewards Credit Card

  • Intro bonus:

    No current offer

  • Annual fee:

    $39

  • Regular APR:

    26.99% (Variable)

  • Recommended credit:

    (No Credit History)

  • Learn moreexterna link icon at our partner’s secure site

Bottom Line

EDITORIAL INDEPENDENCE

As with all of our credit card reviews, our analysis is not influenced by any partnerships or advertising relationships.

If your credit score isn’t great and you want to start building the credit foundation to move in the right direction, the Indigo Platinum Mastercard can help by reporting your usage to the three credit bureaus — if you practice good habits that will reflect positively on your report. But you may also take on a pricey annual fee and risk high utilization due to the card’s low credit limit. Before applying, consider other cards for bad credit and secured credit cards with no annual fee that may better serve your credit-building goals.

Frequently Asked Questions

The Indigo Platinum Mastercard is a decent option for consumers with poor credit who don’t want to put down a security deposit on a secured credit card. Check your prequalification terms, and compare other options for people with fair credit or bad credit before applying.

The credit limit for the Indigo Platinum Mastercard is $300. If you get approved for a version with an annual fee, your annual fee will be deducted from your credit limit.

The Indigo Platinum Mastercard is an unsecured credit card, so you do not have to put down a cash deposit as collateral.

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Akron community supports council recommendations on police reform

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Doug Livingston
 
| Akron Beacon Journal

Critics on either side of the police reform debate see promise in what Akron City Council has done.

The union representing officers “can work with” the eight recommendations in council’s 22-page report on Reimagining Public Safety, which was released publicly this week.

The head of the Akron NAACP is applauding the time and consideration council committed to do “something that definitely needed done.”

And the Rev. Greg Harrison, a retired Akron detective a regular critic of local lawmakers who fail to understand the inner working of the city’s police force, praised council members for allowing officers to educate them on policing in Akron before putting together “substantial” and “solid” recommendations.

“I am very surprised, because really I did not think that the council was going to come up with such substantial recommendations,” said Harrison. “I am surprised, but I’m happy. I think the recommendations, if implemented, put us light years ahead of what any task force can come up with.”

Eleven of the 13 City Council members present Monday afternoon unanimously supported a resolution adopting the recommendations. But that’s all they are, at this point: recommendations to work with the next police chief, the mayor and community partners to craft legislation after collecting public input.

And some of these recommendations have been recommended before.

The first — to give the city’s independent police auditor enough staff and resources to do his job — has been sought by the community since the position was created in the early 2000s. It was a priority in a 2011 report by the Police Executive Research Forum, an independent firm of law enforcement experts who dived into policing in Akron when leaders kicked around the idea of reforms more than a decade ago.

“I want to applaud them for taking the time to do what they did,” Judith Hill, president of the Akron NAACP said after looking over the recommendations. “I think it was important and it was something that definitely needed to be done.

“And I know this is the beginning of a process,” she continued, “but I don’t see anything that sets aside funding to support changes.”

Some recommendations, like crisis intervention training to all officers, identify limited funding as a barrier.

On that, Fraternal Order of Police Lodge No. 7 President Clay Cozart agrees with some of the loudest advocates for change.

“It’s going to require more officers. It’s going to require more training. And it’s going to require more funding, and that’s probably the most difficult issue to tackle,” Cozart said.

He added that he found it “disingenuous” that council, though reaching out to him Sunday, waited until 10 minutes before the recommendations went public on Monday to share them with him.

General approval of the eight recommendations, which can be viewed at https://bit.ly/3piHNyc, was not without some concern. The Beacon Journal sought but received no comment from Police Cheif Ken Ball, who is retiring in February, or Maj. Michael Caprez. 

Cozart said ramping up foot and bike patrols is fine, as long as an officer in danger isn’t left high and dry because backup is walking to get there.

Harrison paused when he got to language about hiring. Candidates are screened and questioned on their bad credit reports and drug offenses, which could be minor and nonviolent. This interview process, which involves a lie detector test, determines whether they get hired.

“They have absolute control of recommending or not recommending them,” Harrison said of sergeants doing the background investigations of potential cadets. “When they say it’s an honesty issue, that’s a judgement call. And when you’re talking about implicit biases, a lot of those biases come into play.”

Hill said she and members of her community have a strong interest in some citizen oversight committee. Council, instead, recommended strengthening the police auditor’s position, which Hill said she was something sought “across the board” in the community.

Now, she said, lawmakers need to find ways, in conjunction with the mayor and Akron police and community partners, to fund these recommendations and benchmark progress by collecting data today “to see how changes are affecting policies and procedure” after implementation.

“I was pleased to see all of the progress our city is making both in structure and inclusive thinking to better benefit Akron citizens and help our police department both reflect and serve the community more effectively,” added Bree Chambers, president of Akron Minority Council. The group of youth-led social justice advocates handed the mayor and council a list of police reforms in July, including a “great many” of that are “outlined or alluded to” in council’s recommendations.

As council works to legislate the recommendations, University of Akron Sociology and Anthropology Department Chair Rebecca Erickson has been asked to host virtual town hall meetings with residents in every city ward. Faculty and students will facilitate the conversations generated by the recommendations. Erickson said police officers will join the discussion by the end of the spring semester as a community survey solicits broader feedback.

Council President Margo Sommerville said that since council announced the special committee on Reimagining Public Safety in July, the public has asked when they would get the chance to speak on the topic of policing and community relations.

“Maybe there’s something that we missed that needs to be addressed,” Sommerville said. “So, we want to give the public that opportunity to do that. We’re really excited about this partnership and collaboration with the University of Akron because that too is something that we have not tapped into enough.”

Prior to approving the recommendations, council members thanked police officers and command staff who educated the special committee’s four working groups. It was enlightening, they said.

“We are probably far more advanced than many police agencies in terms of incorporating social services in to the police work that we do,” said Councilwoman Linda Omobien, the director of clinical services at Community Support Services.

“The Akron Police Department liaisons showed that this is an institution that has led the way on many of these issues, like on Crisis Intervention Team training. At the same time, they really showed that they want to keep moving forward,” said Councilman Shammas Malik, who was regarded by colleagues on council as critical to the success of a fact-finding, deliberative process that spanned five months and 22 meetings.

“It would not have been possible if not for him,” Sommerville said.

Malik credited Sommerville’s leadership as the driving force in “something that council hasn’t done before.”

“When we talk about building equitable policing, when we talk about improving community trust with law enforcement, here are ideas that I think we can all get behind,” Malik said. “Getting community input through the University of Akron is going to be important.”

Councilman Russ Neal said the process council started in September to better understand policing is a model for understanding and legislating solutions to other complex problems like housing high utility costs in the city. Neal asked council to consider more staff to help them dive deeply into other issues.

Along with involvement, Cozart said the union supports legislation that is grounded by facts. The process led to “more enlightenment and education on both sides,” he said.

“Change has to occur,” Hill said. “And it’s going to be a win-win for everyone once we get through the process.”

Reach reporter Doug Livingston at [email protected] or 330-996-3792.

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