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Paying for Your Auto Loan the Right Way

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Picking out the right car and finding the right lender for your situation shouldn’t be the only things to consider when you’re financing your next vehicle. While both are very important, you should pay for your auto loan in the smartest way possible, especially when you have less than perfect credit.

Don’t Be a Car Payment Shopper

Being a car payment shopper means that you’re most concerned with getting the best monthly loan payment you can. When you focus too much on your payment, it can be easy to get tunnel vision and ignore other parts of your auto loan, like the overall cost.

You can definitely pick out the right vehicle for you, but don’t just focus on getting the lowest car payment you can. Be flexible, and don’t focus on only paying the least you can each month while neglecting the rest of your loan terms.

When you have bad credit, focusing too much on monthly payment alone could lead to paying more for the vehicle than it’s worth, and pose other risks to you as well.

Have a Short Auto Loan Term

If you’re considering choosing the longest loan term you can just to get the car payment you want, it’s going to cost you – literally. Auto loans are usually simple interest loans, meaning you’re charged interest daily on the balance of your loan.

Interest is the cost of borrowing money, and the quicker you pay off your loan, the less you pay for the vehicle overall. So, you should aim to owe for the least amount of time you can!

Paying for Your Car Loan the Right WayTo demonstrate how much of an impact a long loan term can have on your wallet, check out these two examples:

  1. You finance a car for $15,000 for 84 months with an interest rate of 12%. Over the course of the loan term, you’d end up paying $7,242 in interest charges.
  2. You finance a car for $15,000 for 60 months with an interest rate of 12%. Over the course of the loan term, you’d end up paying $5,020 in interest charges.

The difference between these two examples is two things:

  • Example 1: Monthly payment is $264.79 and the interest charges are over $7,200.
  • Example 2: Monthly payment is $333.67 and the interest charges are over $5,000.

While extending your loan term to 84 months saves you $68.88 a month, it costs you over $2,200 more over the course of your loan. With the longer loan term, you have a vehicle payment for two more years.

Remember that when you finance a car, there are other costs involved that can add up, too. It’s required that you have full coverage auto insurance, plus you have to factor in maintenance, which can get more expensive as vehicles get older.

Put Money Down on the Car!

If you have a tight budget and you want a more expensive car with a lower monthly payment, put money down on the vehicle. A down payment lowers your monthly car payment, lowers your interest charges (since you’re financing less), and you have less risk of paying more for the vehicle than it’s worth.

For bad credit borrowers, paying a lot in interest is often a common concern. This is because borrowers with less than perfect credit don’t usually qualify for lower interest rates. This also plays into the risk of negative equity, which happens when you owe more on the car than it’s worth.

If you choose a long loan term with a high interest rate, it could take you a while to pay off the vehicle since the interest charges continue to stack up. This can lead to the car’s value dropping faster than you can pay it off. Negative equity is common, but for a bad credit borrower, it can mean paying tons of cash over the vehicle’s value if you take too long to pay it off.

Put down as much as you can on your next auto loan. You can use cash or trade in your old or current car to help lower the amount you need to finance. Additionally, down payments are typically required for bad credit borrowers. The quicker you start saving, the more you can save later on your next vehicle.

Know Your Car Loan Budget

You should do everything you can to negotiate for the lowest monthly payment you can get, but it shouldn’t be the only thing you focus on. Knowing your monthly budget is still important to the overall car shopping process. But don’t fall into the payment shopper trap.

In fact, dealers may first ask you, “What kind of monthly payment are you looking for?” This means that you’re led to look at vehicles, then the finance manager can tweak an auto loan that gets you the monthly payment you want, but it’s usually done by extending your loan term.

Be an informed shopper and walk into a lender’s office or dealership knowing how much of a car you can afford. This means having a set cap on the vehicle’s selling price that you’re willing to pay, with a shorter loan term, so that you can comfortably afford your payment each month.

You can start budgeting yourself, right from home, by calculating your debt to income (DTI) ratio. This calculation is used by auto lenders, and it can be useful in determining how much available income you have left after all your other bills get paid.

The DTI ratio calculation is easy. Add up all your monthly recurring expenses including an estimated car loan and auto insurance payment, and then divide that total by your gross monthly income. Here’s an example:

  • $1,200 (monthly expenses + car expenses) divided by $2,800 (monthly gross income) = 0.428
  • DTI ratio of 42.8%.

In this example, 42.8% of your monthly pre-tax income is being used to pay for recurring bills, including a car payment and an insurance payment. Generally, auto lenders require borrowers with DTI ratios less than 45% to 50%. Once you do the calculation yourself, you can then start to play around with monthly payment amounts that you can afford and keep your DTI ratio low so you can avoid overextending yourself.

You can use our auto loan calculator to estimate how much of a down payment you need to get a certain vehicle’s monthly payment to what you want. If you have a lower credit score, you can also research what the average interest rate other people with similar credit scores get assigned for car loans, so you can plan for that, too.

Ready to Move on to Car Shopping?

A prepared borrower is a smart borrower – it’s half the battle of getting ready for your next auto loan. However, when you have credit issues, it can be hard to find a lender that can work with unique credit situations. We want to help with that!

Here at Auto Credit Express, we have a network of dealers that spans the whole country. We know which dealerships are signed up with bad credit car lenders, and we can look for one in your area at no cost. Get started now by filling out our free auto loan request form.

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Evicted California renters at greater risk of getting COVID-19

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After 70 years in Monterey County, 87-year-old Mary Martinez moved in the middle of a pandemic, evicted from her modest one-bedroom, second-floor apartment at 1118 Parkside St. in north Salinas.

According to her former landlord, Martinez was evicted because she allowed a “violent man” to live with her, violating the conditions of her lease. Martinez said the man is her epileptic nephew.

Advocates say that while evictions like Martinez’s are rarer during the pandemic, landlords are feeling the financial squeeze. Some have sold rental properties to make up for lack of income. That can leave renters out in the cold when their new landlord raises the rent by hundreds of dollars or requires all renters move out before they take over the building.

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New program to help Black-owned online businesses | Technology

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ATLANTA _ Many Black entrepreneurs struggle to get bank loans and professional help to launch new businesses. A new program aims to remove those stumbling blocks.

An Atlanta nonprofit and another business have committed $150 million to the 1 Million Black Businesses effort, which will make loans and provide financial and business advice to Black-owned startups and established small businesses. Atlanta-based nonprofit Operation Hope, which helps consumers improve credit scores, is kicking in $20 million, and Shopify, the online e-commerce is adding another $130 million for the loans and website-hosting services.

Other services firms providing expertise or help include Aprio, an Atlanta-based accounting firm, and First Horizon Bank.

It’s a package of products that many Black entrepreneurs couldn’t get through a bank or credit union, said John Hope Bryant, CEO of Operation Hope.

“A bank won’t lend you money unless you can prove that you don’t need it,” Bryant said. “That’s especially true with minority-owned small businesses.”

Small businesses with Black owners were half as likely to obtain business loans as whites, according to a Federal Reserve survey published earlier this year.

The initiative is the latest effort to help Black consumers and businesses enter the financial mainstream. Earlier this month, a group that includes rapper Killer Mike opened a digital bank aimed at Black and Latino consumers.

Banks and credit unions have tried for years to help Black consumers open checking and savings accounts. The efforts helped, as the number of U.S. households without bank accounts fell to 5.4% in 2019 from 6.5% in 2017, the Federal Deposit Insurance Corp. said Monday.

Consumers who own checking and savings accounts typically have access loans with better rates and a wider variety of financial services.

The federal government’s $660 billion loan initiative for businesses hit by COVID-19, the Paycheck Protection Program, also helped few Black-owned businesses, Bryant said. PPP loans were based on a company’s number of employees and its rent obligations. many Black-owned small businesses typically didn’t have enough workers to qualify and are based out of the owner’s residence.

Bryant said a bad credit history may not prevent applicants from receiving a loan.

He hopes more companies will contribute services such as insurance advice or software typically available only to well-established businesses.

Bryant noted that 1MBB is not a charitable organization, as participating companies like Shopify will likely get a pipeline of new business customers through the program.

“This is not pure philanthropy,” he said. “Shopify believes that Black-owned businesses are good businesses if they’re properly supported.”

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This Week’s Top Car Deals & Analysis – October 30, 2020

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The final days of October offer a chance to take advantage of outstanding model year-end deals. Most offers end November 2, which means there isn’t much time left to enjoy this month’s best lease deals and deepest new car discounts. We even found incentives that can help those with bad credit buy a new or used car.

2021 car deals. Interestingly, 2021 new car incentives are showing some surprises. For example, Audi is already offering up to $12,000 in savings when leasing the 2021 e-tron all-electric crossover. We even learned that the new Genesis GV80 SUV will debut with a $589/month lease deal plus special financing rates.

Believe it or not, the 2021 Hyundai Veloster N could prove to be a great value despite a nearly $4,700 price increase compared to the previous year. That’s because our analysis finds that better incentives can make it just $10/month more expensive to lease than the 2020 model. Talk about getting more for your money.

Why are small cars bad to lease? Even though smaller cars typically come with lower price tags, that isn’t always the case when leasing. A mix of lower discounts, worse residual values, and smaller discounts can actually make a Nissan Altima cheaper than a Versa despite having an almost $10,000 difference in MSRP.

Shorter-mileage leases. More brands are offering shorter mileage allowances on car leases. Although this is typically used to offer consumers more flexibility, we’ve found cases in which you can end up getting less for your money. If you don’t read all the fine print, this could make comparison-shopping difficult.

Bad credit car deals. If you have subprime credit, you may find it harder to get financed. However, some manufacturers are offering special incentives to help make cars & trucks more affordable. For example, Chevy is offering $2,000 in down payment assistance plus 9.9% APR for 72 months on the 2020 Trax.

$0 down leases. If you’re adamant about now putting down any money on a lease, you’ll love Sign & Drive leases. In addition to requiring no money down, $0 down lease deals can cover your first month’s payment. Even hot sellers like the Honda CR-V Hybrid offer $0 down and as little as $330/month on a lease.

The high cost of safety? Even though most major automakers are offering more safety features than ever before, our analysis finds that the highest IIHS safety ratings still require costly options in 2020. That’s starting to change, but the cost of buying a car with the most bragging rights is still very high.

Disaster relief. Those affected by some of this year’s natural disasters should be aware that automakers are offering assistance. California wildfire assistance programs like Ford Employee Pricing can save thousands when replacing a car. Similarly, a 2020 hurricane relief program from GM offers $1,000 in savings.

Spooky loan situations. There are some scary scenarios you can avoid when getting a car loan. However, boosting your credit score is possible with some determination because negative items on your credit report fall off after 7 years. Our network of dealers is specially equipped to help those with bad credit.

Upcoming vehicles. Genesis finally revealed the new GV70, a small luxury crossover based on the highly-rated G70 sedan. Whether it’s a redesigned car, truck, or SUV, odds are you’ll find it on our Previews page. That said, as we reported last week, discounts ahead of a redesign can result in substantial savings.

This Month’s Cheapest Lease Deals »



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