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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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Why Are There Different Types of Credit Scores?

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You probably know that you should be checking your credit score on a regular basis—but which credit score should you check? Do you need to know both your FICO credit score and your VantageScore, or is checking one credit score enough? How are FICO and VantageScore different from each other, anyway—and why are there multiple types of credit scores in the first place?

Originally, there was just one credit scoring service, the FICO credit score, created in 1989. The three major credit bureaus (Equifax, Experian and TransUnion) developed VantageScore in 2006 as an alternative to the FICO score. Both FICO and VantageScore offer different types of credit scores depending on what kind of information lenders are requesting and which credit score model is being used.

What does this all mean for you and which credit scores should you be tracking? Let’s take a closer look at how credit scores work, the different types of credit scores and what you need to know about VantageScore versus FICO.

What is a credit score?

A credit score is a three-digit number that represents your creditworthiness. Lower credit scores indicate that you are more likely to be a credit risk, while higher credit scores indicate that you are more likely to be a responsible borrower.

Although there are different types of credit scores, the two main credit scoring models—FICO and VantageScore—use a 300-850 point credit scoring scale. Each credit score falls within a specific credit score range and helps lenders understand how you have used credit in the past and how you are likely to use credit in the future.

What are the main credit scoring models?

Most types of credit scores fall under two main scoring models: FICO and VantageScore. The differences between VantageScore vs. FICO are relatively minor, in the sense that a person with a good FICO score is likely to have a good VantageScore as well. Likewise, a person with a bad credit score under the FICO scoring model is probably going to have bad credit in the VantageScore model.

Here’s what you need to know about the different types of credit scores:

FICO model

The FICO credit score was first developed in 1989 by Fair, Isaac and Company (now called the Fair Isaac Corporation). According to MyFICO, over 90 percent of top lenders use FICO credit scores to make lending decisions.

FICO offers many different types of credit scores. If you are taking out an auto loan, for example, a lender might check your FICO Auto Score. If you are applying for a credit card, a lender might look at your FICO Bankcard Score. If you don’t have much of a credit history yet, you can sign up for UltraFICO to have your banking activity factored into your credit score.

FICO regularly updates its credit scoring models to reflect changes in the industry and provide a more nuanced perspective of an individual’s creditworthiness, although these models can take some time to roll out. FICO recently released the FICO Score 10 suite, for example—but the FICO Score 8 model is still the most widely-used FICO credit score.

The FICO credit score ranges:

  • Exceptional: 800-850
  • Very Good: 740-799
  • Good: 670-739
  • Fair: 580-669
  • Poor: 300-579

VantageScore model

The VantageScore model was created in 2006 in a collaboration by the three major credit bureaus. Equifax, Experian and TransUnion created VantageScore as a way to provide an alternative to the FICO scoring model. Although VantageScore uses many of the same factors to determine your credit score, it weights these factors differently.

Under the FICO scoring model, for example, your payment history is the biggest factor affecting your credit score. Under the VantageScore model, your credit card balances and credit utilization ratio are the most influential factors in credit scoring.

Like FICO, VantageScore regularly updates its credit scoring models. The VantageScore 4.0 model, for example, became commercially available in 2017 and uses trended data to track changes in credit behavior over time. FICO’s Score 10 Suite also incorporates trended data into its credit scoring decisions—but VantageScore got there first.

The VantageScore credit score ranges:

  • Excellent: 781-850
  • Good: 661-780
  • Fair: 601-660
  • Poor: 500-600
  • Very Poor: 300-499

Other credit score models

FICO and VantageScore aren’t the only two credit scoring models out there. Equifax, for example, has created its own credit scoring model—and unlike the 300-850 point scale used by the most popular FICO and VantageScore models, the Equifax model uses a 280-850 credit score scale.

Other credit score providers offer credit scores that might sound unique, but are actually based on the FICO or VantageScore models. When you check your TransUnion credit score, for example, you’re actually getting a credit score based on the VantageScore 3.0 model. The personal finance app Mint offers “free Mint credit scores,” but these are also based on the VantageScore model—Mint hasn’t created its own credit scoring system.

Check the fine print to learn whether your credit score provider is using FICO, VantageScore or some other kind of credit scoring model. If you’re looking for a free credit score, try to pick credit score providers that use FICO or VantageScore.

Why do you get different scores from different credit bureaus?

Sometimes, one credit bureau might give you a different VantageScore or FICO credit score than the other bureaus. If you make a large purchase that uses a significant percentage of your available credit, for example, your credit score is likely to drop until you pay off your high balance. But it might drop more quickly with one credit bureau than with the other two.

Why? Because each credit bureau is continually adding new information to your credit file—but the three credit bureaus don’t always receive the same information at the same time.

So if you check your Equifax credit score on the first week of the month, your Experian credit score on the second week of the month and your TransUnion credit score on the third week of the month, you might get slightly different scores depending on how your credit activity has changed over the past three weeks.

There’s one more reason why you might have different credit scores with different credit bureaus. If one of your credit reports contains an error, it could affect your credit score. Since millions of Americans have errors on their credit reports, it’s a good idea to review your credit reports with each bureau on a regular basis and dispute any incorrect information you find.

How credit scores are calculated

Credit scores are calculated by analyzing the information in your credit report and assigning a numerical value to the data. This three-digit number reflects your credit history and the way you use credit. It also lets lenders know whether you are likely to be a credit risk. If you have a history of on-time payments, for example, your credit score is likely to go up—but if you start missing credit card payments, your credit score is likely to go down.

Here’s how FICO and VantageScore credit scores are calculated. Note that FICO weights each attribute by a specific percentage, while VantageScore merely identifies which attributes have the most influence on your credit score.

How FICO calculates your credit score

  • 35 percent—payment history
  • 30 percent—amounts owed
  • 15 percent—length of credit history
  • 10 percent—credit mix
  • 10 percent—new credit

How VantageScore calculates your credit score

  • Extremely influential—total credit usage, balance and available credit
  • Highly influential—credit mix and experience
  • Moderately influential—payment history
  • Less influential—age of credit history
  • Less influential—new accounts

How to check your credit score

There are many different ways to check your credit score. Many banks and credit card issuers provide free credit scores to account holders, and apps like CreditWise® from Capital One and Discover® Credit Scorecard will let you check your credit score even if you don’t have a Capital One or Discover credit card.

You can also sign up for a credit monitoring service. These services not only give you updated credit score information, but also track your credit report for potential signs of identity theft. Some credit monitoring options are free, while others come with a monthly or annual subscription cost.

You might even be able to access your credit score through a budget tracking app. Mint, for example, offers users unlimited access to their VantageScore credit score.

Here are some of the best ways to check your credit score online:

 

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Should I Trade In a Paid-Off Vehicle?

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Trading in a vehicle that’s paid off is a great way to put some money toward your next car purchase. Trade-ins are very common, and they often help bad credit borrowers meet auto loan eligibility requirements.

Vehicle Trade-Ins

If you completely own your car, you’re in a good position when you want to trade it in. If you still have an active loan, some or all of your trade-in amount needs to be put toward your auto loan balance. Auto lenders place a lien on the title which stops borrowers from selling a vehicle that isn’t paid off. Once the loan is paid off – either by finishing the loan term or paying it off with a lump sum – the lender releases the lien, which allows you to sell the car.

Should I Trade In a Paid-Off Car?However, if your loan is completely paid off you don’t have to worry about getting a high enough offer to pay off your loan. This makes the whole process less stressful and when you accept a dealer’s offer for your trade-in, you can pocket the full amount or put it toward your next vehicle.

In order to get the most out of your trade-in, you should get a few different estimates by getting it appraised with a few dealerships. Call around to at least three dealers in your area before you accept an offer. We also recommend contacting at least one franchised dealership that sells your car’s brand. This way, you have more estimates and can accept the largest offer possible for your trade-in. Most trade-in offers are good for around one week, giving you time to weigh your options.

Sell it or Trade it In?

Selling your own vehicle privately means listing it in the right places, waiting for a bite, and then handling the paperwork by yourself. This typically means being available for test drives with interested buyers, drafting a bill of sale, possibly heading to the bank with the buyer, signing the titles, and transferring ownership at the Department of Motor Vehicles or the Secretary of State. If you’re not prepared to take on these steps, selling your car yourself can be a hassle.

Trading in your car with a dealership can take the burden off your shoulders, all you have to do is get the vehicle appraised and let the dealer handle the rest. This is a good option, but you may not get as much for your trade-in as if you sell it yourself. Often, trade-in value is less than a private-party value because dealerships usually prep trade-ins to be sold on their lot. Since dealers are the ones that determine your car’s actual cash value (ACV), your trade-in offer can depend on the condition of your vehicle, its mileage, the dealer’s current stock, and much more.

If you own your car and you want to skip the hassle of selling it yourself, then trading it in to a dealership is a logical choice. Plus, you can use its trade-in value to lower the price of your next vehicle. If you’re looking to get into another auto loan, trading your current car is like getting two birds with one stone.

Bad Credit and Trade-Ins

Trade-ins are very common and can help borrowers that need some cash down for their next auto loan. If you completely own your vehicle, your trade-in offer can help even more than if there’s still a lien on the title.

Many lenders require down payments if your credit score is less than perfect. Subprime lenders who work with credit-challenged borrowers typically require a down payment of at least $1,000 or 10% of the vehicle’s selling price to qualify for an auto loan. However, you don’t have to use just cash to meet this requirement – you can use trade-in equity, too.

Get Matched to a Special Finance Dealership

If you want to sell your current car, and get in touch with lenders that can assist with bad credit, then consider a special finance dealership. You can skip the hassle of looking all over for a lender, and the dealer can handle the trade-in paperwork for you. Finding one of these dealerships can be tough, but we want to make it easier.

Trading in your current, paid-off car is a great way to satisfy a down payment requirement. You can also apply for financing with a special finance dealership if your credit score isn’t stellar. Here at Auto Credit Express, we want to help you find a dealer that has the resources to assist bad credit borrowers.

Get started right now by filling out our free auto loan request form. We’ve created a nationwide network of dealerships, and we want to match you to one in your local area.

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2021 beginners guide to real estate investment : Augusta Free Press

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real estate investment

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The real estate market is more lucrative than ever and has been on an upward surge for the last five decades. Houses have appreciated and rental prices are rising as well. These figures may be stressful for regular homebuyers but for a potential investor, they are an assurance of good tidings to come.

Contrary to common belief, real estate is not the preserve of the stinking rich in society. Real estate is the perfect venture to add to your portfolio if you are just developing an interest in the market.

This does not mean that it is easy. You need to consider several essential factors to ensure that you are well-set to start investing in real estate property. Let’s have a look at the most vital things to consider in this promising venture.

A good credit score

Your credit score determines whether you get approved or rejected for an investment loan. As such, you need to go through your credit report so you know if you are safe or need to improve it.

Excellent credit scores range between 750 and 850 while poor credit scores are between 600 and 649. Most lenders demand credit scores of 752 and above to be considered for a real estate loan. This is because a bad credit score portrays poor financial responsibility and the possibility that you might not pay back the money loaned to you.

Since credit scores are achieved with long periods of financial credibility, you might want to get a head start on improving yours. You can start by paying your bills on time, making punctual payments for existing loans, and avoiding overdraws from your credit cards.

How your credit score affects interest rates

High credit scores mean your lender is confident that you will repay your loan punctually. As such, you will enjoy lower interest rates and mortgage fees. Some lenders even downsize the down payment you are expected to pay if your credit score is impressive.

A credit score below 620 may get you a loan but see you paying higher interest rates. Lenders will also be inclined to award you a larger down payment to compensate for your lack of good credit.

Alternative ways to finance your investment

The analysis provided above does not spell utter doom for you if you have a bad credit score. You can opt to invest through some of the following routes:

• Hard money loan

This is a loan that requires real property as security. Most investors consider it as their last resort. The money is lent by a company or individual instead of a bank. They are also funded faster because these types of loans depend largely on the collateral provided.

Hard money loans are characterized by the loan to value ratio (LTV). It is calculated by division of the loan amount ratio by the value of the collateral property. There are also additional fees that accrue in the form of points throughout the duration of your loan. Lenders usually lend more than 65 to 75% of the property’s present value.

• Wholesaling

This involves finding real estate properties at significantly lower prices than the market value. You then hold them by use of a special kind of agreement with their owners and look for a buyer to buy your contract. No down payment or credit requirements are involved but the process is very time-consuming.

These methods may seem like viable alternatives but they come with exorbitant interest rates and may prove detrimental to your investment if things go awry.

Down payments

Buying real estate property demands quite a large down payment. Most down payments for properties range between 20 and 50%. These high rates are because mortgages with low down payments demand mortgage insurance which is very difficult to obtain for investment estates.

Pros and cons of lower FHA down payments

FHA loans are very attractive for first-time investors but they have their downsides. They are characterized by simple credit requirements and relatively low down payments. Let’s have a look at some of the reasons that make them an excellent but limiting choice.

Pros

  • FHA loans offer small down payments of as low as 3.5%
  • The cost of closing is much lower
  • They are available to borrowers with low credit scores of up to 580
  • FHA offers loans to clients with a maximum debt-income ratio of 43% while other lenders demand a ratio below 36% and inclusive of housing.
  • Can be used to buy rental properties with a maximum of four units if you plan to live in one of the units. They approve customers looking to buy manufactured homes and condos as well.

Cons

  • FHA loans demand upfront mortgage insurance premiums of up to 1.75% of the sum of your loan. Additionally, you ought to pay a premium of 0.85% of your loan annually.
  • Their loan limits are lower than those for standard loans. For instance, locations like Madison, Wisconsin have a maximum limit of $316250 while others like San Diego, California enjoy a maximum of $690,000.
  • They have minimum property requirements that are intended to protect you from buying substandard property but may hinder you from buying the home you want. This is especially troublesome if you plan on investing in an old home that requires some sprucing up.

Why you need to work with a good realtor

It is easy to overlook hiring a real estate agent so you can save some money but that might not be the best idea. Here are some of the benefits of hiring a reliable Realtor.

• Understand the locality

You most probably have the kind of property you want to invest in laid out down to the size, neighborhood, and features. However, searching for that home in a new area can be time-consuming. A good agent can help you pinpoint the kind of home you want in record time.

• Know the market

The property market is prone to changes in current trends, inflation, and mortgage rates, among other factors. Experienced Realtors keep track of these changes and are better placed to advise you on the best course of action.

• Beneficial networks

Realtors have gathered numerous helpful contacts in their line of work. They can link you to appraisers, real estate lawyers, and mortgage experts to aid in your investment efforts.

• Keen eye when assessing property

They can spot small or emerging flaws in a property that you may not have noticed. Your realtor looks out for your interests and advises you on what properties are worth investing in and which ones aren’t.

• Excellent negotiation skills

Realtors have negotiated tens of property sales. As such, they know what skills to employ to get you the best price within your budget.

Get pre-approved

Before you hire a realtor, it would be best to get pre-approved so that you know your purchasing power and set a realistic budget. Most lenders are willing to draft personalized pre-approval letters for every offer you tender on a property on sale.

Pre-approval also helps you bag a good realtor. Most agents ask for it because they would rather not spend their valuable time on a window shopper who isn’t likely to buy. Some lenders even recommend reputable real estate agents.

Final thoughts

Investing in real estate can be a life-changing venture and as simple as it may sound, it is not advisable to go it alone. Being new in the market means that there is a lot you are yet to learn and you do not want to learn from grave mistakes. We hope that this post has given you the necessary insight you need for a smooth-sailing investment experience.

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