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Should I Buy a Car With a Personal Loan or an Auto Loan?

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You can buy a vehicle with a personal loan, since they can usually be used for whatever you’d like. However, the interest rates with a personal loan aren’t the best, and they vary quite a bit. If your credit score isn’t great, it may be a better idea to go with a regular auto loan.

Using a Personal Loan for a Vehicle

Personal loans are offered by direct lenders, such as those from credit unions, banks, or some online lenders. Your credit score is a major factor in determining your eligibility for these loans, as well as the terms you qualify for. Major financial institutions tend to have higher credit score requirements for loan approvals. With a poor credit score, it’s difficult to get approved for a personal loan.

Typically, the interest rate for a personal loan can be anywhere from 5% to 36%. The length of these loans varies, too, generally lasting between one to five years (or 12 to 60 months). While some personal loans can be as long as 60 months, most only last for a couple of years. If you buy a car with a personal loan, it could mean high monthly payments that can be hard to manage.

The main reason personal loans have higher interest rates is because they aren’t secured by anything, unlike an auto loan that’s secured by the vehicle you purchase. However, this also means that there isn’t a lien on your car if you buy it with a personal loan. If you need to sell it before you paid off the loan, you can. But, even if you don’t have the vehicle anymore, you still have to pay off the loan eventually.

A big advantage of using a personal loan for a car is that there typically isn’t a down payment requirement. Many auto lenders require borrowers to provide a down payment – it’s been shown that borrowers that put down cash have a higher chance of completing the loan. Having a down payment is often referred to as having “skin in the game,” and it tells lenders that you’re willing to lay down your own cash.

Because there isn’t a down payment requirement, having a down payment doesn’t really improve your chances of getting approved for a personal loan – it’s mainly your credit score that direct lenders are concerned with. With car loans, having cash to put down can increase approval odds because you’re invested in the vehicle.

Using an Auto Loan for a Car

Should I Buy a Car With a Personal Loan or an Auto Loan?On average, auto loans are easier to get approved for because there are many types of lenders that work with all sorts of credit situations. Car loans are offered by many different types of lenders as well, such as direct lenders, third-party lenders, and the captive lenders of automakers.

Since there’s so much variety in auto lending, the rates and terms vary, too. A car loan’s interest rate can be anywhere from 0% to 20% (sometimes even higher). Auto loan terms vary as well, usually lasting anywhere from 48 to 84 months, depending on the price of the vehicle, the lender, and your personal situation. The better your credit score, the lower interest rates you can usually qualify for.

With a secured car loan, the vehicle is the collateral. This means if you default on the loan, the lender can hire a recovery company to repossess the car. A repo’d vehicle is usually sold at auction in an attempt to cover your remaining loan balance. This is very different from a personal loan, since the car and the loan aren’t tied to each other. You also can’t sell a vehicle with a lien on it until the loan is paid off, or you get a trade-in offer from a dealer or private seller that’s high enough to cover the loan balance.

While a car can be repossessed if you default on the loan, it also means that interest rates tend to be lower for auto loans than personal loans because the vehicle is collateral.

The biggest advantage of going for a car loan over a personal loan is that you’re likely to have a better chance of getting approved if your credit is worse for wear. There are many dealerships signed up with bad credit auto lenders all over the country. With a lower credit score, it can be difficult to find lenders that can assist you. However, subprime car loans from subprime lenders are reported to the major credit bureaus. If you qualify for subprime financing, you can improve your credit score with your on-time payments and get the vehicle you need.

Get Matched to a Local Dealership

Finding bad credit auto resources doesn’t have to be hard, especially with Auto Credit Express by your side! We make it easy to get connected to a dealer that’s signed up with subprime lenders. To get matched to a dealership in your area that has lending options for your credit, fill out our car loan request form. There’s never an obligation, and it’s completely free and secure. Get started now!

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3 credit habits that you need to break

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(© Rido – stock.adobe.com)

Are you using your credit card responsibly? Or do you have a few bad habits? Take a look at three common bad habits that people have with their credit cards and the best ways to stop doing them.

Habit 1: Pushing the limits

The first bad credit habit is pushing your outstanding balance close to its limit. What’s wrong with that? The first problem is that you’re giving yourself a larger debt load to contend with every month — one that accumulates interest the longer that it sits. It could be very difficult to pay down, and it could even lead to you maxing out your card.

The second problem with this habit is that it leaves you vulnerable to emergencies. You’ve taken up the majority of your available credit, so you can’t depend on it for unexpected payments. What if you need to pay for an urgent repair and there’s not enough room on your card? What can you do?

To avoid that difficult situation, you could apply for an online loan to help you cover the emergency costs and move forward. See how you can apply for an online loan in Ohio when you have no other safety nets to fall back on. It’s important that you only turn to this solution when you’re dealing with an emergency. It’s not for everyday purchases or small budgeting mistakes.

In the meantime, you should try your best to keep your credit utilization at 30% or lower — this means that your balance should be below the halfway point of your limit.

Habit 2: Paying the minimum

You pay your credit card bills on time, but you only give the minimum payment. While this habit can stop you from racking up late fees and penalties, it can still get you into hot water if you’re not careful.

Only paying the minimum for your bill will make it very difficult for you to whittle down the balance, especially when you’re continuing to charge expenses on your card. You’re only taking $20-$25 off a growing pile.

So, what can you do? If you’re paying this amount by choice, stop it — you’re only making things harder for yourself down the line. If you’re paying this amount because you don’t have any more funds, look at your budget to see whether you can cut your monthly costs to get more savings and use them to tackle your balance.

Habit 3: Using it for every single expense

You don’t need to put every single expense on your credit card. Your morning coffee? Your afternoon snack? Putting these small, everyday expenses on your card is a habit that can make your balance climb quickly.

You also don’t want to put some very important expenses on there, like mortgage payments. For one, these payments are large and will take up a significant amount of your credit. Secondly, if you need to use a credit card to make these payments on time, you need to reinvestigate your budget to see whether you can actually afford your living space.

So, what you should you do? Use a debit card, cash or checks to pay for the items above. Only put expenses on your credit card that you’re positive you can pay off in a reasonable timeframe.

Don’t let these bad habits drag you down and get you into financial trouble. Break them now, before it’s too late.

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Free credit reports have been extended; here’s why it’s important to check yours regularly

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Checking your credit could save you from identity theft. (iStock)

Typically, you’d be able to check your credit report — at least for free — just once annually through each of the three major credit reporting agencies. But thanks to the coronavirus pandemic, credit reports are now more accessible than ever.

Credit reporting companies Equifax, Experian and TransUnion are all offering  free credit reports weekly through April 20, 2022.

The move means better insight into your financial health during what, for most, is an economically challenging time. According to experts, it might also be a time that’s ripe for at-risk personal information and identity theft, too — even more reason consumers should be checking their credit on the regular.

HOW OFTEN DOES YOUR CREDIT SCORE CHANGE?

Have you checked your annual credit lately? If not, here’s what you need to know about these free nationwide credit reports and how to get them. If you’re not sure where you fit on the credit score spectrum, you may want to start using a credit monitoring service to track changes to your credit score. Credible can get you set up with a free service today.

Free credit reports for all?

The nation’s three credit bureaus initially started offering free weekly credit reporting last year, just after the pandemic began. In early March, they announced they’d extended the offer for another year, this time through April 20, 2022.

To request your free credit reports and access copies, you can go to AnnualCreditReport.com and provide some basic information to verify your identity (things like your date of birth, Social Security Number, and address).

Once your report is ready, you should see a detailed list of all open and closed accounts in your name, your payment history, recent credit activity and more.

5 BENEFITS OF HAVING A GOOD CREDIT SCORE

Protect yourself from identity theft

There are many reasons why checking your credit activity is important, but chief among them? That’d be the prevalence of data breaches in today’s world — not to mention the risk of identity theft they come with.

“In the past, it was perfectly acceptable for people to check their credit history once a year, but now with security breaches happening on a regular basis, consumers should be monitoring their credit more closely than ever,” said Clint Lotz, president and founder of TrackStar.ai, a predictive credit technology firm.

Lotz said the Equifax breach — which exposed over 147 million Americans’ personal information in mid-July 2017 — is the perfect example of why watching your credit report is important as far as identity theft protection goes. The pandemic, he said, adds an extra layer of risk to things.

“It took them [Equifax] months before they even realized they had been hacked, and considering that they hold files on hundreds of millions of Americans, it’s fair to say that many identities were stolen by the time they caught up to it,” Lotz said. “With many of us worrying about very serious issues not related to our credit, it’s a prime time for that stolen data to be put to work by bad actors in slow, methodical ways and in the hopes that nobody notices it.”

More reasons to check your credit

Checking your credit health often isn’t just good for detecting fraud alerts and to protect your identity, though. You can also monitor your report for errors — things like inaccurately reported late payments, for example — and then dispute those with the credit bureau.

If the error gets corrected, it could improve your credit score and make a jump from bad credit to a FICO score that’s more favorable. Not sure of your credit score? Head to Credible to check your score without negatively impacting it.

WHAT IS CREDIT MONITORING, AND HOW DOES IT WORK?

You can also use your credit reports and scores to monitor your financial habits — like the timeliness of your payments or how much debt you have left to pay off. Both of these factors can play a big role in your score, as well as how likely you are to get approved for loans, credit cards and other items.

“If you’re taking out a loan, getting insurance or even applying for a new job, checking your credit will allow you to see an overview of what would be seen by others looking at your credit,” said Leslie Tayne, a debt relief attorney with the Tayne Law Group. “Staying up-to-date on your credit reports and information allows you to know exactly where you need to improve.”

Want to be sure your credit is stellar before applying for a loan or insurance policy? Consider Credible’s partner product Experian Boost, which lets you use positive payment history on utilities, streaming and other bills to improve your credit score.

Set up a monitoring service, too

Though checking your credit reports manually is smart, you should also consider signing up for a credit monitoring service. These consumer financial services check your credit information and score regularly and alert you of any changes.

IS IT WORTH PAYING FOR CREDIT MONITORING?

If you’re interested in monitoring your credit or improving your score, head to Credible and learn more about how Experian can help. You can also use Experian Boost to get credit for on-time bill payments.

Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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Do Personal Loans Have Penalty APRs?

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Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.

When you make your credit card payment late, you’re often subject to late fees and a penalty APR, which is a temporary spike in your interest rate.

The Blue Cash Preferred® Card from American Express, for instance, has a 13.99% to 23.99% variable APR, but the penalty APR is a variable 29.99% (see rates and fees). Penalty APRs usually last for at least six months, but card issuers often reserve the right to extend them — especially when you continue making late payments. A look at the terms for the Citi® Double Cash Card show us that the “penalty APR may apply indefinitely.”

Penalty APRs are certainly not a trap you want to fall into, but it’s not something you usually have to worry about if you have a personal loan. Personal loan lenders can, however, charge late fees upwards of $39 per late payment. Whether your loan charges late fees all depends on how good of a loan you qualify for, and that comes down to your credit score, borrowing history and ability to make your payments.

Personal loans also tend to charge lower interest rates than credit cards, too. The average personal loan interest rate for two-year loans is currently 9.46% according to Q1 2021 data from the Federal Reserve, compared to 15.91% for credit cards.

Typically, interest rates for personal loans range between roughly 2.49% and 24%, but personal loans for applicants with bad credit can come with even higher APR — so do your research before applying.

Other common personal loan fees include:

  1. Interest: The monthly charge you pay to borrow money
  2. Origination fee: A one-time upfront charge that your lender subtracts from your loan to pay for administration and processing costs
  3. Late fee: A one-time fee charged for each payment that you fail to make by the due date or within your grace period
  4. Early payoff penalty: A fee incurred when you pay off your balance faster than planned (because the lender misses out on months of expected interest payments)

As you can see, personal loans can be costly, even without a penalty APR. It’s obviously best to avoid paying extra fees whenever possible. That’s easier to do when you have a good to excellent credit score, since you’ll qualify for better loan options.

Select has a free tool to help match you with personal loan offers without damaging your credit score.

None of the loans on our best personal loan list charge origination fees or early payoff penalties, but some may charge late fees.

Our top picks for best personal loans

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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