Who needs a co-signer for a car loan? How does it work?

need a co-signer for car loanNew or first-time car buyers are often surprised at being turned down for a car loan because they have no credit history, which unfortunately has about the same effect as having bad credit. Getting a co-signer might be the answer.

Lenders want to see that a borrower has a good record with previous loans and credit cards. Without a history of credit, a borrower represents a risk to lenders. If they don’t know a borrower’s history, they take the low road and assume the worst.

It’s a familiar “catch-22″ situation in that you can’t get a loan to establish credit without already having credit. So what is the answer?

What is the answer?

The most common solution is to have someone “co-sign” your loan contract with you — both names and signatures on the contract. Typically, it’s family member who has a good credit score. A co-signer plays no part in the loan unless the primary borrower (you) fails to make payments. In that case, the loan company would have the right to seek payment from the co-signer.

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how car loans workAbout principal and interest

If you purchase a new or used car with a loan, you agree to pay off the loan amount (principal) over a specified number of months. But you also agree to pay a finance charge, or interest, for the privilege of using the bank’s (or finance company’s) money for your purchase.

The amount of finance charge that you pay is the interest rate, which is set by the bank or finance company based generally on national lending rates and more specifically on your credit score. Interest rate is expressed as a annual percentage rate (APR), such as 5.5%.

Interest rates can be different for the same loan amount

Wholesale lending rates are lower now than in recent years but banks and finance companies, as well as dealers, can boost these rates (called reserve) for their customers. You can check current national average auto loan rates at Bankrate.com. At the time of this writing, the average 36 month new-car loan rate was 3.93% — very low. But automotive consumers may pay higher rates depending on the lender, dealer reserve, and the customer’s credit score.

Auto buyers should always know their most recent credit score before going car shopping. Otherwise, dealers know more about you than you know about yourself, which could lead to some unpleasant surprises. Getting your credit score is easy enough online. What’s your FICO score? Find out now when you check your credit report for $1 at Experian.com!

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How much down payment do I need for my car loan?

how much down payment on car loanUntil recent times, it was standard for car dealers and finance companies to require at least 20% down payment on the purchase of a car. It was for a good reason.

Because cars depreciate in value from the moment they are driven off a dealer’s lot, a down payment helps offset that rapid decrease in value, which may keep the loan from becoming “upside down.”  It also protects the loan company or bank because, if they have to repossess the vehicle, they have a smaller risk of losing money. It also protects the car buyer from financial loss if the car is stolen or totaled and the insurance money isn’t sufficient to cover the loan.

Things are different now
Auto manufacturers and dealers are now very competitive and business must be fought for. They are willing to take risks that were unheard of just a few years ago. In many cases, down payment requirements have been reduced or eliminated altogether, especially for customers with good credit.

Whether or not you’ll have to make a down payment is entirely up to the bank, credit union, or dealer’s finance company that will be handling your loan. If you shop around to different banks or finance companies, you can get different results.

Auto Credit Express is a good choice for an online auto loan source that makes it quick and easy to find out how much you can borrow and get approved fast. Read the rest of this entry »

best car lease dealsMany car companies offer special lease deals on selected models and styles each month. Some are very affordable at less than $200 a month.

This month, we list over 50 leases for $199 or less. The list gets larger every month as car manufacturers increasingly work to attract new customers by offering low monthly car costs.

These are usually genuinely good deals that are worth considering as long as you like the models and styles being promoted. The deals usually only last for one month, require a down payment, and have a specific mileage allowance — usually 1000 miles per month, average. Be aware that these deals may vary by region of the country.

Most lease deals are for 24 or 36 month terms. At the end of the lease you can simply return the car, or you can purchase it for the guaranteed purchase price stated in your lease contract. In some cases, you may have equity in the car (it’s worth more than the purchase price) such that it makes sense to buy it and sell it for a profit, or use it as a trade-in for another new vehicle.

Here are the cheapest car lease deals being offered at this time:

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trade car with loanIt’s a common predicament. You have a car that you want to trade for a better car, but you still have an outstanding loan on it.

The Question

The question is — is it possible to trade when you have a car loan that is not yet paid off?

The short answer is yes, you can always trade in that situation.

But it raises another question — how is it possible and is it practical and affordable?

Let’s take a closer look with some examples and get some real answers.

Scenario #1

You have a car you would like to trade but still owe $1000 on your loan. You look up the value of your car on kbb.com or Edmunds.com and find it’s worth $5000. Assuming a dealer will give your the full $5000 trade credit, he agrees to pay off your $1000 loan and give you credit for the remaining $4000 which can be applied as down payment on your new car.

The $4000 is called trade equity or positive equity, or just plain equity — a very good thing.

Regardless of the price of your new car, you now have $4000 that reduces the total amount you need to pay. This is the best situational scenario of all that we’ll discuss here.

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What is the car trade-in process? Do I lose money by trading?

Here is how a car trade works.

Car dealers buy your old car from you and give you credit toward the price of a new car. The trade-in credit is like a down payment and reduces the price of your new car, making your monthly payments smaller.

The dealer then puts your old car on his used-car lot to sell, or he sends it to a dealer car auction where another dealer will buy it to put on his own used-car lot.

Contrary to some belief, dealers don’t simply “trade” or swap one car for another. It’s two separate transactions rolled into one contract.

Dealers make a lot of profit on selling used cars they’ve taken as trade-in. They pay the trading customer a low wholesale price, and sell the car for a higher retail price. That’s how they make their money and stay in business. Read the rest of this entry »

Is Cheap Car Insurance Possible?

Auto insurance is one of those irritating expenses of car ownership that has no immediately obvious benefit. We pay and pay, and may never get anything in return. Teenage first car buyers are always a bit startled by the high cost of insurance.

Car insurance is one of the most expensive costs of owning and driving a car, especially for teenagers and other new drivers who can least afford it.

In this article we’ll show you how and where to find the car insurance company for your first car that has the best rates and provides the best service.

We frequently hear the question, “Which auto insurance company is best?” or “Where can I find the cheapest car insurance?” or “What is the cheapest insurance for a 16 year old?” It would be nice if there were a quick simple answer to those questions.

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Is auto insurance really necessary? Why do I need it?

Since car insurance is so expensive, partiularly for teenagers and other young drivers, it’s natural that this question should come up frequently for first time car buyers.

You need insurance on your car to protect you from the risk of disasterous financial problems resulting from accidents,  personal injury and property damage, and loss by theft, fire, or natural disasters. It may seem pointless to spend so much money on something you may never need. But if you ever need it, you’ll be really happy you have it.

It’s tempting to believe that you don’t need insurance because you are a safe driver and will never cause an accident. However, other people can involve you in an accident that is not your fault. If the other driver doesn’t have sufficient car insurance, your own insurance will take over and pay your repair bills and medical expenses.

You might avoid insurance if you had enough money to cover such problems on your own.  This is called “self-insurance.” However, self-insurance is not legally sufficient in most states and is not practical for most people. Read the rest of this entry »

Understanding the basics of auto insurance

You may go through your entire life and never have a car accident. But the odds are against you. Auto insurance protects you from potentially disasterous costs of such accidents. If you are buying your first car, you must understand how car insurance works and why you need it.

Laws in most states require that drivers have at least a minimum level of liability insurance – repeat, liability insurance – not collision or comprehensive, although lenders and lease companies may require full coverage, including liability, collision, and comprehensive.

Types of insurance
An auto insurance policy might include one or more of the following types of coverage: Read the rest of this entry »

car costs taxes and feesWhen you buy a car, there’s the actual price of the car of course, but there are always other costs and fees involved.

Some fees are required, some are not. Some are car company fees, some are dealer-added fees and charges. And some are official fees and taxes required by the state, county, or city where you live.

These additional car buying costs and fees can be different depending on whether you buy used or new. Charges can also vary by car company, type of vehicle, dealership, and your location.

Let’s take a closer look.

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What Are the Best Cars to Buy?

which car should I buy?There are literally thousands of combinations of different automobile types, makes, models, styles, and prices, which can make it difficult to choose which to buy. However, we will help you determine the perfect car for your needs.

What is a good first car?  Which car is the best buy? Which is more reliable?

Which gets the best gas mileage? Should I buy a SUV or pickup? Which car is safer? Which is more economical?

Which is cheaper to insure?

What car should I buy as my first car?

If you were to ask this question and you gave no other information about yourself or what you wanted, we would suggest you buy either a Honda Accord or Toyota Camry, two of the most popular and most purchased cars in America. Both cars come in either a sporty 2-door coupe version or a 4-door sedan, and with a variety of engines, luxury features, and safety options. Both also offer gas-saving hybrid versions.

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What to Pay for a Car — What’s a Good Price?

what should I pay for my new carWhat to Pay For a New Car

All new cars have a window sticker that displays the manufacturer’s suggested retail price (MSRP). It may also include destination charges, dealer-installed option prices, and other miscellaneous charges. The total of these charges is the price you would pay for that vehicle, less sales tax, without any discounts or rebates.

All these charges but destination charge can be negotiated. Manaufacturers charge dealers this fee for vehicle delivery, and dealers simply pass it along to customers without markup. It cannot be eliminated from the cost of a car.

Price can be negotiated for most vehicles. Unless the vehicle is a hot seller and in short demand, it’s usually possible to get dealers to discount the MSRP. But, how much? What’s the best price I can expect?

Here’s your strategy for negotiating price. Read the rest of this entry »

negotiate car priceWhen buying a car, everyone knows you don’t pay the asking price or sticker price. Right?

Right.

The process of buying a car in the United States is unusual in that it’s one of the very few times when we actually negotiate or “haggle” over prices. We don’t do it when buying a refrigerator at Sears, or a TV at BestBuy, or a watermelon at the supermarket. With cars, it’s more like haggling over an old lamp at a garage sale or, if we lived in the Middle East, getting a price on a donkey.

Although buyer-seller negotiating is common in many other countries, most people in the U.S. find it uncomfortable and awkward. Since we don’t do it very often, we’re not very skilled at it. Many people hate it.

Negotiating New-Car Prices

All new cars have standard manufacturer-suggested-retail-prices (MSRP) — retail prices — “sticker” prices that are exactly the same for the same car, same model, same equipment everywhere in the U.S.. Including the word “suggested” suggests that the prices are not necessarily the prices we have to pay. And dealers encourage us to expect less-than-sticker prices by their ads and TV commercials — “We beat anyone’s prices,” or “Less than invoice prices,” or “Lowest prices in town.”

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We answer questions from first-car buyers almost every day when we participate on the Yahoo! Answers web site in the Car Buying and Selling section. The majority of those questions come from teens and young adults who have little or no experience in buying, trading, or selling cars.

In the few years that we’ve been doing it, we have seen certain common questions come up over and over again. Some come up numerous times in a single day.

We thought we would post some of the most frequent questions here, and answer them just as we do on Yahoo! Answers.

Here goes.

Q.  How many miles are too much for a used car?  How many miles will I get from this used car?

A. All used cars are different. It’s not possible to say that a certain car of a certain age and of a certain brand that has 150,000 miles is a good car. It depends on how it has been driven and cared for. Some cars with only 50,000 miles are ready for the junk yard, while others with 150,000 miles are good for another 150,000.  Even brands such as Honda and Toyota, that are known to be very reliable, can have serious high-mileage problems. Therefore, don’t make a purchase decision based on mileage alone. Get a professional mechanic to inspect your car before you buy. It’s the actual condition of the car, not mileage, that is important.

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best cars 2013Many people know they need/want a new car but struggle with what car to buy. There are so many choices.

How does a person go about deciding what car is best for them?

There are actually a number of different approaches that be taken in making a decision.

One way is to simply do detailed research. This can take a lot of time and work depending how much you can narrow down your possible choice before you start. For example if you already know you want a Nissan, it’s just a matter of researching the various Nissan models, styles, options, specifications, and prices to find the one that best fits your needs. One of the best ways to do it is to visit the car company website. In this example, it would be www.nissanusa.com.

Another way is to start with a popular make and model as a first consideration — such as a Honda Accord or Toyota Camry — and decide what you don’t like or what you want different about those vehicles. Then research other makes and models for those characteristics. This is the approach we suggest in our article, What Car Should I Buy?

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tips for getting auto loansFor many people, an auto loan is the most significant and largest financial transaction they make in their lives — at least until they get a home mortgage. Because it is so significant, it makes sense to take the right steps and avoid mistakes in the process.

1. First, shop around for auto loans at your local banks, credit unions, and financial companies. You don’t have to finance through your car dealer. In fact, by shopping around first, you’ll know if your dealer’s loan offer is good or not. When you talk to a bank or credit union, you may also be able to get pre-approved at a guaranteed interest rate and for a given amount. That way, you’ll know what price car you can afford when you go to your dealer. You are not obligated to accept any loan offer you receive, even those for which you are pre-approved.

2. Know your credit score. Your credit can make the difference between getting approved for a car loan or not. If you are approved, your credit score will determine the interest rate you pay and the down payment amount you’ll have to make. Car companies offer special promotional deals each month, such as 0% APR loans and low-payment leases, which require good credit. To get the best rates and best deals you’ll need a credit score of 700 or above. What’s your FICO score? Find out now when you check your credit report for $1 at Experian.com!
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guide for first car buyersFirst-time car buyers are often unaware of everything that’s involved in the process. It’s not surprising because it’s not simple and not like buying anything else that we normally buy, even a house.

We’ll explain it all in this quick guide to buying a car. Further details can be found in the various articles posted on this web site.

1. Decide on a Car

Choosing a car for the first time can be a bewildering experience because there so many choices — old cars with lots of miles on them, newer cars with better safety and tech equipment, small cars, compact cars, sedans, coupes, large cars and SUVs, sports cars , fast cars, fuel-efficient cars — not to mention all the different makes, models, and styles that are available.

Decide what kind of car you want or need and what’s important to you. Do you want good looks, safety, good gas mileage or high performance, automatic or manual transmission, 2-wheel drive or 4-wheel (for winter weather), sporty 2-door coupe or 4-door sedan or convertible, passenger car or roomy SUV or minivan? Do you want good reliability and dependability, and low insurance cost? What is is your budget and how much can you afford, either as a cash purchase or as monthly loan payments?

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buy first carBuying a car for the first time can be an overwhelming experience.

There’s so much to know and how to know what’s important.

With this article, we’ll take some of the mystery away from the car buying process.

We’ll focus on the car itself in this article because we’ve already covered topics such as new versus used, financing, loans, best first cars, and more. Many new car buyers don’t completely understand how things like engine power, miles per gallon, safety equipment, and reliability factor into making decisions about what to buy. Incredibly, some novice buyers put more importance on color as a decision factor than almost everything else.

When buying a car, the old adage that “you get what you pay for” usually applies. A less expensive car will more than likely have lower engine power, fewer safety features, and lower reliability than cars that cost more. But how important are those things?

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buy used carThere’s nothing worse than spending your hard-earned money for the perfect used car and finding out after the sale that it has serious problems that are going to cost a fortune to repair.

It’s even more disappointing when you discover that used cars are sold “as-is”, which means that you have no legal grounds to return the car to the seller and get your money back, even if the seller lied to you about the car’s condition. Even if you suspect the seller of outright fraud, you have to prove it in court, which is often impossible to do. Sellers can easily claim they knew nothing about the problems, which in many cases might be true.

Used car dealers rarely inspect the cars they sell. Even though the salesman might tell you a car “has no problems”, he may have no idea. The only exception is in the case of “certified” used cars that have been inspected and come with a short warranty.

The lesson to be learned here is that when buying any used car, especially those with high mileage, you should always have the vehicle inspected by a professional mechanic before you buy. An inspection might cost you $75-$125 but if it detects serious problems, it could easily save you from suffering a multi-thousand dollar mistake. It’s a good and wise investment.

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most reliable car brandOne of the most frequent questions we hear from people who are buying a car is, “What is the most reliable car?” Or “What is the best new car?”

Obviously, these people are interested in getting the best, most dependable car for their money. They also realize that all car brands are not the same in terms of quality and reliability.

Fortunately for us as automotive consumers, Consumer Reports magazine puts out several car-related issues each year in which it publishes the results of vehicle reliability studies conducted with actual owners. The results are also posted on the company’s web site, which requires a subscription to view all the details.

In this years latest results, the Audi company came out on top . Subaru was ranked second, followed by  Lexus, Porsche, and BMW for the top five spots

Toyota, which has ranked in the top five in years past has slipped to the #8 position this year.  And Honda has fallen to the #10 spot.

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