Is it possible to sell a car if you are still making loan payments and the loan is not yet paid off?
This is a very common question with car buyers and owners.
The answer is yes, you can sell the car, but you must get enough money in the sale to pay off your loan, so that your bank can give you a “clear” title to give to the new buyer. This is where problems often arise. Let’s see how.
If you are upside down
If you are still paying on your loan, you still have an outstanding balance, which might be more than your car is actually worth. This means you are “upside down” and would need additional cash, after the sale, to fully pay off your loan. Loan companies want to be paid in full immediately after the sale. They won’t allow you to continue to make payments on a car you no longer have. Continue reading How Do I Sell a Car That I Am Still Making Payments On?
How much down payment do I need for my car loan?
Until 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, primarily for customers with good credit. Continue reading Do I Need a Down Payment on a Car?
Buying a car with a low credit score?
Having bad credit means that sometime in your past, possibly as far back as seven or ten years, you have had missed or late loan payments, repossessed property or cars, or have declared bankruptcy. You may also have an excessive number of credit cards with high balances. These factors are included in your credit history reports that come from three credit reporting agencies: Transunion, Experian, and Equifax.
Your entire credit history is summarized in a single number, called your credit score.
Your credit score determines if you’ll get approved for a car loan, how much you’ll in interest, how much down payment you’ll pay, and even how much you’ll pay for auto insurance.
Continue reading How to Buy a Car with Bad Credit
About 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!
Continue reading How Car Loan Payments Work
How Are Car Payments Calculated?
Car payments are based on how much you borrow, the interest rate, and the length of the loan.
The more you borrow, the higher the payments. The higher the interest rate, the higher the payments. The longer the loan, the lower the payments.
Unfortunately, the formula for calculating monthly car payments is not a simple one and can’t be easily done by hand or by a simple calculator.
It’s necessary to use an electronic business calculator, or by using an online Car Loan Calculator.
Simply plug in the numbers and get your answer.
Continue reading How Is a Car Payment Determined?
If you still owe more on your loan than your car is worth, you are upside down.
You may still be able to buy another car if you are upside down on your previous loan.
There are two ways to go about it.
One way to buy with an upside down loan
You could sell your old car but you will have to add extra cash to fully pay off your old loan. You’ll need to pay off your loan so that you can give a clear title to your buyer. However, coming up with extra cash might be a problem, especially if you are upside down by a large amount. For many people, this solution is not possible.
Let’s look at some other ways. Continue reading Can I Buy a Car if I Am Upside Down on Another Loan?
Uninformed automotive consumers often confuse car leasing and car renting. They sometimes think the two are the same. They would be very wrong.
The confusion is somewhat understandable because of the similarity of terms to that of apartment leasing and renting. Many of us can remember our parents telling us that renting or leasing an apartment was “throwing our money away” and that we should buy a house instead. Until the recent recession, it was true that you could invest in a house and get all your money back, plus more, when you decided to sell the house later. The house “appreciated” in value and was a smart use of your money.
Cars are not houses or apartments, and don’t act the same. All cars, unlike houses, “depreciate” in value over time and miles. They never appreciate in value — except possibly if they turn out to be classics 30 years from now. You always lose money with a car, whether you buy with cash, finance, lease, or rent. Cars are never good investments (except for some old classics). The average new car will lose half its value in three years, and even more in the following years, regardless of what was paid for it.
Continue reading How Are Car Leasing and Renting Different?
For 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!
Continue reading 5 Tips for Getting an Auto Loan
You, the car buyer, wish to purchase a car but you don’t have the necessary cash.
You need a car loan.
A bank or credit union can provide you the loan you need, or your car dealer can arrange the loan for you with a bank or finance company that he works with. Understand that dealers generally don’t make loans nor approve them.
The bank or finance company explains the loan to you in this way:
“We are willing to loan you our money to pay the dealer for your new car, assuming we check your credit history and find that there is not a risk that you won’t pay us back our money. If you have no credit history or your credit is poor, we may decide to turn you down. We might also turn you down if you do not have a steady source of income that will allow you to repay the loan. If you can get a co-signer with good credit and a good income who is willing to sign with you, we may reconsider”.
Continue reading Car Loan – In Plain Language
Refinancing your car loan can often lower your monthly payments.
Auto loan interest rates are hovering at the lowest rates seen in many years. If you are currently paying a high rate, you may be able to benefit by refinancing at a lower rate.
Depending on the value of your car and the amount you owe on your loan, you might even be able to refinance and get cash back out of the deal.
Refinancing an auto loan is similar to getting any other used-car loan. You might refinance with the same company with which you have your current loan, or you might go to a different bank or loan company.
If you bought your car new and financed your loan through the car manufacturer’s “captive” finance company, you might find that the company does not do refinance loans. In this case, you’ll have to go to a bank or loan company for your loan.
Loan rates vary between different banks and finance companies. Refinance rates are usually higher than new-car rates, but lower than ordinary used-car rates. Shop around for the best rates.
Continue reading Can I Refinance My Car Loan?
How do I know how much car I can afford?
Assuming you’ll buy with a loan, you will want to have a monthly car payment that will fit within your current income, after considering all your other expenses. Don’t make the mistake of buying based on future expectations — a forthcoming raise, a new job, or other potential improvements in your finances. Your expectations might not come to reality and you’ll be stuck with a car you can’t afford. Base your purchase only on current, stable finances. Continue reading Can I Afford This Car?
A Car Loan Story
David, 17, recently graduated from high school, landed a good paying job, and wanted to buy a new car.
His thought was that he would go to his neighborhood Ford dealer where he had been admiring a bright red Focus model that he felt he could afford, and arrange for a convenient loan to pay for it. He could easily get approved for the loan because his father knows the owner of the dealership.
The car cost $12,000 with discounts and rebates. He thought a 5 year (60 months) loan would be about right because he figured payments to be $200 a month ($12,000 divided by 60 months), which he could easily afford.
David was wrong — in many ways. Let’s see why. Continue reading Car Loan Basics for First Time Car Buyers
Is it possible to get a car loan and buy a car with no credit?
The answer? Yes, under some conditions. Let’s explain.
It is a common situation, especially with young people who have never had a loan, never had credit cards, or never borrowed money for a car. Without a history of prior loans and payments, there is no credit history and no credit score, which is the number that represents credit rating.
In fact it is not quite sufficient to simply have a good credit score to get a car loan — or any loan. You may also need to have an established steady income (a job) and no excessive debts. You should have no recent bankruptcies or auto repossessions, which you wouldn’t be likely to have anyway if you have no credit.
So how is it possible to buy a car with a loan when you have no credit record and no credit score? Continue reading How to Buy a Car With No Credit?
Although we’ve discussed this topic previously (see Lease vs Buy), there is one aspect that we haven’t discussed and continue to hear questions about.
The question is essentially this: “If a car dealer is offering a special promotional lease deal, a purchase rebate, and a low interest loan on the car I want, which one is the best deal?”
The short answer to this question is that the lease deal will nearly always be better — and it’s not simply because monthly payments are less. If the lease deal is one that is being offered by the car manufacturer, the company has usually applied a price discount, a low money factor (finance rate), and a high lease-end residual value. The combination of all these things makes for an attractive low monthly payment. Customers are not able to negotiate these kinds of deals for themselves because a dealer only controls one of those three things — price.
Continue reading Is It Better to Lease or Buy a Car?