CREDIT SCORE

How to Get the Most Auto Insurance Coverage for the Money

October 4, 2019 by admin Leave a Comment

Auto insurance will cost you, but savings can be had.

The cost of auto insurance puts a huge dent in some wallets. Drivers in Michigan, Louisiana, and Oklahoma pay far above the national average while drivers in Maine pay the least.[1] Among auto insurers, rates can vary widely, and consumers don’t always know why they’re being charged so much.

You can’t do much about the state where you live—besides moving—but you can get the most coverage for your money by keeping some things in mind as you shop for auto insurance.

Credit Matters

Your credit history reflects on what you pay for auto insurance. Insurers develop an “insurance-risk score” or “insurance credit scoring” based in part on your credit score, theorizing that you’re less likely to file a claim if you have good credit.[2] Your credit score is easily available to you, but your insurance score is not (typically, you’ll have to visit a credit monitoring service such as TransUnion to find it, not your insurance company). In any case, if your credit score is high, then your insurance rates should reflect your insurability.

Personal Demographics

Your marital status, gender, age and the city where you live are factors in determining insurance premiums. The last category can make a big difference in what you pay—if your zip code or street address is coded wrong, you might be charged a rate far above what you should be paying.[3] Therefore, it is important to review your declarations page for accuracy.

What You Drive

Before purchasing that turbocharged sports coupe, contact your auto insurer to get a quote for car insurance. Indeed, your agent can tell you which cars cost the most to insure in any given vehicle segment. Engine size isn’t the only consideration: insurers charge more for cars that don’t hold up as well in an accident. They may also raise rates for cars without recent safety features including side curtain airbags, rearview cameras, and lane departure warning.[4]

Your Driving Record

If you have tickets, then you may have points on your driving record. Points send a signal to auto insurers to raise your rates based on an algorithm set by each insurer. Your insurer won’t tell you how that works, but you can contact your Department of Motor Vehicles to obtain your driving record. If old points have not been removed from your record or points have been wrongly assigned to your record, you can have the DMV make the correction and forward a copy of your updated record to your insurer.[5]

Seek Discounts

Insurance companies offer discounts for drivers who drive just a few thousand miles in one year. Further, discounts are offered if you insure your auto and home with the same company, have been with that company for several years, are a safe driver or have recently completed a driver’s training course. Ask your insurance agent about available discounts—information that’s not always readily volunteered.[6]

Shop Around

Get at least three price quotes from different insurers with similar coverage to make comparisons easier. You may be able to save money by dealing directly with a company over the phone or via the Internet instead of through an insurance agent.

If you belong to an alumni association, a business group or some other association, a group plan can offer additional discounts. Moreover, ask your employer if the company offers a group plan for its employees and their families.

Save Money

It pays to review your auto insurance policy annually as it may reveal overlooked discounts or even mistakes that are costing you money. Never assume your policy reflects your current information as your address may have changed, drivers may have been added or dropped, or other factors may influence what you pay.

Sources

[1] Insure.com: Car insurance rates by state, 2019 edition — https://www.insure.com/car-insurance/car-insurance-rates.html

[2] The Balance: What is Insurance Credit Scoring? https://www.thebalance.com/what-is-insurance-credit-scoring-4156729

[3] The New York Times: Your Neighbor in an Adjacent ZIP Code May Pay Less for Car Insurance — https://www.nytimes.com/2018/10/19/your-money/car-insurance-neighbor-zip-code.html

[4] Insurance Information Institute: What determines the price of an auto insurance policy? — https://www.iii.org/article/what-determines-price-my-auto-insurance-policy

[5] North Carolina Department of Motor Vehicles: Driving Records — https://www.ncdot.gov/dmv/offices-services/records-reports/Pages/driving-records.aspx

[6] Allstate: 6 Car Insurance Discounts That May Save You Money — https://www.allstate.com/tr/car-insurance/tips-for-car-insurance-discounts.aspx

Image by 3D Animation Production Company from Pixabay

How to Save Money on Car Insurance

November 2, 2018 by admin 3 Comments

Your car insurance costs may be on the rise with several factors possibly contributing to that increase. For example, a new driver, a different car or a change in coverage can send your rates soaring. Just the same, you can save money on auto insurance by implementing the following money-wise strategies immediately.

2019 Lexus ES

1. Review Your Credit Reports

Every consumer shopping for car or homeowners insurance is assigned an insurance score. That three-digit score is based on certain credit report characteristics and is used to measure risk, not creditworthiness. Just as you can retrieve your credit score, you can obtain your insurance score.

Because both your insurance score and your credit score are based on your credit reports, you should review all three of your consumer credit reports to determine if there are problems listed that may contribute to a lower score. For instance, late credit card payments, high outstanding balances on certain loans and a checkered credit history can impact both scores.

Free copies of your credit reports are available through AnnualCreditReport.com. Review your reports for accuracy and work on building a better credit history. Gradually, your insurance score will rise thereby lowering your auto insurance rate.

2. Review Your Insurance Coverage

How much insurance do you have? How much insurance coverage do you need? If you have not reviewed your auto insurance policy in some time, do so before it is set to renew.

You can save money on car insurance by assuming greater risk. Instead of a $200 deductible for comprehensive coverage, consider $500. Collision coverage is ideal for most cars that are less than 10 years old, while dropping collision coverage for high mileage older vehicles can save you money.

New drivers on your policy will cause your insurance rates to spike. Encourage your teens to maintain good grades as insurers offer discounts for students that have at least a “B” average.

2019 Volvo XC40

3. Qualify For Discounts

Insurers regularly offer discounts to consumers in a bid to attract and retain their business. You may qualify for discounts in several areas, immediately reducing your auto insurance premium by at least 10 percent.

Consumers who use the same insurer for their cars and home will receive a discount for bundled insurance. Contact your insurance agent to inquire about available discounts including safe driver, anti-theft device and for completing a defensive driving course. Affinity discounts are available if you belong to certain associations or organizations, such as a credit union.

4. Improve Your Driving Record

Points on your driving record can send your car insurance rates soaring. Employing safe driving habits can gradually lower your rates with your record typically cleared of all of its infractions within three years.

You can speed up the point reduction by completing a department of motor vehicles approved safe driving course. Visit your state’s DMV site to learn what courses are available. Typically, if you successfully complete a state-recognized driver safety course, the DMV will shave as many as three or four points off your driving record, lowering your car insurance premium.

2018 BMW 740e

5. Consider Your Future Car Purchases Wisely

Your heart says, “sports car” but your head says “family sedan.”

Although there is nothing wrong with following your heart, your head may insist that you save money. This is where your choice in vehicle matters and will affect your insurance rates.

But before you buy any car, make a call to your insurance agent to receive an insurance quote. You can also find out which vehicles will cost you less by visiting the Insurance Institute for Highway Safety’s website to retrieve the crash test ratings for today’s new cars.

The IIHS is funded by the major insurance companies and your rates are based in part on how well a car holds up in a crash. Choose a model with a “top safety pick+” rating and your insurance agent will offer a correspondingly lower rate quote than a vehicle that isn’t rated as high.

Other Underwriting Factors

Each auto insurance company has its own insurance rating system, but there are general guidelines these companies follow that make it possible to compare coverage. Other factors that can affect your insurance rates include where you live, your gender and age, your marital status and the number of miles you drive annually.

How to Lease Your Next Car

July 10, 2018 by admin 1 Comment

Finance, lease, subsribe or buy — here’s what you need to before you jump in.

New car leasing is similar to renting a car, but in this case your rental term lasts for two, three or more years. You never own the car you lease and if you end your lease early or exceed the allotted miles, you will pay some costly penalties.

With these things in mind, why would anyone want to lease a new car? For several reasons, including:

1), you want to drive a more expensive car,

2), drive a new car every few years or

3) you simply don’t have much cash to plunk down for a down payment.

If you fall under any of these three reasons, then leasing’s appeal may be strong for you.

Just like buying a car, you should do your research to find the vehicle you want and the best leasing deal possible. Leasing deals are negotiable—you’ll want to put out the least amount of cash up front while limiting your monthly lease payments.

1. Know your credit score.

If you have a good credit, then a high credit score should provide you the best leasing deal. Obtain your credit score from at least one of the three credit reporting bureaus — Equifax, TransUnion and Experian — to see where you stand. A score of 700 and higher reflects “good credit management” according to Experian.

2. Choose your car.

Find the type of vehicle you want and narrow your list to about three models, each of which you should test drive. Buy the car you know you’ll be happy with for the next several years. If you settle for something that you’ll tire of quickly, you’ll either be stuck with a car you dislike until the end of the lease term or be forced to pay hundreds, perhaps thousands, of dollars to break your lease.

3. Compare lease deals.

Most leasing plans are offered through your new car dealer, although arranging a lease privately is possible. Avoid being pressured by any dealer offering a “take it or leave it” deal on auto leasing—shop several dealers for the best terms.

4. Negotiate the price first.

Consider not telling the new car sales person that you want to lease your vehicle until after you negotiate your best price. Your lease is based on the final agreed upon price, so try to lower that price to hold down your overall costs and reduce your monthly payments. You can find out what a dealer paid for the car by buying a new car price report from Consumer Reports and using that information to negotiate.

5. Calculate your lease.

Before signing your lease agreement, you must calculate your costs; use a lease calculator such as one found on leaseguide.com. Your negotiated price is your base capitalization cost, which should be lower than the car’s sticker price. Be mindful of other costs including acquisition fees, a luxury tax, state sales tax and lease insurance. Adjust this figure by the amount of money you put down and any trade-in credit. Your dealer has a residual value in mind, which is what the manufacturer determines what your car will be worth at the end of lease term. In addition, leasing companies use a “money factor” or interest rate to determine costs—include that number and your term (months) to determine total lease costs and your monthly payment.

Take Your Time

New car leasing sounds complicated, doesn’t it? That’s why you should take your time to come up with the best deal to find the car you’ll be happy driving for several years. If you rush the process, you’ll pay hundreds, perhaps thousands of dollars more on your lease.

How to Get a Low Interest Rate Car Loan

December 18, 2017 by admin 1 Comment

You don’t have to pay a mint for a car loan.

You have seen the advertisements for low interest rate auto loans and wonder if you qualify. Car financing rates of under five percent are common today, but are typically available only to those with the best credit ratings. You can get a low interest rate car loan by taking the following steps.

car loan Visit MyFico.com to obtain your three-digit credit score. Pay the fee, plug in your personal information and review your score. If your score is 700 or higher than skip to the fourth step. If it is in the 600s range or lower, then move on to the next step. See: MyFico.com

Review Your Credit Reports

Your credit score is based largely on the information found in your credit reports. Three credit bureaus collect information about your finances, job history, your spending habits and other personal information. With scads of data coming in, some of that information may be old or wrong.

Visit AnnualCreditReport.com to obtain your reports from Experian, Equifax and TransUnion. Your reports are issued free through this site and can be obtained once annually at no charge to you. See: AnnualCreditReport.com

Clean Up Your Credit

Examine your credit reports carefully. If information in a report is incorrect, notify the respective credit bureau. Sometimes, a credit bureau will claim that you have made late payments or have a line of credit open that does not belong to you. Wrong information should be brought to the attention of the credit bureau and corrected.

Once notified, the credit bureau has 30 days to address your query or automatically expunge that information from your files. You can request a follow up credit report for free once the corrections have been made.

Car Loan: Apply For Credit

It may take up to 60 days for your credit score to reflect the corrected information. Your score should rise and if it tops 700, you should qualify for a low interest rate car loan.

Keep in mind, however, that there are other parameters creditors consider including your current income and your ability to repay a loan. If your score remains low, continue to work on raising it before applying for new credit.

Talk With Your Lender

You can also talk directly with a lender before applying for credit. This can be useful if you wonder if you will be approved for a car loan and you don’t want to risk rejection. Your lender, which can be your current banker, a credit union representative or other financial professional, can offer guidance on what interest rate you will pay on a new car loan. For instance, you may be able to garner a better rate if you put more money down or settle for a shorter-term loan such as 36 months instead of 48 or 60 months.

If your credit score is below 600, indeed if it is 580 or below, then you have bad credit. At this point, it will take you extensive work to raise your credit score, likely taking many months to well over a year to reach a favorable credit rating. You may still be eligible for a bad credit car loan, but do not expect to receive a low interest rate car loan if your credit is bad.

Typically, bad credit car loans carry a rate of 10 percent or higher, well above the prevailing rate for consumers with excellent credit.Always know your credit score and understand how that score can affect your ability to secure new credit. A low interest rate car loan may be within your reach, provided that you are willing to work on fixing lingering credit problems.

How Are Insurance Scores Determined?

September 25, 2014 by admin 4 Comments

If you have not heard of your insurance score, you are not alone. An insurance score, like a credit score, is based on information derived from your credit reports. Insurance companies have found that there is a correlation between the way you handle your credit and future accidents as well as your likely insurance claims. Although credit reports are used to establish both credit scores and insurance scores, there are also some important differences.

what is your insurance score Your credit score is based largely on your ability to repay what you have borrowed. Your insurance score goes beyond your credit report to look at the behavior of policyholders with similar credit temperament who have filed claims with the insurer. You should know that insurers set their own insurance scores, consequently, your score will vary from company to company.

A credit score, such as one from FICO, is used by 90 percent of US lenders. That score is based on five factors: your payment history, the amount of your debt, the length of your credit history, new credit and the types of credit. Loan approval and terms are based on your credit score.

Your insurance score will also look at the same factors, although your insurer likely isn’t interested in your income information or job history, criteria that banks and other lenders look at when deciding whether to extend credit to you or not. Even so, the better your credit score the higher your insurance score.

Insurance Score Determination

Auto Trends reached out to the insurance industry to glean more information about insurance scores. Kristofer R. Kirchen, president of Advanced Insurance Managers, LLC, in Tampa, Florida, directed us to the National Association of Insurance Commissioners (NAIC) website to learn how scores are determined.

Credit-based insurance scores are nothing new, arriving on the scene in the early 1990s. According to FICO, some 95 percent of auto insurers and 85 percent of homeowner insurers use credit-based scores. However, not all states allow credit-based scores, thus it is important for consumers to check with their state insurance department to learn what their state permits.

You should also know that insurance companies may only consider your credit-based insurance score as “one factor in its underwriting process” according to the NAIC. If you are seeking coverage for a vehicle, the insurer will consider the make, model and age of your car as well as the age of the drivers, the miles driven annually and your zip code. Yes, you can ask your insurer if an insurance score was factored to underwrite and rate your policy. You should also ask your insurer what risk category you were placed in after your quote was received.

Obtain Your Score and Improve It

Kirchen noted that CreditKarma.com provides both your credit score and your insurance score for free. You need to register with that website, by providing an email address and a password to track that information. This writer has been using Credit Karma and found his insurance score by clicking on the “view all my scores” button. In this case two scores were presented: an auto insurance score and a home insurance score with only a small numerical difference between the two.

If your insurance score is low you can improve it the same way you can raise your credit score: by using your credit wisely, paying your bills on time and reducing your debt. Kirchen also advises consumers to clean up collection activity as found in their credit reports. You can obtain one free copy annually of all three of your credit reports by visiting AnnualCreditReport.com.

Now About That Claim

It is important for you to know that placing a call to your insurance company to report an incident when there is no damage to either vehicle should always be avoided. That call will show up on your claims history even though no pay out was made noted Glenn Jacobs of the Jacobs Agency in Knoxville, Tennessee. Your insurance score will suffer and as a consequence, you may be charged a higher rate for auto insurance.

Credit Clean Up Before You Buy Your Next Car

February 25, 2014 by admin 2 Comments

You are ready to buy your next car and have set your eyes on something new. Sure, you know that new cars lose a lot of value during the first year of car ownership, but you have a long-term ownership strategy in place and plan to drive your next car until it gives up the ghost.

Paying cash for a new car is the ideal way to go, but with the average price of a new vehicle now topping $32,000, few of us have that much money available. Likely, you’ll join the overwhelming majority of people that will put some money down and finance their purchase with a 48, 60- or 72-month auto loan.

Before you seek new credit, the following points should be considered.

Obtain Your Credit Score

Your credit score is a three-digit number that has a huge impact on not just the loan terms, but on whether you receive loan approval or not. Your score is based on your credit history including your personal credit reports compiled by Experian, Equifax, and TransUnion, the three consumer reporting bureaus.

Your credit score should be above 700 to enjoy favorable loan terms. Some creditors require a score of at least 740 before giving you their best loan rate. You can get a free monthly credit score by signing up with Credit Sesame or you can pay for your credit score by visiting MyFico.com. The higher the score the better for you: you can save hundreds of dollars in interest costs if your rate is low.

Establish a Budget

Here is where a lot of people run into trouble: they set their eyes on a vehicle they want, but cannot afford. Before you begin shopping for a new vehicle you need to determine how much of a loan payment you can swing.

One of the best approaches here is to use an affordability calculator such as one provided by Edmunds.com please go here. Once you determine a payment amount you will have to figure out if you have enough money to make the monthly payment, pay for your car insurance, registration, taxes, fees, and in some states property taxes.

Trade In or Private Sale

Ideally, your car dealer will fall in love with your trade and offer you big bucks for your vehicle. The reality is usually something far different: your trade won’t come close to the value you think that it would fetch if you were to sell the vehicle yourself.

So, why not sell your car instead of trading it in? Well, for many people, the trade-in is their down payment or a significant part of it. They have to trade it in or they wont have enough money for a new car. If you’re able to use cash as your down payment, then you have more flexibility here. Sell your car privately and you’ll end up with more money.

Claim All Incentives

Car manufacturers love to entice consumers with a great deal. Generally, no one pays the sticker price for any car on the dealers lot unless it is a speciality or exotic model. Typically, you can shave thousands of dollars off of the sticker price, walking away with a decent deal.

Beyond the general discounts, you may be eligible for other incentives, but only if you ask for them. Some manufacturers offer loyalty rebates, applying upwards of $1,000 toward the price of a car if you bring repeat business. Other incentives include rebates for military personnel, recent college graduates, retirees, and so on. Find out what incentives apply to you.

Lease or Loan?

You have been thinking about taking out a loan, figuring that the rates will be good. They should be good and at least no where near the rates that are being charged on some dubious websites. You can still find zero percent or very low rate financing, but keep in mind that by taking those loans you may give up a valuable rebate.

Another option for consumers is to opt for a lease. Sure, you will only have the car for a few years (usually three) and then will need to give it back or purchase it at lease end. And, you will need to abide by the lease terms or pay extra for mileage overages or wear and tear.

What leasing does is make it possible for consumers to get behind the wheel of the car that they really want. Monthly lease payments are generally much lower than finance payments, making that unattainable vehicle affordable. Just keep in mind that when the lease term ends you wont have a vehicle to show for it you’ll either have to lease again or buy another vehicle.

New Car Deal

No new car purchase should be done apart from careful and thorough research. It is easy to be swept up in emotion when buying a car, but those feelings will cost you. Once you settle on a car you like and can afford, then get quotes from three or four dealers to find the package that is right for you.

Your Insurance Score and Insurance Premiums

April 8, 2013 by admin 1 Comment

Every consumer has a credit score, a three-digit number that is based on your credit history and behavior. That number can have a profound impact on the way that you live as mortgages, personal loans and even apartments and a new job may depend on your score. The higher your credit score, the more likely creditors, landlords and hiring personnel will view you more favorably.

Insurance Score

Smashed BMW. — Your claim history affects your insurance score.

The insurance industry values your credit score too, but it is only part of a larger or more comprehensive measuring tool. That tool is your insurance score, a number that few people outside of the insurance industry are aware of.

The Insurance Information Institute describes an insurance score as “a numerical ranking based on a person’s credit history.” These scores help insurers assess risk and are also considered “a good predictor of insurance claims.”

An insurance score is based on actuarial studies that indicate whether a person is more likely to file a claim or not. Consumers with a lower insurance score are more likely to file a claim and will, therefore, be charged higher premiums.

Credit Bureaus

As you might guess there is a parallel between credit scores and insurance scores. The former is used to predict credit delinquency, the latter is for predicting insurance losses. Both scoring methods are based on information gleaned from your three credit reports, data that is collected by the three credit reporting bureaus: Experian, Equifax and TransUnion.

One problem here is that some consumers may have very little credit, choosing to pay cash for their purchases. Employing wise money management may cost you financially as a lower credit score can result in higher auto and homeowners premiums, with no consideration given to what your earn. This isn’t fair, of course, but we do live in a world of credit.

Insurance Scores

Just as credit scores serve up a three-digit number, your insurance score does the same thing. That scoring range extends from 200 to 997, with 776 on up representing a good score. Scores of 500 or below put you in the poor score range with both your car insurance and your homeowners insurance premiums most likely coming in double reports the New York Times.

Insurers have another way of calculating risk. Two databases contain claim information: the Comprehensive Loss Underwriting Exchange (CLUE) and the Automated Property Loss Underwriting System (A-PLUS). Anything that insurers want to know about your claim history can be easily found.

Reporting Errors

With your credit reports playing such a significant role in determining two very important scores, the information found in each report should be correct, right? Unfortunately, facts tell us otherwise.

The Federal Trade Commission in a December 2012 report to Congress found that 26 percent of the 1,001 participants in an FTC study reported finding errors in at least one of their credit reports. These consumers reviewed 2,968 credit reports with 19 percent or 572 reports disputed.

Of the reports disputed, 399 had a modification made by the respective credit reporting bureau with 195 consumers reporting a credit score increase following the adjustment. Of the 195, two thirds reported an increase of 10 points or more — what might seem like a small number, but one that could have far reaching consequences for some insurance shopping consumers.

Reports and Scores

By law, consumers are entitled to receive one free copy of each credit report annually. Your free reports are available at AnnualCreditReport.com, a website that was set up by TransUnion, Equifax and Experian. Obtain copies of all three reports and if errors are found, following the reporting bureau’s instructions on how to file a dispute.

You can also obtain your credit score for a fee. A visit to MyFico.com will give you that score.

What about your insurance score? Is that information available to consumers too? Yes it it is. If you visit the Lexis Nexis site, you can obtain separate home insurance and auto insurance scores. Moreover, you can also obtain free CLUE reports that offer a seven-year history of the losses associated with your personal property or automobiles.

New Car Affordability and Your Finances

April 5, 2013 by admin 2 Comments

Those new car ads have been enticing you for months and you are about to do something you have not done in more than a decade: buy a new car. Like many Americans, you have been holding on to your current ride for at least 10 years, but just like these same people you are ready to get behind the wheel of a new ride. The appeal of modern technologies, better fuel efficiency or something as simple as a new car smell is beckoning you.

Before you head out to the car dealer, indeed even before you begin to search what vehicles are out there, you will want to determine how much vehicle you can afford. There are a number of factors in that determination, each one we will explore right here.

Your Credit

First things first: you need to know what condition your credit is in before shopping for a new car. That information is freely available in your three credit reports, data that is assembled by the credit bureaus: TransUnion, Experian and Equifax.

car key You can obtain your reports from AnnualCreditReport.com, a website that has been set up by the three bureaus to provide that information to you at no charge. You are allowed to get one copy free annually of each report. Obtain all three, check each one for accuracy and if you find mistakes, ask the bureaus to correct that information. Once you are certain that the information about you is current and correct, then head over to MyFico.com to obtain your credit score. That three-digit number will have a huge roll determining your loan rates and may have a bearing on loan approval.

Know that if your credit score is 700 or above, that you are in a good position to obtain favorable financing rates. However, the lowest interest rates are always reserved for people with excellent credit, a number that comes in around 750 to 780. If your score is low, let’s say below 580, then you are considered a candidate for a subprime auto loan. In this case, expect to pay a higher interest rate which may mean putting more money down on a new car or choosing a more affordable model. Yes, there are consequences that come with your credit score!

New Car Calculators

Many people advise consumers to sit down and work on a complicated formula to figure out just how much car they can afford. This process can take some time and usually leaves people frustrated. Instead, head over to of one of the websites that offer an auto loan calculator and get to work. Bankrate.com is as good a place to fiddle around with one as any other.

You probably already know how much money you can afford to pay out each month in loan payments. Add in your insurance costs, gas, maintenance and related fees and your total vehicle expenses will show up. If you can afford to pay $300 per month then you have a good basis from where to determine your loan amount.

Now let’s get down to practical matters of looking at specifics. For instance, you have your eyes on a Ford Fiesta SE Hatchback its starting price is $16,200 and with popular features added (minus a $500 rebate) your total is $17,500 including taxes and fees. Your current car is worth $2,500 leaving you with $15,000 to finance. Your credit is good, not great, but you still qualify for a 5 percent car loan for 60 months. Good news! With these terms you will pay $283.07 per month. That’s within your budget, so you are ready to buy.

Loan Shopping

We touched on your loan rate, but that number may vary depending on the lender. You should shop around for a loan as the interest rate and other terms can vary, saving or costing you money. A logical place to start is your bank or credit union, places where you already have an account established. As an account holder, you may qualify for a better new car loan deal especially if you agree to have your monthly payments deducted from your checking account.’

You car dealer may offer a great deal on a loan too especially if that loan originates with the manufacturer’s financing arm. Know what your total cost will be before signing a loan agreement. If you come in under budget, then you are good to go and will soon find yourself behind the wheel of a new car.

Zero Percent Financing: Is It Worth It?

February 26, 2013 by admin 3 Comments

Auto financing is a big deal to Auto Trends readers. Our web analytics demonstrate that this is so with our guests frequently checking out what manufacturer incentives are being offered. We are happy to pass on that information to you, but you should also know that not every advertised deal is a good one.

Zero Percent Financing

For a number of years, car manufacturers have been touting zero percent financing as an important incentive to get you to buy a new car. Such incentives come from the manufacturer’s financing arm, what typically is a wholly-owned subsidiary of the car company. Thus, when you get financed by Ford Credit, the Ford Motor Company stands behind this company.

Zero percent financing is both a big deal and usually a good deal. But not always.

If the loan deal is made the financing arm, then you have something worth looking at. However, if interest-free financing is offered by a lender other than the manufacturer-backed financing company, don’t be so quick to sign the loan.

Here’s why:

Car manufacturers can afford to offer you zero or very low-interest rate financing because that cost is built into the price of the car. Usually, if low question mark rebate is dangled too. That rebate may range from $500 to $2,000, sometimes more, which shows you that the manufacturer is discounting the price of the car in one of two ways: through the loan or with the cash incentive.

If a dealer has a zero percent financing loan deal for you and it is not from the manufacturer’s financing arm, rather from a bank, a credit union or other financing company, you should be very cautious. That’s because no financial institution can afford to lend you money without making money.

Ford Credit, for instance, makes money because the Ford Motor Company makes money. Other lenders make money by charging you an interest rate. If you are offered zero percent financing, that means your dealer is likely jacking up the price of the car to recover his costs. After all, he has to pay the lender for the loan and that cost must be recovered somewhere — and that is where you come in. And you get fleeced.

Loan Qualification

There is another matter about zero percent car loans that few consumers realize: most people do not qualify for this ultra-low rate. As money advisor Clark Howard has noted, about 60 percent of car shoppers cannot get such loans.

The lowest interest rate loans are always reserved for people with excellent credit. It is kind of hard to read the fine print on your television, right?

Auto loan rates are calculated largely on the prevailing rates of our day as well as the personal credit score of the applicant. Excellent credit is typically around 750 and above. At 720, your score is still very good, but expect that zero percent financing loan to turn into one for two, three or four percent, perhaps more. That isn’t such a great deal after all — your credit union can beat it.

yell — The best way to buy a new car is with an all-cash deal.

The Deal

The best way to buy a car is paying cash for it. Only about 11 percent do according to Cars.com.

That leaves some type of financing for the rest of us with car leasing and auto loans your options. With an auto loan, you can seek financing through your dealer. You can also arrange your financing on your own.

Auto Trends has long encouraged people shopping for a new car to explore their financing options before hitting the dealership. This means talking with your banker or credit union representative about your loan options.

You not only can learn what your loan terms will be, but how much car you can afford. Get approved for you loan ahead of time and the entire financing deal is off the table. Negotiate the best deal for your car and when the talk turns to financing, you hand over your loan papers. If a cash incentive is offered, then use that toward your down payment.

Auto Calculator

Of course, always use an auto calculator to figure out what loan is right for you. If you have excellent credit, your options are much broader than sub-prime borrowers, individuals whose fate is a bad credit car loan or no loan at all.

What Your Dealer Won’t Tell You About Car Financing

February 25, 2013 by admin 7 Comments

Auto financing is a lucrative business with lenders extending car loans to a variety of consumers from those with excellent credit all the way down to sub-prime borrowers. The Great Recession forced lenders to pull back, but they are now back in the game with car dealers working as middlemen to ensure that you drive away in the car of your choice.

And it is that middleman position that sometimes has consumer advocates frustrated. Auto lending is a $600 billion per year industry in the United States, one where lenders, investors and dealers are eager to share in the bounty. Your car dealer, therefore, is hardly an independent voice when it comes to new car financing.

Read on and we will look at what some dealers won’t tell you when you sit down to discuss finance deals.

Your Credit Score

Your three-digit credit score offers a very telling number to car dealers that arrange your financing. Trouble is, many consumers have no idea what their credit score is when they go car shopping. All three credit reporting bureaus — Equifax, Experian and TransUnion — can give you your FICO score for a small fee.

You trust your dealer representative to quote you your actual credit score, but some could supply a different score effectively putting you in a bad credit car loancategory. Thinking that you won’t get financed and therefore be without a car, you agree to the higher interest rate auto loan. Tip: Always check your credit score before you begin shopping for a vehicle.

Bad Financing Deals

What type of car loan are you getting? You may think that you are getting a good deal based on a competitive monthly rate, but on closer scrutiny you may find that the terms really are not so favorable, at least not to you.

To bring your payments in line with what you can afford, a dealer may stretch out your loan terms from 5 years to 6 or 7 years. Or, you may find that your payments are low and your term short, but discover that a lump sum balloon payment is due at the end of the loan term.

When talking auto loan with your dealer, examine the finance deal very carefully. Understand the amount of money that you must put down. Know the interest rate and the length of the loan. Everything should be clearly spelled out and acceptable to you.

Rebates and Loans

One area where consumers get it wrong has to do with cash incentives. Rarely do you get both a cash incentive and discounted auto financing.

You must choose one or the other.

Know that not every cash rebate is worth it. Then again, if you arrange for low rate financing with your credit union or bank, then apply the rebate to your down payment. Ask your dealer about other rebates including specials for recent college graduates, military service personnel, veterans and other promotions.

Arranging Financing

In the last point, we touched on arranging your financing before heading to the dealer. This is important because it gives you a clearer picture of what you can afford and what your loan terms will be. It can also serve as an instructional lesson for car shoppers as they understand what options are available to them based on their credit scores.

Know that car financing comes easy today with even bad credit or subprime borrowers finding themselves eligible for a loan. In these cases, where your credit score is below 580, your traditional lenders may not be interested in underwriting your loan.

Such subprime lenders include Wachovia, Capital One and Ally Financial, along with the financing arms of Toyota, GM and Ford. Smaller lenders are many and include Nationwide Auto Lending, Drive Time, Prudential Auto Loan and BlueSky Auto Finance.

Even if you qualify for a loan you will always be charged a higher interest rate and pay more for a car then you might imagine.

The Bottom Line

Please know that not all dealers are rip-off artists. However, when taking on the role of car loan financier, your best interests may take second place to the dealer’s bottom line. Know what you are getting into before shopping for a car loan, looking at financing options from other lenders too. That means using a car finance calculator to learn what you can afford before heading out.