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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.

TransUnion: Longer Term Auto Loans Increase Odds of Default

July 15, 2016 by admin Leave a Comment

Consumer credit reporting agency sees increased risk of default on some loans.

Easy credit has hurt consumers before and the current credit underwriting climate is no exception. A study conducted by the credit reporting agency TransUnion found the average auto loan term has expanded from 62 months in 2010 to 67 months in 2015.

TransUnion discovered that seven of 10 new auto loans had terms longer than 60 months, up from about half of all loans in 2015 (as of the third quarter of 2015 (July-September)). The agency also found the length of time a consumer keeps a loan and such loans remain in a lender’s portfolio has, in fact, declined.

What accounts for the discrepancy? It’s quite simple — more consumers are refinancing their car loans. This means original lenders are losing customers to refinancers. At the same time, consumers are extending their overall payment terms in an effort to afford their cars — one long-term loan becomes a refinanced long for a super-extended auto loan.

Longer Term Auto Loans

falling money The TransUnion study determined that car loan terms between 73 and 84 months have more than doubled between 2010 and 2015. Indeed, one-quarter of all loans originated in the third quarter of 2015 were for loan terms between 73 and 84 months, compared to just 10 percent five years earlier.

Another factor the TransUnion researchers noted that even as average new auto loan amounts increased during the five-year period, the average monthly payment declined as consumers chose the extended loan terms.

For example, in the third quarter of 2015, the average new auto loan amount was $21,368, compared to $18,008 five years earlier. At the same time, the average new auto loan payment had fallen to $398 per month from $420 per month five years earlier.

Smaller monthly payments should help consumers afford their loans, but TransUnion found that consumers holding longer loans are more likely to fall behind on their payments by at least 60 days (seriously delinquent) than those with shorter terms. And it wasn’t just sub-prime borrowers who were delinquent at a greater rate — the trend affected prime and super prime borrowers as well.

Mitigating Auto Loan Risk

Jason Laky, senior vice president and automotive business leader for TransUnion, noted, “Longer auto loan terms allow consumers to keep payment levels reasonable as they finance more expensive vehicles. However, consumers who cannot afford the monthly payment on a shorter term for the same loan are riskier, and we see this manifested in the higher delinquency rates for 72- and 84-month loans. We encourage lenders to use readily available risk analysis tools to identify borrowers who are more likely to go delinquent with an extended term, to ensure consumers are receiving loans that they can manage.”

For consumers with sufficient cash flow, the risk of a longer term auto loan defaulting diminishes according to TransUnion. Thus, the credit reporting agency urges lenders to carefully explore all applicant debt when underwriting, including mortgages, credit card payments, student loans, and other debt commitment. In effect, an “aggregate excess payment” or (AEP) algorithm is useful for helping lenders determine lending risk and make their decisions accordingly.

As for consumers, affording a new car may mean much longer auto loan payments, going well beyond the original loan term all in an effort to purchase beyond their capabilities.

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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.

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.

The Average Length of a New Car Loan

November 24, 2012 by admin 3 Comments

loans

Have you been shopping for a new car lately? If so, you most likely will finance your purchase as the average price of a new car is just above $30,000. Banks, credit unions, manufacturers’ financing arms and other lenders want your business. To get you behind the wheel of a new car, loan terms have been extended to help you afford your monthly payments.

Loan Length

As of March 2012, the average length of a new car loan was 64 months reports Experian, an information services company. That represents five years and four months of car payments. In comparison, used car loans were averaging 59 months or just one month short of five years.

New Loans

Auto loans are typically written for 36, 48 or 60 months. Some lenders offer 72- and 84-month new car loans.

Be mindful that the published rate for new car loans is for people who have outstanding credit. For recent college graduates, that rate may not be attainable and may result in much different loan terms. Car shoppers should also pull their credit reports before buying a car, reviewing all three reports carefully to ensure that correct data is shown. Experian, Equifax and TransUnion are the three credit reporting bureaus — you can get a free copy of each report once annually by visiting the AnnualCreditReport.com website. Notify the respective credit bureau directly if you find a mistake — errors can lower your credit score, resulting in a higher interest rate for a new car loan.

Your Options

Clearly, there are a number of lenders and types of lenders that would like to finance your new car. Many new car dealer offers come with low- or zero-rate financing, or you can choose a rebate to apply to your down payment. Your dilemma may be trying to figure out what the best deal is for you.

The best option may be to shop for a new car loan first and use that loan to finance your vehicle. Credit unions typically offer the lowest rates, sometimes as low as 2 percent for a new car loan. With terms for up to 7 years, you may be able to qualify for a loan, visit your new car dealer, negotiate the best price on your new car, apply the rebate and use the loan. With this option you get a loan rate comparable to what the manufacturer’s lending arm (i.e., Ford Credit, GM Financial, Infiniti Financing, et al) and you still get a hefty rebate. You may also be eligible for additional rebates too if you are a recent college graduate, a military veteran or are a loyal customer.

Upside Down

One important factor consumers should consider before signing an agreement for a longer length car loan is the value of their car in relation to the amount owed on the loan. If your down payment is especially small — say 5 or 10 percent — and your loan term is 6 years or longer, you may owe more on your car than what it is worth.

This means that your loan is upside down, a factor that can cause you substantial financial harm if you should get in an accident and your vehicle is declared a total loss. Your insurer will assign a value to your totaled car, minus the deductible, and pay your lender that amount. There most likely will be a loan deficiency, one where you owe thousands of dollars to your lender for the difference between what your insurer pays and your loan balance.

You can avoid ever being upside down with your auto loan by making a larger down payment and electing for a shorter loan, one that is for 60 months or shorter. If you want the longer term, then you need to come up with an even larger down payment to avoid the upside down effect. You should also avoid financing the taxes and fees advises Niles Howard, writing for Bankrate.com, costs that you will want to pay separately.

How to Get a Bad Credit Car Loan

June 6, 2012 by admin 3 Comments

If you want something badly enough, such as a bad credit car loan, you can usually get it. That can be a good thing. Then again, it can also be a bad thing. It depends on what you want as well as what you need.

Let’s face it: many of us need a car. With more than 250 million registered passenger vehicles in the U.S., car ownership for people of driving age goes beyond being a mere privilege. It becomes a conveyance of survival for many of us.

Bad Credit Car Loan

Buying a car means taking out a loan unless you’re blessed with thousands of dollars of spare money to pay for a new or used vehicle. Very few people can pay cash for a new car and with used car prices costing a mint, even most late model used cars are financed too. If your credit is good, then you should be able to get a loan. If your credit is bad, don’t fret: there is usually a lender willing to extend to you a bad credit car loan, but for a price. Read on to learn how you can avoid getting ripped off.

1. Check your credit score.

Your credit is bad, but just how bad is it? How do you know for certain? Well, the main thing you’ll want to know is that lenders will be looking at a three-digit number representing your credit score. If that score is low, say at 598 or below, then you’re in sub-prime territory or what is known as a “bad credit” score. You can obtain your credit score through MyFico.com. If your score is below 700, then repairs may be in order. If it is below 600, then you’ll need to pay careful attention to the next several steps as you shop for a bad credit car loan.

2. Obtain your credit reports.

Three credit reporting companies have dossiers on you. Specifically, credit information on who you are, where you work, how much money you owe lenders, whether you make your payments on time or not, and other information. Those credit reports are produced by three credit reporting bureaus: TransUnion, Equifax and Experian. Each company, by law, is required to give you one free copy annually of your credit reports. The FTC mandates this, but you can only obtain your free copies by visiting AnnualCreditReport.com for that information; otherwise you’ll pay for them. Head over to that site, put in your information and obtain your free reports.

3. Review your credit reports.

You’ve done so well following what I’ve said so far, but don’t lose focus now. That’s because you’re going to need to *very carefully* read all three credit reports and look at the information the credit bureaus have on file about you. Guess what? There is a good chance that some of that information is not correct. Guess what again? Incorrect information can lower your credit score. What to look for: wrong addresses, outdated job information, paid off debt that shows balances outstanding, accounts supposedly belonging to you that don’t, and more. You’ll need to contact each bureau individually to point out their mistakes, a move that will trigger an audit on their part. With 30 days to respond, the credit bureau can fix your mistake or contest your findings. If they choose to do neither then that information must be removed from your report automatically.

4. Apply for a car loan.

Wait 60 days after notifying the credit bureaus of possible mistakes or disputes before applying for credit. This will allow your updated information to be processed and should raise your credit score accordingly. Good places to apply for a car loan include your bank or credit union. Fill out your car loan application and give it to a lending officer.

5. Consider alternative financing sources.

If your bank or credit union turns down your car loan because of bad credit or the double-digit interest rate seems too high, then you’ll need to look for alternative places to apply for a car loan. If you make multiple loan applications within a month, it will only count as one inquiry by the credit bureaus. Still, you don’t want to waste your time with too many lenders so seek out companies that specialize in bad credit car loans. We don’t endorse any particular lender, but Drive Time, BlueSky Auto Finance, Federal Auto Loan and Fidelity Auto Loan are among the lenders that provide bad credit car loans and other financing. Choose one, make application, and if approved, make sure you understand the terms of the loan before signing your contract.

Lending Cautions

Bad credit means a few things: you’ll have a more difficult time obtaining a car loan and the interest rate you’ll be charged will be higher than what someone with good credit receives. You can reduce your monthly payments by putting down a larger down payment. Also, if someone is willing to cosign you loan, you may be able to avoid a high interest rate loan completely. With a co-signer on your loan, that person assumes risk if you default and your car is repossessed.

See Also — How To Obtain a Bad Credit Car Loan