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How to Resolve a Private Seller Lien

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Remove the lien and take ownership of the vehicle.

2016 Ford Fiesta ST
2016 Ford Fiesta ST

When shopping for a used car, you stand to save money on your purchase when buying one from a private seller. Dealer markup can add hundreds to well over a thousand dollars to the price of a car, money you can save by negotiating directly with the vehicle’s owner.

If the owner is still making payments to a lender, then there is a lien on the car to remove before you can buy it. A lien essentially locks down the car’s title until the loan obligation no longer comes into play. The following are the steps to take to resolve the lien:

Step No. 1: Learn the Vehicle’s History

No used car deal should take place before confirming the vehicle’s repair history. That information is available through various sources, including Carfax.com, a company that compiles vehicle history reports specific to a car’s vehicle identification number (VIN).

A vehicle history report should show most of its repair history except the work that the owner performed on his own, work not reported by independent sources and anything else not reported by a repair shop. Importantly, if the car has been in an accident or damaged by a flood, then the history report should reveal that information. But they’re not perfect, so buyer beware. (Here is an excellent article that details the limits and sometimes the pitfalls with vehicle history reports — Limitations and Problems with Carfax or any Vehicle History Report).

2016 Honda HR-V
2016 Honda HR-V

Step No. 2 — Confirm Vehicle Ownership

Simply because an individual claims to own a car does not make that person the rightful owner. You need to inspect the title and run the VIN through the National Insurance Crime Bureau VinCheck to verify ownership.

VinCheck will confirm if a vehicle was reported as stolen, but unrecovered. It will also list whether it is a salvage vehicle, one that’s damaged or was seriously wrecked.

Step No. 3 — Inspect the Car With Care

Vehicle history reports can only reveal so much about a car. If you are handy, you can perform
the inspection yourself, otherwise, head to your mechanic and pay him to check the car.

Have the car placed on a lift and examine the vehicle’s suspension system, inspect the vehicle’s frame, review previous repair work and look for leaks from the engine, transmission and the coolant system. A mechanic can also pull up the check engine codes to look for potential problems.

No independent analysis will be foolproof, but your mechanic can offer his opinion on whether the car is worth your consideration and for the price you have in mind.

2015 GMC Yukon XL
2015 GMC Yukon XL

Step No. 4 — Negotiate Your Price

How much a private seller still owes his lender may have a bearing on your negotiation. However, if this individual owes more on the vehicle than what it is worth, you need not offer to pay that price.

Instead, your price for the car should be based on its current market value, its condition, mileage and vehicle’s trim level (content). Visit Kelley Blue Book to obtain its private party value. You can show your mechanic’s report to back up your offer.

Step No. 5 — Head to the Bank

Never give money to a private seller and have him handle the paperwork. Because there is a lien on the car, you should meet the seller at the bank and complete the deal in front of a representative.

Explain to the bank representative what transaction is taking place and have the seller ask for the loan’s payoff amount. Your funds plus whatever the seller still owes his lender will remove the lien, freeing the vehicle for a title transfer.

2015 Lexus RC F
2015 Lexus RC F

Let’s Make a Deal

Finalizing a deal for a vehicle with a lien on it is not always an easy process. That said, with persistence you may be able to conclude the deal and obtain a quality car for a below market price.

See Also — 8 Steps to Buying a Used Car

Photos copyright Auto Trends Magazine. All rights reserved.

How to Get a Low Interest Rate Car Loan

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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 loanVisit 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.

See Also — Credit Clean Up Before You Buy Your Next Car

How to Get Rid of a Pricey Car Loan Without Ruining Your Credit

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What to do with that expensive car note.

2016 Infiniti Q70L.
2016 Infiniti Q70L.

When you purchased the car you thought you could afford the monthly payments. Unfortunately, you were wrong. Instead, each month finds you struggling mightily to come up with enough money to make payments. Moreover, the costs for insurance, maintenance, taxes, and fuel are only exacerbating your financial situation.

Clearly, there must be a better way. Indeed, there is: you can get rid of a pricey car loan and do so without ruining your credit. Here are two options:

1. Sell the Car

If you cannot afford your car, then sell it. Ideally, you’ll find someone interested in buying your car, paying enough for it to cover the full debt.

If this person takes over the payments, that may not be enough, especially if you have equity in the car. Yet, if there are no other buyers interested, at least you’ll put the loan behind you and without damaging your credit. A financial loss is better than ruining your credit.

2016 Jeep Renegade.
2016 Jeep Renegade.

2. Refinance Your Car Loan

Perhaps what is hurting you has everything to do with the type of loan you took out: a short-term note with a high interest rate can push up your monthly payments. Fortunately, there is an option available to consumers: refinancing.

Just as a home can be refinanced, so can a car. But there is a big difference here: homes generally appreciate in value while cars lose value. There aren’t too many lenders willing to refinance, but if you come across some, then see if you can stretch out your payments by at least another 12 months and obtain a lower interest rate. Together, the two moves can lower your monthly payments.

Making it Affordable

Perhaps selling the car or refinancing aren’t viable options. In that case, you need to find alternatives to make your payments palatable. Therefore, consider the following three options.

1. Cut Your Costs

If selling your car isn’t an option and refinancing offers little advantage, then the best way to afford your car is to cut your other costs. Don’t slash your insurance as you’ll need that coverage to protect you in the event of a total loss. Keep up with your maintenance and repairs too.

As for your other costs, consider doing one or all of the following: lose your landline, cancel your cable service, avoid eating out, make your coffee at home, or lose the expensive gym membership. Evaluate your expenditures and find savings here and there.

2016 Lexus GS F.
2016 Lexus GS F.

2. Increase Your Income

Are you due for a raise? If so, use that increase to offset your expenditures. Avoid raising your living standard; devote the extra funds to cover your car costs.

If a raise is not forthcoming and a new job is not in the offing, look for ways to earn money on the side. Use your writing, coding, or other skills to make money. Devote the additional funds earned toward paying off your car loan.

3. Establish a Budget

Perhaps the biggest challenge for you is not fully understanding how your money is spent. Although “budget” seems like a dirty word, it has kept tens of millions of Americans out of trouble.

Making a budget is simple and there is an app for that. You’ll need to know how much you have (assets), what you currently make (income), what you owe (debt), your monthly payments (expenditures), and determine your net worth. Once you know how you spend what you earn, then you’re in a better position to control your costs.

2016 GMC Yukon XL Denali.
2016 GMC Yukon XL Denali.

The Bottom Line

If you sell your car, can you do without a personal vehicle for a while? If so, you stand to save a lot of money. Ride a bicycle, take public transportation, hail Uber or Lyft, or simply invest in a pair of comfortable walking shoes.

On the other hand, if you have enough money on hand to buy a used car, shop for one carefully. Make sure it is in very good condition and it doesn’t have the potential to turn into a money pit. Have a mechanic inspect it before you decide to purchase it.

Whatever decision you make, you need to verify that it won’t have any impact on your credit score. Ruin your credit score and you’ll create a whole new set of problems that won’t be easily rectified.

See Also — Consumer Car Loans Reach Record Lengths

Photos copyright Auto Trends Magazine.

7 Signs That Your Auto Loan is Too Long

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The average length of an auto loan is about 67 months. Far longer car loans are available, what effectively tie consumers down with payments for many years.

The majority of auto loans are at least 60 months long with quite a few underwritten for 72 months, even longer. Indeed, we’ve been tracking 84-month auto loans for several years and certain financial institutions, including credit unions, are now issuing 96-month auto loans. Imagine that: making payments on your new car for eight years!

There have been dire reports issued about longer term loans, although there are those in the industry who have attempted to minimize the impact of extended loans. With this in mind, Auto Trends has assembled a list of signs that your auto loan is simply too long for you.

auto loan1. You are sick of the car. Unless you have plans to keep your car for 10 or 15 years, you may be like the consumer who simply is tired of his vehicle. That is not much of a dilemma if your loan is about to expire, but if you are in year four of ownership with four years remaining, you may be stuck with a car you no longer want for another three or four years.

2. Your needs have changed, but you are stuck. That hot coupe you bought when you were single was a fantastic purchase decision. That is, you thought so at the time. Soon after you bought your car you met the girl of your dreams, married and have started a family. The salacious coupe no longer serves your needs and with the baby’s seat now in the mix, you dread moving it from car to car while worrying whether it is securely in place. In fact, you would prefer to rid yourself of the coupe, but you simply cannot afford to.

3. The car has outlasted the warranty. Almost all new cars come with a three-year, 36,000-mile bumper to bumper warranty. Further, the powertrain warranty may have you covered for five years and corrosion for six or more years. Chances are your eight-year loan will run out of warranty coverage well before the final payment has been recorded. Certainly, an extended warranty can help, but that’s another expenditure that only keeps you trapped in a car you may no longer want.

(See Also — How to Resolve a Private Seller Lien)

auto loans4. Your loan is upside down. The longer your auto loan term, the more likely you will be “upside down” for years to come. That financial appellation means you owe more money on the car than what it is worth — if you try to sell it, you will lose money. Yet, if you are struggling to cover payments and can manage without the car, sell it. However, you will be required to make up the deficiency between what the car is worth and your loan balance before the lender will release the title to the new owner.

5. The insurance coverage is more than you want. As long as your car has a lien on it, your lender will require certain types of insurance coverage. These days, people are more likely to retain collision coverage as vehicle values remain high. Even so, your insurer may stipulate other coverage and levels of coverage, especially if you have a specialty vehicle or lack certain kinds of safety equipment such as adaptive cruise control.

6. You have other expenses looming. Buy a car and finance it and you may be in an optimal position to swing your monthly payments and cover other expenses that come with owning a new car. What you may not have foreseen are certain expenses on the horizon that will soon squeeze your budget. For instance, braces for your teenager. A new roof for your home. In short, any expense that occurs with the passage of time.

auto loan7. Refinancing is no longer an option. One of the best ways to terminate a long-term auto loan is to refinance your car. That possibility fades the longer you have the car. Certainly, there are lenders specializing in auto loan refinancing, but the rate may not be as low as the deal you procured earlier. Furthermore, you may not be able to afford the higher monthly rates required to condense your term. And if your credit is not particularly strong, loan approval at a competitive rate may not be possible.

Auto Loan Considerations

So, what type of auto loan should you pursue? The one you can afford as well as the one that will not fetter you. One important reason why people opt for longer loans is to slip behind the wheel of a car that is above their pay grade or status. Therefore, if you have a Chevrolet Malibu budget, but are lusting after a Cadillac CTS, go with the Chevy and those niggling financial regrets are much less likely to supervene.

Subprime Auto Lending Bubble? Not So, Says Equifax

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Bad credit car loans: what is the risk?

Within the next few days, you will learn that August 2014 auto sales were once again robust. The US market is not yet at its apex, but it certainly is far removed from the dismal 10.4 million vehicle sales of 2009. When the year ends we should find a market with more than 16.5 million units sold.

loans

Subprime Auto Loans

Fueling the sales increase are loans to millions of buyers that might otherwise not afford a new car without some easing of lending rules. These consumers do not have good credit, but their credit may still meet minimal lending requirements. For people with sub-standard credit and in need of a new car, the credit “easing” is certainly a welcome move.

Some media analysts, however, are worried that a subprime auto lending bubble is forming, similar to the housing bubble that caused the market to tumble in 2008, ushering in the Great Recession.

The New York Times Investigates

In July, the New York Times ran an article, “In a Subprime Bubble for Used Cars, Borrowers Pay Sky-High Rates,” where reporters took a look at the “new subprime boom” and shared horror stories of consumers who were qualified for auto loans, but eventually had their cars repossessed when they could not keep up with their payments. It was just one of a handful of stories in the past few months that have indicated an auto loan apocalypse may be imminent.

The alarm has been sounded, but not everyone is in agreement with the warning. Late last month the consumer and commercial data company, Equifax, Inc., issued a statement refuting the notion. In its monthly Economics Trend Commentary, two of its experts — Chief Economist Amy Crews Cutts and Deputy Chief Economist Dennis Carlson — arrived at a much different conclusion.

Equifax Consumer Credit Reports

The Equifax team assembled aggregate data derived from credit reports for more than 210 million consumers in the company’s own database. That information assessed the current state of subprime automotive lending with potential economic benefits considered.

The lending landscape today is not the same as it was in 2007 — both because lenders generally have a reduced appetite for risk and because regulatory scrutiny has increased, said Dennis Carlson, Deputy Chief Economist, Equifax. In this Commentary, we discuss why we believe that while the subprime lending segment needs to be monitored carefully the evidence at this time does not suggest there is a bubble forming.

Equifax backed up its claim with a seven-page report that chided the press for making rhetorical arguments without supporting those claims with facts. Further, Equifax defended the market, noting that “a fair and functioning “second-chance market” is necessary for a fully functioning economy.”

Without access to a car many people find it difficult to get a job as well as to get to a job. Moreover, a number of people with subprime credit may have lost their jobs and/or their homes during the Great Recession. Subprime lending allows them to get back on their feet and put their hardships behind them.

Loan Originations and Subprime Share

Equifax supported its claims with charts that underscored several important points, including the number of auto loan originations and the subprime share. That share today is more than 5 points lower than it was in 2007, just ahead of the last recession. Equifax measures subprime lending as a credit score under 640 points.

The percentage of auto loans that are at least 60 days past due comes in at just under 3 percent or slightly lower than the pace set in 2006 and 2007, but above the rate during the recession. Moreover, the loan write off rate is still lower than the years leading up to the Great Recession, demonstrating that defaults are under better control today. You can review a portable document file (pdf) of the report here.

The New York Fed Weighs In

Equifax is not alone in refuting stories of a pending subprime auto lending bubble. Earlier in Aug., Bloomberg Businessweek also examined the New York Times’ claims, then cited the findings of four New York Fed economists who had a different viewpoint. The Fed said, “We do not see evidence supporting a disproportionate or unusual volume of new loans being issued to riskier borrowers.”

A follow up blog article by the Fed on Aug. 14, 2014, did note an increase in subprime lending, but also found an increase in prime auto lending. Thus, the subprime share is “less pronounced” and the threat that some people see as looming still has a long way to go from reaching a tipping point.

Related Articles

What Your Dealer Won’t Tell You About Car Financing

Zero Percent Financing: Is It Worth It?

How to Obtain a Bad Credit Car Loan

Bad Credit Can Wreck Your New Car Dreams

What Every First-Time Car Buyer Should Know

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If you are in the market for a new car for the first time, your feelings of uncertainty and fear should not be discounted. After all, you are beginning to undertake an important process, one that can have widespread ramifications. The first time car buyer should do his research, shop wisely and base his decision on the information assembled, before confidently buying a new car. Read on and we will discuss how this can be accomplished.

Car Buyer

1. Know what you can afford. Before you begin to search for a new car, determine what you can afford. Your eye may be on a Ford Mustang GT, while your budget is saying Hyundai Elantra hatchback.

Align your dreams with reality and you won’t grow frustrated or disappointed. That Mustang GT can wait if it is out of your price range.

car buyer2. Understand what you want. Some people look at cars as mere appliances. Others choose vehicles based on factors such as performance, off-road utility and cargo capabilities.

Choose the type of vehicle you want before moving forward as there is no sense considering any car that does not meet your criteria. Avoid confusion by narrowing your search as quickly as possible.

3. Keep in mind the amenities. Once you pinpoint the type of vehicle you want, you need to identify the amenities or features that are important to you. There is so much to consider here with some of the basics including the transmission offered, the size of the engine and overall fuel economy.

You will also want to consider other features that may be important to you including safety, turn-by-turn navigation, audio systems, power accessories, seat surfaces, the number of storage compartments and so on.

4. Know the prices. Never go by the sticker price when buying a new car. That amount represents the “suggested retail” figure and nothing more. Usually you will pay less, maybe far less at times.

yellWhat you need to do is investigate what the dealer paid for the car, something that you can uncover by visiting sites such as Consumer Reports, Edmunds and Kelley Blue Book that provide that information, for a fee of course. This effort will show you how to begin your negotiation, enabling you to save hundreds, perhaps thousands of dollars off of the sticker price.

5. Visit a dealer. You may have several dealers in your area selling the same make/model of vehicle. Conventional wisdom would say, “choose the dealer nearest to your home.” That wisdom comes from the idea that your car will be serviced by the same place that sells it to you. Just so you know, you don’t have to return to the selling dealership for service work.

When you visit your dealer, inspect the various vehicles available and ask for a test drive. Make sure that your drive is long enough to give you a strong idea to help you know whether this vehicle is right for you. Do not identify yourself as a first-time car buyer.

6. Plan your negotiation strategy. Once you are done with your test drive, you can commence negotiation on a new vehicle purchase or wait to gather more information — it is your choice: don’t rush into the car-buying process and make sure you understand what a vehicle is worth.

When negotiating, you should consider the dealer’s price and the rebates available. Work from a position of strength and that means knowing your price and the incentives the dealer has on his side. Most dealers will cry poverty with a low offer, but you still can come in low knowing that they will make a profit thanks to holdbacks from the car manufacturer.

loans

7. Arrange your financing. You can get auto loan financing from a variety of sources including your bank, your credit union and even the new car dealer. With the latter, you will want to negotiate your best price first, then talk financing. Some dealers will try to combine the two, but don’t let this happen as that effort will simply muddy the waters.

You may be better off arranging to finance separately and then go into your deal knowing what you can afford instead of what the dealer says that you can afford. Sometimes a vehicle will come with a special incentive such as cash back or special financing. If you arrange your financing elsewhere, then take the incentive and apply that amount to your down payment.

Buy Your Car

After carefully following the steps as outlined, you are ready to buy your car and drive it home. The process may not have been a quick one, but by carefully doing your research you were able to save yourself some money. Those savings are something that you can never get back if you hurry along the process.

Your first-time car buying experience won’t be your last one. Make it a good experience and you gain the confidence to strike a new deal again.

See Also — Zero Percent Financing: Is It Worth It?

Car Title and Personal Loan Collateral

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If you own your car outright, with no lien present, the equity that remains in your car can come in handy especially as you seek to borrow money. Specifically, if you are seeking to take out a personal loan from a bank or a credit union, you may be required to put up something of value to secure repayment of the loan. That item represents collateral or what your lender would seize if you default on your loan. Read on for tips on how a car title can lead to a personal loan.

LOANS

1. Retrieve your car title. Once your car note has been paid off, you will be issued an updated car title in your name. Find that title and verify that you are the owner with no lien present. If your title is missing or incorrect, then you will need a new one in hand before taking the next step.

2. Visit your lender. Likely, you have already shopped around for a personal loan. With your car title in hand, visit your lender and fill out a loan application. When you get to the part in the application where collateral is required to obtain a secured personal loan, identify the asset. In this case that would be your vehicle.

3. Discuss your loan options. A secured loan is one that backed by collateral. An unsecured loan is one that has no such requirement. A secured loan is easier to obtain and offers better loan financing terms including a lower interest rate. An unsecured loan is usually reserved for borrowers with very good or excellent credit. If approved, you will pay a higher interest rate. Choose a car title loan for favorable lending terms, understanding that you may forfeit ownership if you default on your loan.

4. Complete your paperwork. Fill out the entire application and present that along with your car title. If your application is accepted, your bank will issue you a check and will hold your car title until the loan has been paid off.

Car Title Considerations

If you are turned down for a car title loan, ask your lender for the reasons why. These reasons can include a checkered job history, insufficient salary, a low credit score or bad credit history. Your lender may also counter your loan request with a different offer, one that matches the value of your car.

For instance, if you asked to borrow $5,000 and your car is worth $3,000, you may receive conditional loan approve. That condition is that you agree to modified terms including a reduced loan amount. Make sure you understand what those terms are before signing your name on the contract.

Title Loan Notes

When you offer your car as collateral for a personal loan, your lender will notify your state’s department of motor vehicles that there is a lien on your car. Notify your insurance company to have the lender named as additional insured. You may need to increase coverage to meet your lender’s requirements — e.g., add collision insurance. Finally, stay away from shady lenders that want to charge you an exorbitant interest rate — no car title loan is worth it if your loan terms stink.

Further Reading

Consumer Federation of America: Latest Predatory Lenders Drive Borrowers into Debt With High-Cost Loans Secured by Cars

Zero Percent Financing: Is It Worth It?

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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.

loans

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 markrebate 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.

The Average Length of a New Car Loan

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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 Obtain a Bad Credit Car Loan

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If your credit is bad, then it may seem that a new or use car loan is not within your reach. After all, when credit was tightened following the 2008 financial crisis, lenders began to avoid writing loans to people with bad credit. The good news is that credit has loosened in recent years and a host of lenders may be willing to extend a loan to you. If you have a steady source of income and the ability to make payments, you may be able to secure a loan for a new or used car.

1. Know how your credit measures up.

bad credit car loanYou may think that you have bad credit, but you should confirm this first. The three major credit bureaus — TransUnion, Experian and Equifax — keep records about your credit, information that isn’t always correct. Collectively, these companies manage a AnnualCreditReport.com, a website that entitles you to obtain your credit reports once annually for free. Order your reports for your review through this website only.

2. Review your credit history.

Mistakes or information that is outdated on your report can lower your score. According to the Federal Reserve, stale-account errors are common and can adversely impact your credit. Fix these problems first by following each company’s instructions on how to have your credit reports updated. Bureaus have 30 business days to update their records, otherwise the information must be removed from your credit report. A corrected credit report will be issued at no charge to you.

3. Know your credit score.

Once the credit bureaus have updated their records, you should retrieve your credit score. This three-digit score can be purchased from MyFico.com or you can visit CreditKarma.com to obtain your TransRisk score for free, a number that is similar to other scores used by creditors. A credit score of at least 700 points “reflects good credit management,” according to Experian. A score that is below 600 can put you in sub-prime lending or bad credit category, with only select lenders available to write a loan.

4. Apply for credit.

Visit your bank or credit loan and speak to a lending officer about a new car or used car loan. Find out how much you can borrow and what the terms the car loan will be. If you are turned down for credit, apply for loans elsewhere. Multiple credit requests within a month’s time are treated as one request and will affect your credit score only slightly. You can find lenders that specialize in helping bad credit borrowers by searching Google for “bad credit car loans” and checking the results. Car dealers may also be willing to arrange financing for you too.

Credit Considerations

Consumers with bad credit can obtain a car loan and usually without a co-signer. If someone agrees to co-sign your loan, it won’t help your credit, but a loan you take out on your own and pay back on time most certainly can.