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Top 5 Auto Refinancing Myths

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Auto refinancing is a mysterious thing. Many people don’t even realize you can refinance an auto loan. Others believe it’s a trap or a path to bad credit (hint: it’s not). There are tons of refinancing myths associated with refinancing your auto loan, and separating myth from fact is an important part of lowering your monthly payments and even improving your credit score. Here are the top five myths about this process and the truths behind them.

It’s a Bad Time to Refi

This is the most common refinancing myth that always seems to crop up. The truth is, the only time that is a bad time to refinance is one where the current prime interest rate is higher than the rate you’re currently paying. There is no way that a 5 percent interest rate is a bad time when you’re paying 11 percent on your existing loan.

I Have Bad Credit

Another refinancing myth is that if you have bad credit, you can’t refinance your car and will get automatically declined. The truth is, there are few instances where a decline is automatic. Most lenders will be willing to at least investigate your credit, and even if you have poor credit you may still be able to refinance. If you have made good faith payments on your existing loan, on time without missing payments, this can sometimes trump an overall poor credit history.

My Loan is Underwater

Your car value depreciates severely the moment it goes off the lot. That means a lot of car buyers are underwater for at least part of their loan. Many lenders will refinance used vehicles that are underwater so long as their owner has been making good faith payments. Indeed, a refinance may be in the lender’s best interest as it ensures you’ll have an even easier time paying it down!

There’s No Money in It

This is untrue as well. Even if you save only twenty bucks a month, this is still a significant savings over the course of your loan. What happens if you put that twenty bucks into a savings account every month for the life of your loan? Over the course of a six year loan, by the time you’re paid out, you’ve saved $1,440. That’s nearly enough for a short vacation!

It’s a Huge Hassle

This is entirely untrue. Anyone who tells you that your car refinance is going to require tons of paperwork, extra appraisals, justifications of wear and tear or other issues is just wrong. There are no appraisals on an auto loan and the only justification you may have to make is if you disagree with the condition of your vehicle on the Kelley Blue Book value. The truth is, a refinance loan is one of the easier types of credit for which to apply.

There are many auto refinancing myths, and most of them make it look much harder or more tedious than it really is. If you would like to explore this option for your vehicle, take a look at our auto refinancing resources, and give us a call to get started today!

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When To Refinance A Car Loan

blog_when-to-refiEven in our improving economy, interest rates remain very low. For many, this is a prime time to refinance a car loan, mortgages and so on. Refinancing can effectively save you thousands of dollars over the life of the loan, but it will also extend your payments out longer. This creates a delicate juggling act that you must carefully weigh before taking the plunge. The process, if you decide to pursue it, should be quick and easy. Here are the situations in which an auto loan refinance can be advantageous.

 

Dropping Interest Rates

If current interest rates are at least a few points lower than they were when you first purchased your car, it may be a good time to save some money. When you refinance, you will be taking out a new loan which will be considered a used car loan. This means the rate could very well be higher than on most new car loans. Make sure you check the proper rates before pulling the trigger.

 

Better Credit

If you have significantly improved your credit score, it could be a great time to refinance. A higher credit score almost always results in lower loan rates. You may have financed your original purchase at a rate as high as 18 percent if you had bad credit. Improving your score can significantly reduce that and save you a lot of money in the process.

 

Sub-Prime Rates

Even if you had good credit, you may have received an original rate that was less than prime. Many dealer loans have a higher rate because consumers don’t think to shop around first. If this is the case for you, seeking a third-party refinancer can significantly drop your rate and, as a result, get you lower payments.

 

Financial Setbacks

Have you encountered a personal financial landscape problem? If you recently lost your job or are experiencing other financial setbacks, but your credit is still strong, refinancing your loan can help to ease the burden by lowering your monthly payments in exchange for a longer term loan.

 

Buying out a Lease

You may have leased a vehicle and are looking to keep the car instead of turning it in. In this case, your lender can help you get a new loan that can result in payments around the same rate as those you have been making up to this point, or even less. To get the best rate, talk not only to the dealer but to banks and credit unions as well.

 

Average Savings

If you are eligible for an auto loan refinance, the savings can be significant. Depending on how high your original interest rate was, you can end up saving $30 or more per month on your payments, which over the life of the loan is a savings of over $2,000. However, you need to be sure you are eligible. If you owe more than the vehicle is worth, you may be refused a refinance. Likewise, if your car is old or if you owe too much you could be turned down.

 

If you think refinancing is a good option for you, we may be able to help. Check out our refinance rates page, and apply today!

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How the Type of Car Can Change Your Loan Rates

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Everyone wants a nice car that will turn heads as well as get you where you need to go, when you need to get there. When the time comes to purchase your new vehicle, however, you should be very careful to stick to what you can afford. Trying to shoot for the moon can be a bad idea, especially when considering interest rates. What you may not know is that the type of car can change your loan rate.

Newer vs. Older Cars

The model year of your car can have an effect on your loan rate, and not in the way you may think. Buying a newer car can be a bad idea — newer cars instantly depreciate in value the moment you drive them off the lot. Combined with the interest rate you pay, this can instantly have you upside down on your loan, owing more than the car is worth, by up to 20 percent of the car’s value.

Buying an older car, on the other hand, does not carry this problem. Consider a car that is perhaps two years old with lower mileage. You can get a favorable interest rate, a much lower purchase price, and won’t have to worry about being underwater on your purchase. Many dealers even offer zero percent financing during end-of-year clearance sales, if you have good credit.

 

Make and Model

It’s a pretty basic equation: higher-end cars cost more to finance. While that luxury sedan, sports car or full-sized SUV may be the car of your dreams, can you really afford to purchase it? Generally speaking, your loan rate will be higher on a more expensive vehicle because of the higher risk for theft and damage to these cars. This is similar to the reasons why it costs more to insure these cars.

When you consider the car you want, you should think about a compromise. You might be able to get a very similar vehicle that perhaps isn’t quite as high-test. A smaller engine, fewer features, even a competing brand at a lower price can all be ways to get a better loan rate.

 

Going by the Numbers

The biggest factor in determining your loan rate is going to be a combination of your credit and your finances. This is where the make, model and year of your car come into play the most. The bank will look at your finances against what you are paying for the car when determining the rate of your loan. If your debt-to-interest ratio is too high or your credit score too low, you will likely suffer with a higher rate.

What this means is that buying a newer, more expensive car will almost always garner you a higher rate unless your credit is stellar. With less-than-perfect credit, consider a few compromises. A few less features and a car that is a year or two old can make all the difference.

If you have less than perfect credit and need help securing an auto loan, check out our informational page and get in touch with us today. We can get you into the car you need.

 

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The Secret to Getting a Low-Rate Car Loan

blog_Secret-To-Low-Rate-CarHave you ever wished that you could get rid of your junker and afford a brand new vehicle at an affordable loan rate? You are not alone. Many people wonder how they can get their hands on a low-rate car loan and start driving the vehicle of their dreams. The truth is, there are basic steps you can take to make it happen, but it requires work and diligence on your part. Here’s a look at how you can get a better loan rate the next time you want to buy a new car.

Monitor Your Credit Report

A good low rate car loan is all about credit. This may seem unfortunate, and might seem an insurmountable hurdle, but it is the truth. You can get there if you work at it, though! Start by obtaining a free copy of your credit reports from all three major bureaus. By federal law you are entitled to this without cost. Examine your credit report carefully. Look for errors. You would be surprised how often mistakes crop up. Report and challenge errors with the bureaus, who have to prove the information or remove it. Closing open lines of credit that you don’t use can boost your score by improving debt-to-income ratio. Work on clearing up small black marks. The more you can clear up the better off you’ll be. Do this every year.

Pay Your Bills

This seems obvious but cannot be overstated. If you have outstanding debt, do everything you can to get rid of it. This is especially true of revolving debt like credit cards. Know the difference between “good” and “bad” debt. Mortgages, student loans and business loans are “good” debt. They show you paying into things of value. Revolving credit like credit cards is bad debt. It is best to clear this from your credit history first. If you have delinquent bills or loans, get current on them and work with your creditors to clear up your credit report. This report is, as previously stated, all-important when it comes to getting the best rate. The more you can get up to date, the better situated you’ll be for a great rate.

Get Prequalified

Shop around with different credit agencies to get prequalified for good rates. This gives you power to negotiate or walk away from unfavorable deals. Work with your bank and credit union to see what’s out there. Be careful, though, not to over-apply, because every application reflects on your credit report and can become a negative mark.

Low Term Loan

The shorter your loan term, the better off you’ll be. Applying for terms of over 60 months shows that you may be looking to buy more than you can afford and you may end up with a less favorable interest rate as a result. Never focus solely on your monthly payment. Focus on the term and total amount of the loan first. If you need a low car loan and your credit is not perfect, we can help. Drop us a line today, and let’s talk!

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Why You Shouldn’t Use All Your Savings to Buy a Car

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There is no denying that cars are fun and that having a nice car can make you feel like you are on top of the world. The reality is that no one should buy a car they cannot afford, and that includes a car that costs every cent of your savings to buy.

Tying up all of your funds in a vehicle can put you in a serious bind, leaving you vulnerable to all sorts of financial disasters that could set you back for years. Here are some of the specific dangers that can happen when you leave your savings balance at zero to get that fancy ride:

You Will Not Be Able to Afford to Drive It

Cars have thousands of moving parts, and they all need a little bit of love to keep on moving. In other words, upkeep on a car is vital to keep the car running at all.

You could also end up having car issues and not enough money to afford fixing it. The first time you encounter trouble and need a $280 fix, you will have to let the repair wait or keep driving and hope it does not turn into a $2,800 fix. Without money for gas, oil changes, regular servicing and to make necessary repairs, your vehicle just could end up sitting in the driveway more often than enjoying a life on the road.

Emergencies Will Leave You Strapped

We can never predict what could happen in the next few months. You could break an arm or your hot water heater could go kaput. Without savings to pay for these things, you will have to find some way to afford them. Sometimes, you may not even be able to afford them.

Suddenly you are forced to choose between making a mortgage/rent payment or visiting the doctor. Even if you have health insurance, you could be forced to pay $50-$100 on copays, deductibles and prescription costs. Putting these expenses on a credit card could create a debt snowball that eventually gets out of control.

Preparing for these types of unforeseen incidents is why they call some savings an “emergency fund.” Make sure yours is well-stocked to avoid taking cold showers and eating ramen for the sake of paying cash for a car.

Try a car loan calculator to see what your monthly payment would save you

Your Savings Can Often Be Better Spent

Cars are appealing and usually practical, but they are not always the best investment to make compared to other ones. Any time you had the option to spend money better on something else, it is called an “opportunity cost.”

Opportunity costs can include buying health insurance, paying off debts, investing in things like home improvements or education or even taking a few days off of work for a much-needed vacation. Spending all of your savings on a car, which can break down and lose value over time, can often leave you with little in return for your hard-earned money ten years down the road.

Car Loans Are Easy to Come By

Having savings is an awesome feeling. You may feel empowered by the idea of buying something pricey like a car with it in cash, but for the above reasons this could easily be a mistake.

Instead of potentially digging yourself a financial hole, you can take advantage of car financing loans. These loans give you a predictable and consistent way to pay off the amount you owe with more room to prepare for surprises.

You can even use a small portion of your savings to decrease the principal amount of the loan, or you could add to your monthly payments when you feel like it without committing all of your cash to one car. With enough savings, you could also qualify for a lower interest rate and friendlier repayment terms, letting you pay your car off quick without having to worry about building homemade casts or expecting ramen for dinner.

Visit our new and used auto loans page to find out more about how you can get the car you want and keep most of your savings where it is.

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