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How to Get a Car Loan with No Credit

Posted on December 8, 2022December 8, 2022 by Sunjay Lal

Quick Answer:

Getting a car loan when you have no credit can be difficult, but it is possible. We'll show you how to get a car loan with no credit so you can get behind the wheel and on the road to building your credit. It starts by understanding what credit is and then working through the strategies to get a car loan with no credit.

Table of Contents:

Understanding Credit
Getting a Car Loan with No Credit
Beware of Financing Through the Car Dealership

Understanding Credit:

For many, “credit” probably conjures up a reasonably nebulous mental image. But, of course, you may know that it has something to do with borrowing money and paying it back over time. Still, beyond that, the details are probably pretty fuzzy. Well, consider this your crash course.

What is credit?

In a nutshell, credit is simply the ability to borrow money. When you have good credit, lenders are more likely to loan you money – and they’ll probably give you more favorable terms, like lower interest rates.

What is no credit?

Having no credit is actually not as bad as it sounds. If you have no credit, you don’t have any active accounts that are being reported to the credit bureaus. This usually happens when you’re young and haven’t taken out any loans or opened any lines of credit yet. It’s also common among immigrants who may have established financial history in their home countries but not in the United States. So having no credit is not necessarily a bad thing. In fact, some lenders may actually see it as a positive sign since you don’t have any negative marks on your record.

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What is inactive credit?

Inactive credit is similar to having no credit in that it means you don’t have any active accounts being reported to the credit bureaus. However, the difference is that inactive credit generally refers to people who have had credit accounts in the past but are no longer using them. This could be because they paid off their debts and closed their accounts or because they’ve become “zombie” accounts that still exist but aren’t being used. Inactive credit can be seen as both good and bad by lenders. On the one hand, it shows that you can manage debt responsibly. Still, on the other hand, it can make lenders worry that you’re not actively using your lines of credit.

What is low credit?

Having low credit is precisely what you think it is. It means you have active accounts with negative marks being reported to the credit bureaus. This could be because you’ve made late payments, exceeded your credit limit, or defaulted on a loan. Low or bad credit can make it challenging to get approved for new loans or lines of credit. If you get approved, you’ll almost certainly pay higher interest rates than people with good credit scores. That’s why it’s so important to stay on top of your payments and keep your debt under control. Missing just a few payments can tank your score for years to come.

Are no credit and low credit the same thing?

Absolutely not. As we’ve explained, having no credit means you don’t have any active accounts being reported to the credit bureaus. That’s not necessarily a bad thing. On the other hand, low or bad credit means you do have active accounts with negative marks being reported. This will make it harder for you to get approved for new loans and lines of credit — and if you are approved, you’ll probably pay higher interest rates.

What is a good credit score?

A good credit score is any score that falls in the “good” or “excellent” range on the major credit scoring scale. For FICO scores, that’s a score of 670 or above. For VantageScores, it’s a score of 700 or above. Generally speaking, having a good credit score means you’re a low-risk borrower, which means you’re more likely to get approved for loans and lines of credit. In addition, you’ll probably get more favorable terms, like lower interest rates. So if you currently have no credit, this is what you should aim for.

Getting a Car Loan with No Credit

You’ve finally saved up enough money for a down payment on a car, but there’s one more obstacle in your way: you have no credit history. But don’t worry — it is possible to get a car loan with no credit. Here are a few things you’ll need to do.

Collect All the Proper Documents

One of the first things any lender will want to see is proof of your employment history and current pay stubs. They’ll also want to see previous addresses and how long you lived there. If you have any bills that you’re regularly paying, such as rent or utilities, those can also help build trust with the lender. Finally, they’ll need to see your driver’s license. Collecting all of these items ahead of time will help speed up the loan process once you find a lender.

The lender will want to see all of this information to verify that you are who you say you are and that you’re capable of making regular payments on the loan. For example, your employment history and current pay stubs show you have a steady income. In addition, an address history indicates stability, and you’re not at a high risk of defaulting on the loan.

Find a Cosigner

You may need to find a cosigner for your loan if you don’t have any credit history. A cosigner is someone who agrees to take on the responsibility of the loan if you cannot make the payments. This is a significant risk for the person, so make sure you can make the payments before asking someone to cosign for you. If you default, they’ll be stuck with the bill, and their credit will also suffer.

Speaking of credit scores, it is also important that your cosigner has good or excellent credit. Since you have no credit history, the lender will heavily rely on your cosigner’s credit score to decide the interest rate and whether or not you qualify for the loan. On the other hand, if your cosigner has low or bad credit, you may still be eligible for a loan, but it will have a higher interest rate which may defeat the purpose.

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Save for a Bigger Down Payment

A down payment is the money you put down when you get the loan. The bigger the down payment, the less money you’ll need to borrow, and the lower your monthly payments will be. Lenders often like to see a down payment of 10 percent or more, but if you can swing 20 percent or more, that’s even better.

A more significant down payment also shows the lender that you’re serious about making regular payments on the loan since you have more skin in the game. This can help offset some of the risk associated with lending to someone with no credit history.

Be Prepared to Pay a Higher Interest Rate

Unfortunately, you will likely be charged a higher interest rate on your loan if you don’t have any credit history. This is because you’re seen as a higher risk to the lender, and they want to be rewarded for that risk.

If you have a cosigner with excellent credit, their good credit can help offset some of the risk, which may result in a lower interest rate. But if you don’t have a cosigner or your cosigner has bad credit, you’ll likely be stuck with a higher interest rate.

Build Credit and Wait

If you cannot get a car loan with no credit right away, don’t worry. You can take some steps to build your credit to get a loan in the future. This is more of a long-term strategy, but it will help you get better terms when you’re ready to apply for a loan. There are easy and sure ways to build your credit score, so researching and finding what works best for your situation is a good place to start. General ways people begin to develop a good credit score include:

Opening a secured credit card – A secured credit card involves a deposit, which becomes your credit limit. For example, if you put down a $500 deposit, your credit limit — and maximum balance — will be $500. This is an excellent way to build credit because it shows that you can manage a credit limit and make regular, on-time payments.
Becoming an authorized user – You can also become an authorized user on someone else’s credit card account. This means you’ll have your own card that you can use, but the account will be in someone else’s name. As long as the account is in good standing, this will help build your credit score.
Applying for a credit-builder loan – A credit-builder loan is where the money you borrow is deposited into a savings account. Once you make all your payments on time, you’ll have access to the money in the account, plus any interest earned. This is a good way to develop a credit history because it shows that you can make regular, on-time loan payments.

Beware of Financing Through the Car Dealership

Many car dealerships offer in-house financing, which may seem convenient if you don’t have any credit. In addition, they often claim they can finance anyone, no matter their credit score. But beware — these loans frequently come with high-interest rates, and you could pay more for your car than it’s worth.

Why do they do this? In truth, dealerships make very little profit from the vehicle sale. Instead, their profit comes from other products they sell, such as extended warranties, gap insurance, and — you guessed it — financing. So while they may claim to be helping by financing you, they’re really just trying to make more money off you in the long run.

If you decide to finance through the dealership, shop around at different dealerships for the best interest rate. And if you can get pre-approved for a loan from a bank, credit union, or another third-party lender before going to the dealership, that’s even better. This way, you’ll know exactly how much car you can afford and what interest rate you’ll be paying. Otherwise, you’ll be looking at a much higher interest rate and could end up in a loan you can’t afford. And that will leave you looking for tips on how to get out of a bad car loan.

Bottom Line

Getting a car loan with no credit is possible, but it may not be easy. You’ll likely need a cosigner or a sizable down payment, and you can expect to pay a high-interest rate. If you cannot get a loan right away, take some steps to build your credit to get better terms in the future. Whatever you do, beware of financing through the dealership. They often try to make more money off you by offering loans with high-interest rates.

Used vs. New Car: Which One Is Right for You?

Posted on November 2, 2022November 10, 2022 by Autopay

Purchasing a car is a big decision. It’s not only a major purchase but also a long-term commitment. Whether shopping for a new or used car, both options have pros and cons.

So, which one is right for you? From considerations like auto financing to vehicle history reports, we’ll help you make the best decision for your needs. Here’s a look at the pros and cons of buying used versus new cars and what you need to consider before deciding.

Pros of Buying a Used Car

There are many reasons why buying a used car can be a good idea.

Upfront savings – You can often get a used car for significantly less money than a new one. This is especially true if you buy from a private seller or an auction. Dealerships typically charge more for used cars. That’s because you might have more negotiating power when purchasing a used car than a new one. This varies depending on the dealership or seller, but it’s generally easier to haggle over price on a used car.
Less depreciation – A used car will usually have already taken its biggest depreciation hit. New cars lose significant value as soon as they’re driven off the lot. This better insulates you from negative equity situations if you need to sell the car.
Monthly savings – You can expect lower monthly car payments and insurance rates with a used car. And often, you can save even more down the line with auto refinancing if interest rates drop.
More personality – Some people prefer driving a used car. There’s something about knowing that your car has lived a little that can make it feel like more of a companion than a brand-new machine.

Now let’s take a look at the cons of buying a used car.

Cons of Buying a Used Car

There are a few potential drawbacks to consider before buying a used car.

Maintenance history – It’s impossible to know the vehicle’s complete history. Even if you buy a used car from a reputable dealer, it’s difficult to know how the previous owner(s) treated it. If previous owners haven’t maintained it properly, unseen damage might lead to repairs in the future. To assist you in identifying any potential concerns, get a pre-purchase inspection from a professional mechanic.

Potential problems – In addition to maintenance issues, there could be other car problems that you’re unaware of. For example, the car might have been in an accident that wasn’t reported, or there could be hidden damage from a previous owner. Again, a pre-purchase inspection can help you identify any potential problems.
No warranty – Used cars usually don’t come with a manufacturer’s warranty. If something goes wrong, you’ll be responsible for the repairs.
Less choice – When you buy a new car, you can choose the model, color and options you want. When you buy used, you’re limited to what’s available on the market. Also, used cars generally have fewer features than new cars and might not have the latest safety technology.

Now let’s examine the pros and cons of buying a new car.

Pros of Buying a New Car

There are some significant advantages to buying a new car.

Up-to-date features – New cars always have the latest technology, safety features and creature comforts. If you’re looking for the latest and greatest, a new car is the way to go.
Warranty and lower maintenance costs – New cars usually come with some type of warranty that covers maintenance and repairs for a certain period. This can help decrease costs if something goes wrong with the car.
Financing options – You might be able to get a better financing deal on a new car than a used one. This is often true if you’re buying from a dealership. It might offer promotional rates or other incentives that make financing a new car more attractive. In addition, you can increase these savings later if you refinance when rates drop. You can use a refinance car loan calculator to see how much you can save.
New car smell – There’s something about that new car smell that some people can’t resist. It signifies a fresh start and a clean slate. So if you’re looking for that new car experience, getting that new car smell might be essential.

Now that we’ve taken a look at the pros, let’s discuss the cons of buying a new car.

Cons of Buying a New Car

There are also some potential drawbacks to consider before buying a new car.

Higher cost – The cost is the biggest downside to buying a new car. They’re simply more expensive than used cars. This can be due to supply chain issues, production costs and marketing expenses.
Higher insurance rates – New cars also tend to have higher insurance rates than used cars. This is because they’re more expensive to replace if stolen or totaled in an accident.
Availability – Thanks to supply chain issues and chip shortages, specific models might have limited availability. This makes it challenging to find the exact car you want, and you might find yourself waiting for up to a year until it’s available.
They don’t stay new – This might seem like an obvious point, but it’s worth mentioning. No matter how well you take care of your new car, it will never be brand new again. It will eventually show signs of wear and tear, and you’ll have to deal with the inevitable repairs and maintenance that come with owning a vehicle.

The list seems to be pretty evenly split.

Which Is Right for You?

Ultimately, the decision comes down to your needs and preferences. A new car is probably the way to go if you’re looking for the latest features and technology. However, if you’re on a budget or prefer a used car’s personality, you might want to consider going that route. Whatever you decide, be sure to do your research and shop around to get the best deal.

Why Are Interest Rates Higher on Used Cars? Your Questions Answered

Posted on October 5, 2022October 27, 2022 by Autopay

If affordability drives your search for a new car, choosing a used vehicle is one way to save. One thing to keep in mind, however, is that used vehicles can come with some hidden costs, particularly if you choose to finance your vehicle. In most cases, interest rates on used car loans are higher than those offered on new car purchases.

Why Are Interest Rates Higher?

Below are some of the reasons why lenders charge more to finance a used vehicle:

1. Manufacturer incentives

Manufacturers are in the business of selling new cars, so naturally they want to offer strong incentives to customers for buying one. In addition, the dealerships themselves often have auto financing programs, so it makes sense to offer attractive rates on new vehicles.

If it does seem like the dealerships in your area are offering much better terms on new vehicle loans, take note of their rates but then check out used car lots as well. If you have good credit and sufficient income, you might still be able to get an excellent rate on a pre-owned vehicle.

2. Car value

Car lenders are at an advantage over other creditors, such as credit card companies. This is because the automobile has value which serves as collateral to secure the loan. If a borrower defaults on loan payments, the lender can repossess the car and sell it to try to recoup any losses.

There is, however, a downside to any secured loan. The value of the collateral itself might decrease significantly after a loan is approved. In such a case, the lender could suffer significant losses if it is unable to sell the collateral for anything close to its estimated value at the time that the loan was granted.

When it comes to auto loans, there are a few factors that can present a significant risk to the value of the vehicle. First, used car appraisals can be difficult to perform, making it hard to establish a car’s value. The second issue is that cars are subject to damage caused by poor road or weather conditions, careless driving or accidents.

The sale of a repossessed vehicle that has been damaged or that has mechanical problems might not cover the balance on a defaulted car loan. If this is the case, the lender might have to go to court and seek a monetary judgment against the borrower.

All of this takes time, money and, if the borrower is bankrupt, the lender might never recoup the balance or court costs. The higher interest rates for used cars help to offset these risks.

3. Credit scoring

Loan terms are based, in part, on the likelihood of repayment and the risk of default. Lenders use credit scores to assess these risks and set interest rates (and fees) accordingly. Used car buyers could have lower credit scores and, as a result, might be offered loans at higher rates.

What Can I Do to Lower My Interest Rate?

Should the possibility of being offered a higher interest rate deter you from purchasing a used car? Not necessarily. Buying a used car might be the least expensive way to get the car that meets your needs.

However, it is important to understand your costs and risks before making a decision. There are also several things that you can do to increase your chances of getting an attractive interest rate on your car loan:

Run the numbers: If you are considering a used vehicle because you think it will be cheaper than buying a new car, use a refinance car loan calculator to calculate your actual costs. You might find that, over time, it is less expensive to purchase a new car.

Clean up your credit: Many people with no credit, or less-than-perfect credit, are able to secure financing for a car purchase. However, the best terms are usually offered with good credit scores.

If you have the time to do so, order your credit reports, correct any errors and start paying down debt. Your credit score might increase even after just a few months of work, potentially saving you thousands of dollars over your loan term.

Save up a down payment: A large down payment builds collateral, something that is attractive to lenders because they have to worry less about your car’s value if you default on your payments. Making a substantial down payment also reduces the balance of your loan, which means that you pay less interest over time.

Once you’ve done all of the above, you’re in the best position to apply for financing (or refinancing).

Final Thoughts

Buying a car is a big commitment. If you are in the market for a used car, take your time when selecting a vehicle and securing financing. Remember also that loan terms address interest rates, the length of your repayment period and, in some cases, extra fees. Review your costs carefully before taking out a car loan.

If you’ve already financed your car but aren’t happy with your current loan terms or interest rate, you can always apply for refinancing.

5 Dealership Red Flags and How to Avoid Them

Posted on September 28, 2022October 27, 2022 by Autopay

Buying a new car is stressful. It’s a major purchase, costing thousands of dollars – which doesn’t include having to pay for repairs if the car develops mechanical problems. There’s also the concern about purchasing a car that is simply unsafe to drive.

Your best protection against overpaying for a vehicle or purchasing a “lemon” is selecting an ethical car dealership. Learning to identify red flags early in your interactions can help you walk away from a bad deal.

Shopping for a Dealership

Wise car buyers shop for a dealership before shopping for a car. Working with the right dealership will save you stress, money and time – particularly when it comes to auto loan financing.

Talk to friends, family and colleagues about their experiences with local dealerships and ask for referrals. Research online reviews and Better Business Bureau reports before narrowing your list of dealerships to contact.

Another thing you can do to protect yourself is to research car sales laws and regulations in your state. You can find this information through your state attorney general’s office. Keep an eye out for lemon laws, a consumer’s bill of rights and other consumer protection laws that your dealership must follow when doing business with you.

Once you have your list of dealerships, get in touch. Some dealerships might offer online consultations — though in most cases, you’ll visit the dealership to talk to a salesperson and see what they have to offer. Once there, take note of how you are treated and how the dealership does business.

Red Flags to Watch Out For

Below are some unethical business practices that some dealerships use to rush you into a purchase or financing deal that is not in your best interest:

Demands an on-the-spot decision

It is difficult to make a good decision while under pressure. You’ll be driving and paying for your new car for years to come. There is no reason why you shouldn’t be able to take as much time as you need to choose a car and negotiate a financing plan that works for you. If you feel like you are under pressure, leave the dealership.

Rushes through paperwork

Purchasing agreements and loan notes are contracts. You are responsible for understanding all purchasing contract terms before signing. This means that you should be able to read and understand everything in the contract.

If you need help understanding what you are signing, ask questions and, if necessary, take a copy of the paperwork to your attorney for a consultation. If you are taking out a car loan, make use of a new purchase or refinance car loan calculator so that you’ll know exactly what you are going to pay over time.

Salespeople at unethical dealerships might try to rush you through the process of signing a contract by telling you that the language in the contract is “boilerplate” or “simply a formality.” Don’t believe them.

Contract packing

Contract packing happens when dealerships add a bunch of different options, such as extended warranties, GAP insurance, roadside assistance plans and other extras to your contract without your consent or knowledge.

All of these add-ons can be great options, but you should know what is being added to the purchase price of your car. You have the right to approve or reject an optional product or service.

Bait-and-switch

The bait-and-switch is a consumer scam in two parts: First, the dealership advertises an attractive vehicle and financing plan to catch your interest. When you visit the dealership, however, you find that the vehicle isn’t available or that you “don’t qualify” for the financing plan you thought you’d be able to get. The car, price or financing option is the “bait.”

Next, the salesperson tries to sell you a vehicle that is not of the same quality as the advertised car, or attempts to persuade you to either pay more for the car or agree to financing terms that will cost you a lot more money over time.

This is the “switch,” and it is pre-planned. The dealership never intended to sell you the car you saw in the ad at the terms you thought you were going to get.

Yo-Yo Scam

The Yo-Yo Scam is a variation on the bait-and-switch. You visit the dealership, find a car you like and the salesperson offers you a fantastic financing deal. You drive your new car off the lot and all seems to be well. Except a few days (or even weeks) later, you get a call from the dealership.

They have some bad news: You didn’t get approved for the financing deal, so you’ll either have to return the car or agree to a higher interest rate. After some back and forth, you realize that the “contract” you signed was conditional on your financing being approved.

As with a standard bait-and-switch scam, the dealership is relying on the fact that you really do need the car and that you’ll just agree to the new loan terms because you don’t want to go through the bother of taking the car back and looking elsewhere.

Protecting Yourself

Some dealers use these tactics because they work. Many people find the car buying process stressful and want to get it over and done with. Dealers know this, which is why many of these practices rely on you not carefully reviewing documents, clarifying language or questioning why vehicles or loan terms are so different from what was advertised.

When possible, try to schedule car buying at a time when you aren’t under a lot of pressure and never feel obligated to accept an offer that doesn’t sit well with you. If red flags start to pop up, move on to another dealer.

If you do end up purchasing a car with a not-so-great car loan, don’t worry. You have the option to apply for a refinance to try to get a better rate or better loan terms.

Joint vs. Cosigned Auto Loans: What You Need to Know

Posted on September 23, 2022November 1, 2022 by Autopay

You finally decided it’s time for a new car. That’s fantastic. You’re certainly not alone with more than 272.4 million privately owned vehicles on American city streets. Your next step is to explore your options for financing the purchase.

And if you’re married, in a domestic partnership or want to explore all your options, you might wonder if it makes sense to take out a joint or cosigned auto loan.

What’s the Difference Between a Joint and Cosigned Auto Loan?

Before you start shopping for your new car, it’s important to understand the difference between joint and cosigned auto financing options.

A joint auto loan is when two people take out a loan together to purchase a car. Both borrowers, or co-borrowers, are responsible for making the monthly payments on the loan and have equal ownership in the car. In addition, they are equally responsible for the debt if either borrower stops making payments on the loan and defaults.

A cosigned auto loan is when one person (the cosigner) agrees to be financially responsible for another person’s (the borrower’s) debt if they default on their loan. The cosigner acts as a guarantor for the lender if the borrower can’t repay their debt. They also have no ownership rights to the car.

Both choices have pros and cons, so you must choose the right one for your unique financial situation.

We’ll help you make an informed decision so that when it’s time to sign on the dotted line, you’ll be confident that you’ve chosen the best option.

Is It Better to Apply for a Car Loan Jointly?

When deciding to take out a joint auto loan with a co-borrower, there are a few key things to remember. We’ve identified two pros and two possible cons to take into account.

Pro: Lower interest rates

Applying for an auto loan with a co-borrower can help you qualify for a lower interest rate. This is because lenders view joint borrowers as less risky than individual borrowers. Having two incomes also makes it more likely that you’ll be able to afford the monthly payments on the loan.

Likewise, both credit scores will be considered when qualifying for the loan, so if one borrower has a poor credit score, the other borrower’s good credit score might help offset that.

Pro: Build a positive credit history

A joint auto loan can help you improve your credit score. This is because the monthly payments will be reported to all three major credit bureaus (Experian, Equifax and TransUnion). So, as long as both borrowers make their payments on time each month, their credit scores will gradually improve.

This is an excellent move for situations when one borrower has little to no credit history. By taking out a joint auto loan and making timely payments, that borrower can begin to establish a good credit history. In addition, this will help with future borrowing needs, such as taking out a mortgage.

Con: Equal ownership can leave one borrower responsible

Both borrowers own the vehicle and are equally responsible for repaying the debt since ownership is jointly held. But if one borrower ceases to make their share of payments on the loan, the other borrower will still be on the hook for the whole of the balance. This can strain relationships, especially if the other borrower can’t afford to make up the difference.

Con: Ending a joint auto loan can be difficult

If you and your co-borrower have decided you want to end your joint auto loan before the loan is paid off, you have two options.

The first is auto refinancing in one borrower’s name only. In this situation, the borrower keeping the vehicle will need to qualify independently for the new loan based on their individual income, credit score and employment history. To decide if that’s a good idea, start by plugging your numbers into a refinance car loan calculator to see what your rates will be.

The other option is to sell the car and pay off the loan with the proceeds from the sale. But this isn’t always easy, particularly if you’re upside down on the loan, meaning you owe more than the car is worth.

If this is the case, you might need to bring money to the table at closing to pay off the remaining loan balance. Some people think GAP insurance will help them in these situations, but remember that it’s designed to cover you in cases where your vehicle is stolen or totaled, not for voluntary sales.

Is It Better to Finance a Car With a Cosigner?

Taking out an auto loan with a cosigner might be the best option if you have bad credit or no credit history. But it does require finding someone comfortable with the risk and willing to help you finance a car. Here are three pros and two cons to consider before applying for a cosigned loan.

Pro: Qualify for better interest rates

One advantage of having a cosigner on your auto loan is that it can help you qualify for a lower interest rate. Similar to joint auto loans, this is because lenders, like a bank, credit union or auto loan company, see cosigned loans as less of a risk than individual loans.

In this situation, your cosigner’s good credit score will be factored in when qualifying for the loan, which can help offset any negatives in your credit history.

Pro: Higher approval amounts

Another advantage of having a cosigner is that it can help you secure a higher loan approval amount. This is because the cosigner’s income and employment history will be considered when determining how much you can borrow. So, if your cosigner has a good income and a stable job, this might help increase the amount you’re approved for.

Pro: Better chance for approval

A final advantage of having a cosigner is that it can help you get approved for financing in the first place. This is especially helpful if you have bad credit or no credit history. That’s because most lenders won’t approve anyone for an auto loan unless they have good credit or someone else to cosign for them.

Con: Equal responsibility

The main downside of having a cosigner on your auto loan is that they’re equally responsible for repaying your debt if you default on your loan. So, if you can’t afford your monthly payments and end up defaulting on your loan, your cosigner will be stuck with the bill — and their credit score will also suffer.

Con: Finding a cosigner

A significant challenge with cosigned auto loans is finding someone willing to sign for you in the first place. This is because they’re taking on a lot of financial responsibility if you can’t repay your loan.

So, you’ll need to find someone who trusts you and is confident in your ability to repay the debt. Of course, this person will also need good credit to qualify as a cosigner.

Considerations for Joint Car Loans

Before you take out a joint car loan, there are a few things you should consider.

Are you comfortable with being equally liable?

Signing a joint loan means that you are both equally liable for the debt. If your co-borrower defaults on their share of the loan, you will be responsible for repaying the entire debt. This can significantly impact your finances, so it’s essential to be sure that you are comfortable with this arrangement before you sign on the dotted line.

Consider your financial situation and whether you would be able to make the payments if the other borrower defaults. If you’re not comfortable with this level of risk, finding another way to purchase your new or used vehicle might be better.

What kind of relationship do you have with your co-borrower?

It’s important to consider your relationship with the other borrower before you take out a loan together. This person will be equally liable for the debt, so it’s important to be sure that you trust them to make their payments on time.

It’s also important to be clear about your expectations and ground rules before you sign the loan agreement. For example, discuss how you will make your payments and what will happen if one of you cannot make your share of the payment. Having this discussion upfront can avoid any misunderstandings or conflicts down the road.

Are you confident that you will both be able to make the payments?

Before you sign a joint loan, it’s essential to be confident that you can both make the payments. Review your budget and make sure that you can afford the monthly payments. Remember that you will both be equally responsible for repaying the debt, so if one of you cannot make a payment, the other will be responsible.

Consider a joint car loan if:

You’re in a solid financial position and you’re confident that you can make your share of the payments, but can’t afford the vehicle you want or need on your own.
You trust the other borrower and are confident in their ability to make their share of the payments on time.
You’re comfortable with being co-owners of the vehicle and equally liable for the debt.
You have a good relationship with the other borrower, and you’re clear about your expectations.

Avoid a joint car loan if:

You’re not in a strong financial position or not confident that you can make the payments.
You don’t trust the other borrower or are not confident in their ability to make their payments on time.
Your relationship with the other borrower is not good, or you’re not clear about your expectations.
You’re not comfortable with being equally liable for the debt.

Joint car loans are ideal for:

Married couples, domestic partners or close family members who are in a strong financial position and confident that they can make the payments.
Those who wish to secure larger loans but have limited income or assets.

If these considerations work for your situation, a joint auto loan might be right for you.

Considerations for Cosigned Car Loans

Cosigned car loans also have several factors to consider.

Do you have bad credit or no credit history?

If you have bad credit or no credit history, you might not be able to qualify for a car loan on your own. In this case, you might need to find a cosigner who can help you qualify for the loan. Remember that your cosigner will be equally responsible for repaying the debt, so it’s important to choose a loan term and monthly payment that you can afford.

Does your cosigner have good credit?

The whole point of cosigning a loan is to help you qualify for financing you wouldn’t be able to get on your own. So, it’s crucial to choose a cosigner who has good credit. This will help you get a lower interest rate and make qualifying for the loan more manageable.

Can you and your cosigner afford the payments?

Before taking out a loan, it’s important to review your budget and make sure you can afford the monthly payments. There might be a good reason why you can’t qualify for a loan on your own. Maybe you have a limited income or a lot of debt.

So, even if you can qualify for the loan with a cosigner, you still need to be able to make the monthly payments.

Likewise, your cosigner will also be responsible for making the payments if you default, so they need to be confident in their finances. If neither of you can make the payments, both credit scores will be hurt and you risk losing the car.

Consider a cosigned car loan if:

You have bad credit or no credit history and need help qualifying for a loan.
Your cosigner has good credit and can help you get a lower interest rate.
You’re confident that you can afford the monthly payments and won’t miss any, which would hurt your cosigner’s credit.

Avoid a cosigned car loan if:

Your cosigner doesn’t have good credit.
You’re not confident that you can afford the monthly payments.
Your cosigner isn’t confident in their ability to make the payments should you run into problems.

Cosigned car loans are ideal for:

Those with poor credit or no credit history who need help to qualify for a loan.
Those who wish to secure larger loans but have limited income or assets.
People with good credit who want to help a friend or family member get a car loan, and who understand the financial and credit rating risks involved if the borrower misses payments.

If these factors work for your situation, you might want to go with a cosigned car loan.

Your Credit Score and Agreeing to Be a Co-borrower or Cosigner on an Auto Loan

Before you say yes to being a co-borrower or cosigner on an auto loan, it’s essential to understand how it could affect your credit score.

Higher Debt-to-Income Ratio

Your debt-to-income ratio, or DTI, is the percentage of your monthly income that goes toward paying off debt. It’s used by lenders to determine how much you can afford to borrow.

When you take out an auto loan, your DTI goes up because you’re now responsible for making monthly payments on the loan. This can make it harder for you to qualify for other types of loans in the future.

Possibility of missing payments

Finally, it’s important to understand the inherent risk in either scenario.

When you’re a co-borrower on a joint auto loan, your co-ownership comes with the legal responsibility of making all monthly payments — even if your co-borrower stops paying their portion. If payments are missed or not made in full, this will show up on both borrowers’ credit reports and damage both credit scores accordingly, regardless of who is at fault.

As a cosigner, the responsibility for making payments also falls on you if the primary borrower can’t or doesn’t make their monthly payment. In this situation, there is a risk to your credit score with nothing gained in return. Considering the high stakes, you should evaluate your own ability to make monthly payments and comfort level with this responsibility before cosigning an auto loan.

How to Get Out of a Bad Car Loan

Posted on September 12, 2022October 11, 2022 by Autopay

With average payments for new vehicles climbing higher and higher, it’s no surprise that many people are finding themselves in a bad car loan. If your monthly payments are eating into your budget or you’re interested in a new vehicle with better rates, it might be time to get out of your current car loan.

What Makes a Car Loan Bad?

How do you know if you’re stuck with a bad car loan? Let’s take a look at some of the key characteristics:

New car selling price was too high

The first sign of a bad car loan is an inflated selling price on the new car itself. In many cases, dealerships will inflate the sticker price of a vehicle to leave room for negotiating.

If you didn’t have a firm understanding of what the car was actually worth, you might have paid more than you needed to. That’s why it’s important to do your research ahead of time, so you know what to expect.

Low trade-in amount

If you traded in your old car as part of the deal, hopefully you made sure that you didn’t get ripped off on the trade-in value. Again, researching before heading to the dealership to get a good idea of your old car’s value is essential. That way, you’ll be less likely to accept a lowball offer from the dealer.

Long loan term

A loan term that’s longer than average is another red flag. This means you’ll be making payments on your vehicle for a long time, and could lead to you being upside down on your loan. This is where you owe more on your loan than your car is worth.

Also, some loans have a prepayment penalty, so even if you can pay off a long term loan early, you’d have to pay the penalty. You can check with your lender to see if your loan has one or not.

Car loan APR is too high

The APR is possibly the most important aspect of financing a new vehicle purchase. This is the yearly interest rate on your loan and includes any fees or additional costs the lender charges. It can vary quite a bit from lender to lender. A higher APR means you’ll pay more interest over time, so shopping around for the best rate is essential before deciding on a loan.

Expensive extras

In many cases, dealerships upsell you on extras in the finance department. These things can add hundreds or even thousands of dollars to the overall cost of your loan, so it’s important to ask questions and ensure you understand exactly what you’re paying for.

In some cases, these extras might be worthwhile — but in others, they’re nothing more than expensive gimmicks.

Bait and switch

Some predatory auto lenders will get you to agree to a set of terms, but when it comes time to sign the loan, the loan has different terms and conditions than what was discussed. This is why it’s important to read your loan before you sign it, and make sure you understand what the terms of the loan actually are.

Best Way to Get Out of a Bad Car Loan

Refinancing your car loan is a great way to save money, get yourself into a better financial situation and get out of a bad car loan. It’s not right for everyone, but it is an option worth considering if you find yourself in a difficult car loan situation.

What is refinancing?

Refinancing is the process of taking out a new loan to pay off an existing loan. For example, when you refinance your car loan, you might be able to secure a better interest rate. If it’s significantly lower, this can save you a lot over the life of the loan. You might also be able to extend the loan term, which could reduce your monthly payments.

Why should I refinance my car loan?

There are a few reasons why refinancing your car loan is a good idea. First and foremost, it can save you money. A lower interest rate means that you’ll pay less interest over the life of the loan, and extending the term of the loan can also help lower your monthly payments.

Additionally, refinancing can help improve your credit score by allowing you to make on-time payments over the life of the loan. Use our refinance car loan calculator to see how much you could save by refinancing your car loan.

When should I refinance my car loan?

The best time to refinance your car loan is when you have improved your credit score or interest rates have dropped.

For example, suppose you initially secured a loan with a high-interest rate. In that case, you might be able to get a lower rate by refinancing. Or, if your credit score has improved since you originally took out the loan, you might also be able to qualify for a better interest rate.

But even if your score hasn’t changed and interest rates haven’t dropped, you may still be able to refinance to get better loan terms. This is why it’s a good idea to look into refinancing to see what you might qualify for.

How do I refinance my car loan?

The first step in securing new auto loan financing is to shop around for new loans. Then, compare rates and terms to find the best deal possible. Once you’ve found a lender who you’re comfortable with, the refinancing process is relatively straightforward.

You’ll simply need to fill out an application and provide some documentation, such as proof of income and employment history. The lender will then run a credit check and, if you’re approved and decide to move forward with the loan, disburse the funds to pay off your existing loan.

Other Options

What if refinancing isn’t an option for you? Then, there are a couple of other steps you can take to get out of your bad car loan.

Pay it off

Hopefully, your financial situation has improved since you bought your car. If so, you might just want to stick it out and pay it off. Once you do, you’ll have equity in your car. And then, you can put the money you were using to pay your car payment toward paying off other debt, or put it in savings.

Sell or trade in the car

If your car loan is not under water, you can try to sell it for what your loan amount is (or possibly more) or trade it in for a different car. First, make sure that your car’s value is the same or more than what’s left of your car loan amount.

A Bad Car Loan Is Not the End of the World

According to recently gathered statistics, 35% of Americans had car loans in 2019. This number is not expected to change as the need for personal transportation continues to grow.

If you’re one of the millions of Americans who have taken out a car loan, it’s essential to find out if you have a bad car loan and understand your options for getting out of it. Refinancing your car loan is often the best way to save money and get yourself into a better financial situation.

Are Auto Loans Fixed or Variable?

Posted on September 7, 2022October 11, 2022 by Autopay

When you take out an auto loan, your interest rate is typically fixed. However, there might also be the option of a variable interest rate.

Most consumers will choose a fixed rate for their auto loan financing because it offers predictability and stability when budgeting for their monthly payments. Fixed rates are also provided by more lenders, banks and credit unions than variable rates.

However, a variable interest rate could also offer some benefits, especially if interest rates are low when you first take out your loan. In addition, variable rates are potentially advantageous if you don’t plan to keep the vehicle long-term or don’t plan on holding the loan for an extended period.

Here’s what you need to know about both options.

What Are Fixed-Rate Auto Loans and Their Benefits?

A fixed-rate auto loan is based on an interest rate that does not change over the life of a loan. This applies to new loans and those who refinance their car loans. This type of interest rate is the most popular for car loans and is often used for mortgages and personal loans as well.

One of the best benefits of a fixed interest rate is that it makes budgeting easier. You know exactly how much your monthly payment will be, so you can plan accordingly. This predictability can be a big help when trying to add a second vehicle to your household, take on other large financial obligations or simply make ends meet.

Another benefit of a fixed interest rate is that it protects you from changes in the market. You’re locked in at the lower rate if interest rates go up. But, on the other hand, if rates go down, you’re still stuck with the same payments and forfeit those potential savings.

That said, the biggest downside of a fixed interest rate is that you might end up paying more in interest over time if rates drop, especially if locked in at a higher-than-average rate to begin with. For example, according to research, Americans are paying up to 25 % more for their car loans than they were 10 years ago. So it’s essential to be informed, so you can make the best decision for your individual circumstances. If you do have a fixed rate car loan and the interest rates drop, you can always look into refinancing to lower your interest rate.

What Are Variable-Rate Auto Loans and Their Benefits?

A variable-rate auto loan is based on an interest rate that can change over time in response to market conditions. This movement is tied to an index or benchmark, such as the prime rate. Variable interest rates are also called adjustable interest rates and floating interest rates.

The biggest benefit of a variable interest rate is that it could save you money. When interest rates are low, you could get a lower monthly payment. Additionally, you can take advantage of falling interest rates without having to refinance. However, keep in mind that refinancing could still be an option. If that interests you, check with a refinance car loan calculator to see how much you could save.

If interest rates are unusually high when you purchase your vehicle and are predicted to fall, you might want to consider a variable-rate loan. In this case, you would be “betting” that interest rates will go down, which could save you money in the long run. This would require following governmental interest rate statistics and having both a sense of the market and an understanding of the risks.

Of course, the biggest downside of a variable interest rate is that it could go up, resulting in a higher monthly payment. If this happens and you can’t afford the new payment, you might be forced to sell the car or default on the loan, which could hurt your credit score.

In addition, if rates rise sharply and you can still afford payments, you could end up with negative equity, where you owe more on your loan than the car is worth.

Nonetheless, a variable interest rate could be a good choice if you’re planning on selling the car or refinancing the loan within a few years, and interest rates are both low and steady. It could also be a good option if you’re comfortable with a little more risk in exchange for the potential to save money.

How Do You Know Which One Is Right for You?

The best way to decide whether a fixed or variable interest rate is right for you is to consider your plans for the future. For example, a fixed interest rate could be the best option if you plan on keeping the car for a long time and the current interest rates are low. This way, you lock in the low rate and don’t have to worry about market fluctuations.

On the other hand, if you’re not sure how long you’ll keep the car or if you think interest rates could go down, a variable interest rate could be the best option. However, remember that there’s more risk involved, so you need to be comfortable with that before choosing a variable interest rate.

Whichever option you decide to go for, be sure it’s the best fit for your individual circumstances.

What Is Car Loan Amortization?

Posted on September 5, 2022October 11, 2022 by Autopay

Simply put, car loan amortization is the total repayment of your car loan over time. It’s calculated by dividing the loan amount by the number of months in the loan agreement.

This results in a specific amount that is due each month. Car loan amortization also includes interest and any fees, so the total cost of the loan will be higher than the principal amount. Auto loans can include simple interest or precomputed interest, depending on which type of loan you’ve agreed to with your lender (you can always ask them if you’re not sure).

Your monthly payment is determined based on the total loan amount, interest rate and term of the loan. But you might not realize that within that payment, a portion is applied toward both the principal (the borrowed amount) and the interest.

Amortization schedules can be confusing, but understanding how they work can save you money on your car loan. Here’s a quick overview of what they are and how to make them work for you.

Principal and Interest

The initial amount of money you borrowed is called the principal. The interest is what a lender charges you to borrow the money, plus any additional fees. Your monthly payment is divided between these two things based on an amortization schedule.

The amount of interest charged is based on the interest rate, which is set by the lender. There are generally industry trends for finance rates that can be easily tracked.

The greater the interest rate, the more you’ll pay in interest throughout the term of the loan. This is why it’s essential to secure the best auto loan financing possible for your credit score and situation, including a low interest rate.

Amortization Schedule

The amortization schedule is a table that shows how much of each payment goes toward the principal and how much goes toward the interest. In the early years of your loan, most of your payment will go toward paying off the interest. But as you get closer to the end of your loan term, more and more of your payment will go toward the principal.

Paying extra toward the principal can save you money in interest charges and help you pay off your loan faster. If you want to do this, just let your lender know how much extra you want to pay each month and they’ll apply it to your loan accordingly.

Short- and Long-Term Car Loan Amortization

It’s good to understand that you can select the term length for your car loan. The most common are 36, 48 or 60 months. However, some companies offer loans lasting as little as 12 months, although others extend as far as 84 months.

Choosing a shorter loan term will result in higher monthly payments, meaning you won’t be able to afford the same car as you would with a longer loan. But it also means you’ll pay less interest and pay off your loan faster.

A longer loan term will lower monthly payments, allowing you to afford a more expensive car. But you’ll also pay more interest over time, and it will take longer to repay your loan.

This is a decision that each borrower will have to make based on their budget and financial goals.

Changing Circumstances

Many people choose to use long-term loans because they lower monthly payments. But what happens if your circumstances change and you can afford to pay off your vehicle loan more quickly, or you simply want to get rid of it as soon as possible?

If you find yourself in this situation, you can always make additional payments toward your loan’s principal. This will reduce the interest you pay over time and help you repay your loan faster. Just be sure to check with your lender first to make sure there are no prepayment penalties.

Here are some common ways people pay off their car loans early:

Refinance – You can refinance your car loan to get a lower interest rate, saving you money over time. You can also choose to extend or shorten the term of your loan, depending on your current needs. Use a refinance car loan calculator to determine how much you could save.
Make a lump-sum payment – If you come into some extra money, you can make a one-time payment toward your loan’s principal. This will reduce the interest you pay over time and help you pay off your loan faster.
Pay extra each month – You can also choose to make slightly larger payments each month, which will go toward the principal of your loan. Just be sure to let your lender know that you want the extra payment to go toward the principal — not the interest.

You might not ever need to use any of these, but it helps to be aware of them in case you end up in a situation where you need to pay off your car loan faster.

How Understanding Car Loan Amortization Can Help

Car loan amortization is the process of repaying your car loan over time. The amount you owe each month is divided between the principal and the interest, and the schedule is set by the lender. You can choose a shorter or longer loan term, depending on what you can afford.

Understanding how car loan amortization works can help you save money and repay your loan faster. Be sure to ask your lender about their amortization schedule so that you can make the most informed decision possible.

How to Calculate Interest on a Car Loan

Posted on August 29, 2022October 11, 2022 by Autopay

Buying a car is a significant financial commitment. In fact, car loans are the second largest financial commitment most people will make (the first being a home mortgage). Learning how to calculate interest on a car loan will help you sift through your options and choose the loan terms that are best for you and your budget.

The Elements of a Car Loan

When calculating how much interest you’ll pay on your car loan, you’ll need three pieces of information:

Amount of loan: Whether you are seeking a new loan or refinancing your existing car loan, you will need to know the exact amount that you will be financing, including the price of the vehicle and taxes, as well as any add-ons that you’ve chosen, such as a GAP waiver.

Your interest rate: When you apply for an auto loan, your lender will use information from your application to determine your interest rate. Interest rates depend on several factors, including economic conditions, as well as your credit score, income and the age of the car that you purchase. Some lenders use other criteria in determining your rate, which could include your educational background and work history.

Length of repayment: You’ll need to know the length of your repayment period. Auto loan terms are expressed in months instead of years, and auto loan terms typically range from 24 to 84 months, though other terms might be available.

Calculating Your Monthly Interest Payments

Car loans are amortized, which means that you’ll be paying your loan balance off in installments. This means that the interest you pay over the duration of your loan will be based on an ever-declining principal balance. Because your principal balance changes each month, so will the amount of your interest payment.

If you want to know what you are paying in interest each month, you’ll need to do the following:

Begin with a straightforward calculation: Your interest rate (percentage) divided by how many payments you’ll make on the loan annually.
When you have that number, multiply it by your loan’s balance.

This calculation will give you the amount of interest you’ll be paying each month. It’s important to note that this number reflects only the amount of interest you’ll pay that month. This will change each month during the duration of your loan repayment period.

Another thing to remember is that your monthly interest payment is only one portion of your monthly car loan payment. The other portion is what you are paying against the loan balance.

If you aren’t a numbers person and all this seems too complicated, you can check out the AUTOPAY refinance car loan calculator to get a quick calculation, plus your estimated savings if you opt to refinance at a lower rate.

Other Factors That Determine Affordability

If you’ve run these numbers and are experiencing a bit of “sticker shock” at how much interest you are (or will be) paying each month, keep these things in mind:

As you pay down your loan, the percentage of each payment that goes toward interest decreases over time. This is because the amount of interest you pay is based on your loan balance. As the balance shrinks, so does the interest.
There are things you can do to reduce the amount of interest you’ll pay on a loan. These include improving your credit score by making timely payments and paying down existing debt, buying a new car instead of a used vehicle and, if necessary, finding a co-signer for your loan.
The larger your down payment on a vehicle, the smaller your balance will be. This can significantly reduce your interest payments.

Taking out a car loan or refinancing an existing loan can be a challenge, particularly when it comes to understanding your total costs. Make sure to shop around to get the loan you need with terms that you can afford.

Should Both Spouses Be on a Car Loan? Things to Consider Before Cosigning with a Spouse

Posted on August 17, 2022October 11, 2022 by Autopay

Nobody disputes that spouses should make major financial decisions — such as purchasing a car or refinancing an auto loan — together. A more complicated question is whether spouses should be on a car loan as cosigners. Although having a spouse cosign on your car loan might make sense in some instances, it can be a risky personal and financial move in others.

What Is a Cosigner?

A cosigner agrees to pay a loan if the primary borrower defaults. When someone cosigns a loan, they assume responsibility for making loan payments if the original borrower falls behind on repaying the debt. Once the primary borrower defaults on payments, the cosigner is responsible for paying the balance of the loan, along with any fees related to the late payments. Also, the lender now treats the cosigner as the debtor.

Cosigner vs. Co-Borrower

Cosigners are not quite the same as co-borrowers. Co-borrowers apply for a loan together so that they can purchase (or refinance) an asset that they both own and use. When a married couple takes out a mortgage on a home that they both live in and own, they are co-borrowers.

A cosigner, on the other hand, assumes responsibility for paying someone else’s loan. The cosigner does not co-own the asset that the loan was used to purchase.

Why Do People Need Cosigners for Loans?

Lenders evaluate loan applications using multiple criteria, including income, credit history and current debt. If a loan applicant has poor credit, no credit, doesn’t earn very much or is struggling under a lot of debt, the lender might reject the application outright, offer a smaller loan or a loan at a higher interest rate. Sometimes a lender might ask that the borrower reduce the lender’s risk by finding a cosigner.

The Risks of Being a Cosigner

The risks of being a cosigner are significant. If you cosign a debt, and the original borrower doesn’t make payments on time, here’s what can happen:

The lender can require you to start making payments on the debt.
The lender can initiate collection proceedings against you, including a lawsuit.
Your credit score can be damaged.

In addition, cosigning a loan increases your debt load, impacting your credit score. This affects your ability to obtain a credit card, take out a loan for your own needs or qualify for good interest rates on goods and services. Because of these risks, you might want to check out other alternatives that can help you buy a car or refinance a car loan.

Spouses as Cosigners: What You Need to Know

Having your spouse as a cosigner might seem counterintuitive: You share finances and will both benefit from an automobile purchase or refinancing. Co-borrowing might make more sense, as would having the spouse with the best credit apply for the loan.

In some households, however, only one spouse drives and will have ownership of the car. Many people owned a car before getting married and could want to refinance that vehicle without putting their spouse on the title. In these cases, cosigning might make some sense.

As you make your decision, be aware that some lenders might tell you that your spouse is required to cosign a loan that you take out for your own vehicle. The federal Consumer Financial Protection Bureau makes it clear, however, that although a lender can require you to have a cosigner, it cannot require that person to be your spouse.

The Risks of Cosigning for a Spouse

There are significant risks to being a cosigner of a loan. These risks increase when a spouse acts as a cosigner. Cosigning impacts a spouse’s credit and finances, so your household might not have at least one spouse with pristine credit and financial stability. Should you face unexpected financial difficulties, your household will have to manage the debt that your spouse is obligated to pay.

Cosigning can also negatively impact your relationship with your spouse. Defaulting on your car loan or refinancing could leave your spouse feeling betrayed.

Alternatives to Cosigners

An alternative to getting a cosigner is to try to improve your credit score. And if your household has more than one automobile, or your current car is still drivable, you could use a refinance car loan calculator to determine whether refinancing could free up some cash that could be used to pay down debt or increase savings. A GAP waiver can also minimize liability for the difference between your car’s value and your current debt obligation.

Whatever you choose, it is worth it to explore all of your options, which could include delaying a purchase or refinance, improving your credit or working with specialists, who will work to help you get good terms on a loan that you can afford.