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4 Tips to Save Money During Inflation

Posted on November 9, 2022November 16, 2022 by Autopay

As prices continue to rise, saving money is more important than ever. This article will help you understand how inflation affects your finances and offer tips on saving money during this time of economic uncertainty. Everything from car loan refinancing to budgeting habits can help you keep more of your hard-earned cash.

What Is Inflation and How Is It Measured?

Inflation is the rate at which prices for goods and services increase over time and a fall in the purchasing power of money. In other words, inflation eats away at your income and savings, making it harder to afford the things you need and want.

The Consumer Price Index (CPI) is a standard measure or barometer of inflation in the United States. It is a metric that tracks the change in prices over time for select goods and services that represent what urban consumers purchase. That means the CPI can measure how inflation affects the cost of living. Though it isn’t perfect, it remains a popular tool because it is relatively easy to understand and follow.

The Importance of Saving During Periods of Inflation

Saving money is always important, but it becomes even more critical during periods of inflation. That’s because your money doesn’t go as far when prices go up. So, if you’re not careful, you could struggle to make ends meet.

Saving during periods of inflation is also important because it can help insulate you from economic shocks. For example, if there is a sudden spike in inflation or prices start to rise faster than expected, having some extra savings can help weather the storm.

Best Money-Saving Tips for Periods of Inflation

You can do several things to save money during periods of inflation. Here are a few tips:

1. Become budget conscious

A budget is an estimation of income and expenses over a specified period. It’s important because it can help you keep track of your spending, save money and make informed financial decisions. When inflation is high, budgeting can be beneficial.

Budgeting can help you save money during inflation by tracking your spending and adjusting to ensure you are not overspending. Additionally, budgeting can help you to make informed decisions about where to spend your money.

When inflation is high, it is vital to be mindful of where you spend your money to get the most bang for your buck. By budgeting, you can ensure that your money is working hard for you even when times are tough.

If you’re new to budgeting, the money experts at Forbes have put together a list of time-tested approaches to making a budget, including some of our favorites:

50-20-30 Budget – A budget that separates your spending into three categories: 50% for essential expenses, 20% for savings and debt and 30% for flexible spending. To make it more savings-friendly, consider upping the percentage that goes toward savings and debt.
Zero-Based Budget – A budget in which you give every dollar a job. This approach can be helpful if you are struggling to make ends meet or get out of debt. Just be sure to prioritize your essential expenses first and pay down debt.
Envelope Budgeting – A budget in which you use physical envelopes to store cash for specific expenses. This system can be helpful if you struggle with sticking to a budget.

It could be a good idea to try out each approach to see which one works best for you.

2. Reduce your expenses

Periods of soaring inflation are a perfect time to re-evaluate your needs and wants and a good time to search out areas where you’re needlessly spending money. It could be time to shop around and reduce some ordinary monthly household expenses, such as:

Cell phone and internet services – Look into bundling these services with the same provider or enrolling in a family plan to save money. You can negotiate your current rates or shop for a new provider.
Television and streaming services – Take a close look at your viewing habits and consider eliminating channels or services you don’t watch. In addition, if you have multiple streaming services, see if there are any that you can live without.
Insurance premiums – Compare rates from different providers to ensure you get the best deal on your car, home, health and life insurance. You might be able to save money by increasing your deductible or switching to a less expensive plan.
Gym membership – If you’re not using your gym membership regularly, consider canceling it. Instead, take advantage of free or low-cost activities like walking, running or working out at home.

There might be other bills you have that you can lower, as well. Make a list of all your monthly expenses, and then you’ll see which ones you might be able to cut out completely or at least try to lower.

3. Pay down interest-heavy debt

If you’re carrying high-interest debt, paying it down should be a priority – even during periods of inflation. The faster you can pay off your debt, the less money you’ll ultimately have to pay in interest. To save money on interest payments:

Refinance your debt – If you have good credit, you might be able to qualify for a lower interest rate by refinancing your debt. This could help you save money on interest payments and become debt-free more quickly.

For example, look at your auto loan financing and compare rates to see if you could get a lower monthly payment by refinancing. Then, use a refinance car loan calculator to estimate your new monthly payment.

Consolidate your debt – If you have debt with different interest rates, you might be able to save money by consolidating them into one loan with a lower interest rate. This could help you become debt-free more quickly and save money on interest payments.

Make extra payments – Whenever possible, make additional payments on your debt. Even an extra $50 or $100 per month can make a big difference over time.
Pay off high-interest debt first – If you have debt with different interest rates, focus on paying off the debt with the highest interest rate first. Once that debt is paid off, you can put more money toward paying off the remaining debt.

Taking these steps can help you pay off debt faster, which will save you money sooner.

4. Invest in inflation-protected investments

Inflation-protected investments, such as TIPS (Treasury Inflation-Protected Securities) and I Bonds (inflation-indexed savings bonds), are a good way to protect your money from inflation. With these types of investments, your principal investment is adjusted for inflation, so you don’t have to worry about losing purchasing power over time.

Planning, Discipline and Patience

Saving money during periods of inflation requires you to plan, be disciplined and have patience because it can take time for your efforts to pay off. But if you stick to a budget, reduce your expenses and pay down high-interest debt, you can make headway on your financial goals – even during economic uncertainty.

Also, don’t forget those inflation-protected investments. They can help you sleep soundly at night, knowing your money is safe from inflation. And you can always look into refinancing debt like your auto loan to help you save money, as well.

What Credit Score Is Needed to Refinance a Car?

Posted on October 26, 2022November 7, 2022 by Choncé Maddox

If your car payment is high or you just want to take advantage of a better interest rate, the thought of refinancing your auto loan might have crossed your mind. When your credit score is less than perfect, refinancing might seem out of reach, but this is not always the case.

Your credit score is important when refinancing your auto loan, but it’s not the only factor. Lenders look at other aspects which could improve your chances of getting approved.

How Credit Scores Affect a Car Loan

Although credit isn’t the only factor that impacts your ability to get an auto loan, it still carries a lot of weight. Lenders use your credit score to determine the likelihood that you’ll repay the loan with no issues. Your credit score is a three-digit number used to quickly communicate whether you’d be a risky borrower to lend money to.

The higher your score, this demonstrates that you’d paid off debt in the past and continue to pay your other current bills on time. Meanwhile, a lower credit score can tell just the opposite. Credit scores typically range from 300 to 850, and according to Equifax, anything above 670 is considered “good” and a 740 to 799 credit score is “excellent.”

Even if your credit score is lower than 670, you could still be approved for an auto loan. The lender might just charge you a higher interest rate since you’d be considered a more risky borrower.

Both your FICO® score and VantageScore are based on a range of factors including:

The total amount of debt you owe
Payment history
Length of credit history
New credit you apply for (hard credit inquiries)
Type of credit accounts you currently have (account mix)

All of these factors hold some weight when the credit bureaus calculate your score, which gives lenders a good idea of if and how they should offer a loan. From a borrower’s standpoint, a lower credit score means you might not be approved for the loan terms you want, or you might pay more in total loan costs.

What Is the Minimum Score Needed to Refinance a Car?

There are hundreds of lenders that offer auto loans and auto refinancing. The list ranges from banks and credit unions to online lenders, dealerships, and more. Each lender has its own guidelines including the minimum credit score they accept.

This is why there’s no universal minimum credit score requirement to refinance an auto loan. Some lenders even focus on working with subprime borrowers who have a 600 credit score or lower. Meanwhile, a local credit union might not offer an auto loan or auto refinance to someone with a score that’s less than 660.

The good news is that there will likely be a lender who will be willing to offer you a loan no matter what your credit score is. Still, this doesn’t mean you should accept the loan – especially if the terms are not good or helpful to your situation.

According to RateGenius’ 2022 State of Auto Refinance Report, the average credit score of auto refinance borrowers the previous year was 670. However, this doesn’t mean borrowers who had a credit score below 670 weren’t approved to refinance.

Although credit scores are one concern, it’s also important to make sure that refinancing your auto loan makes sense for you financially. And even with an excellent credit score, there is no guarantee you’ll be approved to refinance your auto loan since lenders look at other factors as well.

Aside From Credit, What Else Do Lenders Look At?

Lenders look at more than just your credit score to determine if you qualify for a loan or not. Here are a few other important factors to be mindful of.

Debt-to-income (DTI) ratio (DTI)

Your DTI is a simple calculation that determines how much of your income is going toward current debt payments. DTI is expressed as a percentage and the formula is your total minimum monthly debt payments divided by your gross monthly income (before taxes).

Total debt includes all minimum payments for current loans and credit accounts such as student loans, personal loans, auto loans, mortgages, credit cards and so on. So, if you add up all your minimum debt payments and they total $1,000 for the month and your income is $5,000, your DTI calculation would be:

$1,000 / $5,000 = 0.20 = 20%

The lower your debt-to-income ratio, the better because it tells lenders you can afford to pay for your auto loan along with other current debt. Most lenders prefer to see a DTI below 36% but some mortgage lenders will allow up to 43% to 45%.

Loan-to-value (LTV) ratio

Your LTV ratio is used to evaluate the value of your vehicle. This is done during the application process by comparing the amount of your existing auto loan balance to the value of the vehicle. Since cars depreciate over time, the value of your vehicle will change and likely decrease as the years go by.

Since auto loans are secured, meaning a lender can repossess the vehicle due to nonpayment, your LTV ratio lets lenders know if they can cover the loss should they have to sell your vehicle to pay back the loan.

This means, lenders prefer cars that are newer and have a higher value than the loan amount. There is no set LTV since different lenders have their own guidelines.

Income

Your income is part of your DTI, but in addition to credit, lenders will evaluate your income to make sure you can financially afford to pay back your auto loan.

When you apply to refinance your auto loan, you’ll need to provide proof of employment, including check stubs or even a tax return if you’re self-employed. You can submit proof for all forms of monthly income you receive including salary and tips, social security, or rental income.

Ideally, you’ll want a higher income with less debt to maintain a low debt-to-income ratio.

Your current vehicle’s details

When you apply for an auto loan or auto loan refinance, you’ll need to provide certain details about your vehicle including the year and model, along with the mileage and current auto loan balance.

Lenders set their own maximum age and mileage requirements for auto loans, and this information will also help determine your LTV.

If your vehicle is older or has a lot of miles, a lender could deny you an auto loan refinance. However, you might notice the recurring theme that not all lenders are the same and another one might approve you with the same vehicle age and mileage. So don’t let the fact that you don’t have a new car keep you from applying for a refinance.

As you can see, a good credit score does not guarantee approval for an auto loan just as a lower credit score doesn’t guarantee a denied application. Weaknesses in any area discussed above can impact your approval and the auto loan rates you’ll get.

How to Increase Your Chances of Getting Approved to Refinance an Auto Loan

If you’re nervous about getting approved for an auto refinance loan, don’t worry. There are plenty of things you can do to strengthen your financial profile and reduce the risk to a lender. Remember that you don’t need a perfect financial situation to get approved, but making some of these improvements can help.

Improve your credit score

A higher credit score could help you save money on your auto loan if you can lock in a lower interest rate. To increase your credit score, start by reviewing your credit report to pinpoint areas for improvement. Make sure you’re paying bills on time and limit your hard inquiries. If you have credit cards with low or no balance, keep them open to extend your credit history length.

You can also use tools like Experian Boost to increase your score since it includes reporting for your phone and utility bills. Applying with a cosigner who has good credit can also give you a boost and improve your chances of getting approved.

Lower outstanding debt

Lowering your debt before applying for an auto loan has so many benefits. It can help increase your credit score, lower your DTI, and provide more peace of mind and cash flow. Choose one debt to focus on at a time and consider starting with the one that has the highest interest rate.

Add debt payments to your budget and set up autopay. Then, put any extra money toward the account to chip away at it faster.

Make a larger down payment

Making a larger down payment will lower your loan amount and total loan costs. When applying for an auto refinance loan, you can also choose to make a down payment which can help lower your LTV ratio.

Even if you’re upside down on your car loan (meaning you owe more than the vehicle is worth), you could still get approved to refinance with a new loan. Making a down payment can only improve your chances for approval and make lenders feel that their risk is even lower.

The same goes for making extra car loan payments when possible. If you know you plan to refinance in the future, it could make sense to lower your loan amount by making extra payments.

Increase your income

Increasing your income is another way to lower your LTV ratio. See if you can pick up extra hours at work or apply for a promotion. If you have time in your schedule, apply for a part-time job or consider a temporary side hustle that can raise your income. Just remember, you’ll need to show lenders that your income is consistent and validate it with pay stubs or a bank statement.

Shop around

You probably shop around before making a purchase more than you think. Since a car is a very costly purchase, you can benefit from shopping around for a new lender to compare rates and loan offers. Use the information you find to ensure you’re getting the best loan terms for your needs.

Don’t Give Up On Auto Loan Refinancing Due to “Bad Credit”

Refinancing an auto loan with a lower credit score is possible. There are so many lenders and each one sets its own guidelines and requirements for eligibility. Ultimately, your credit score will most likely not count you out for getting a new auto loan since there are other factors lenders look at.

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.

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