Can I Lower The Interest Rate On My Current Car Loan
If you already have a bad credit car loan, did you know that you could potentially lower your interest rate? Its true, you can do this by refinancing.
When you refinance, youre replacing your current loan with a new one. You can check with your current lender about refinancing, or you could apply with a different one. However, in order to refinance, you need to qualify for a new loan.
In most cases, your credit score needs to have improved since taking out your initial loan. In addition, your vehicle needs to qualify by meeting the lenders refinancing requirements this includes the cars age, mileage, current value, and total loan amount.
Simple Rules For Saving Money
1. Get preapproved for a loan before you set foot in a dealer’s lot.
“The single best advice I can give to people is to get preapproved for a car loan from your bank, a credit union or an online lender,” says Philip Reed. He’s an automotive expert who writes a column for the personal finance site NerdWallet. He also worked undercover at an auto dealership to learn the secrets of the business when he worked for the car-buying site Edmunds.com. So Reed is going to pull back the curtain on the car-buying game.
For one thing, he says, getting a loan from a lender outside the car dealership prompts buyers to think about a crucial question: “How much car can I afford? You want to do that before a salesperson has you falling in love with the limited model with the sunroof and leather seats.”
Reed says getting preapproved also reveals any problems with your credit. So before you start car shopping, you might want to build up your credit score or get erroneous information off your credit report.
And shop around for the best interest rate. “People are being charged more for interest rates than they should be based upon their creditworthiness,” says John Van Alst, a lawyer with the National Consumer Law Center.
If you take that bad deal, you could pay thousands of dollars more in interest. Van Alst says the dealership and its finance company, “they’ll split that extra money.”
Ways To Cut The Cost Of Your Car Loan
Pamela Rodriguez is a Certified Financial Planner®, Series 7 and 66 license holder, with 10 years of experience in Financial Planning and Retirement Planning. She is the founder and CEO of Fulfilled Finances LLC, the Social Security Presenter for AARP, and the Treasurer for the Financial Planning Association of NorCal.
With financial headwinds like rising gas prices, a slowly-recovering economy and continued job scarcity, reducing costs in every corner of our financial lives have become a necessity. Unfortunately, our cars aren’t concerned with our economic troubles. When they break down for the last time and we are forced to buy a new one, finding the best deal on financing becomes a necessity.
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Choosing The Right Car Loan
The following table explains the dos and donts when choosing the right car loan:
|Compare – BankBazaar.com can help you compare the various car loan options available to you.||Eligibility – Do not apply for a loan amount that exceeds your eligibility, as this will result in the rejection of your loan application.|
|Whats the Interest? Choose a loan that offers you the best interest rate along with the loan amount you need.||Multiple Applications – Do not apply with multiple banks as this will have a negative impact on your credit score.|
|Keep it Simple Choose the car before applying for the loan and make sure the cost of the car fits your budget.||If your application is rejected, dont continue to keep apply at different banks. Chances of rejection will rise.|
|Hidden Fees and Charges – Sometimes what appears as obvious will have a hidden component. Be aware of the hidden fees and charges concerning the car loan.||Relying on the Dealership for loans – The loan that the dealer offers may not have the best interest rate. So, check the other options.|
|Special offers There could be special offers available when you are applying for your loan. Make sure you take advantage of them||Dont pick a car with a high service cost because you already have the EMI and the insurance premiums to pay.|
|Insurance Check the insurance premium for the car as this is a recurring cost.|
In case of bad credit, is a long-term car loan a better option?
Set Up Automatic Payments
One way to ensure you pay your loan on time is to set up automatic payments. Lenders can debit your checking account each month so that your credit score isnt affected by late payments which is a good thing for the next time youre sitting at a negotiating table. And with some lenders, you might even get a discounted rate if you sign up for automatic payments.
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When Your Credit Health Has Improved
Your credit scores are a factor in determining your auto loan rate. If your scores have gone up since you bought the car, and youve made on-time car payments, you might get a better rate, which could save you money in interest over the life of the loan.
Lenders may use your FICO® Auto Scores or base credit scores to help determine your creditworthiness. But no matter which they use, better credit scores can indicate to lenders that youre more likely to pay off your loan, so they may give you a lower rate.
Not sure if your scores have improved? On Credit Karma, you can get your free VantageScore 3.0 credit scores from TransUnion and Equifax.
How To Qualify For 0% Financing
It’s possible to qualify for a car loan even if you have bad credit, but having a good credit score is important if you want to qualify for a low interest rate. And if you’re hoping to score a 0% APR car loan, you’ll likely need a very good or exceptional FICO® Score, which means a score of 740 or above.
Before you start shopping for a new vehicle, take some time to check your credit score to see where you stand. Also, get your credit report from one or more of the national credit reporting agencies to see where you stand. You can get a free report once a year from each agency at AnnualCreditReport.com. Experian also offers a free credit report every 30 days on sign in.
Review your credit report and make sure to file a dispute with the credit bureaus if you find anything you believe is inaccurate or the result of fraud. The bureaus investigate these potential discrepancies and will revise or remove them from your credit report if they find that they’re inaccurate or fraudulent.
Also, take note of any actions you can take to improve your credit:
- Always pay your bills on time.
- Pay down your credit card balances.
- Avoid closing old credit cards.
- Apply for new credit only if you need it.
If you’ve made late payments or have other negative credit items on your report, it may take a while for your credit history to recover enough to qualify for a 0% APR car loan. If you don’t need a car right away and can work on improving your score, you may qualify down the road.
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You Financed Your Current Auto Loan Through A Dealership
Dealerships may not offer you the best rates available. If you took out your loan through a dealer especially without negotiating the interest rate refinancing could potentially save you thousands of dollars over the remaining life of the loan.
If youre shopping around for the best interest rate, consider checking out auto refinance rates at a financial institution where you already do business. For many bank members, this could mean accessing special discounts.
For example, Chase offers a 0.25% interest-rate discount if youre a Chase Private Client. And Bank of America Preferred Rewards customers may qualify for a rate discount of up to 0.50%.
Strategies For Digging Out Of Debt
2. Test drive, test drive, test drive.
These days many of us like to research things we buy online. And that’s good. But you also need to get your hands off the laptop or smartphone and onto some steering wheels or you’ll waste a lot of time researching vehicles that you won’t like in the end.
Dianne Whitmire sells cars at a Toyota dealership near Los Angeles. She says she constantly sees people who spend hours and hours online researching a car, finding the best price, all the other information. They call her 10 times. But when they finally show up to drive the car, they say, “I didn’t realize this seat was this way. This is not the model I want.”
Whitmire says you need to be a bit more old school about things and actually drive a bunch of cars. “I’ve been doing this for 40 years,” she says. “It used to be that people would go to a dealership and drive around and figure out what car they actually wanted, what their choices were.”
She suggests driving cars that are within your budget so you aren’t seduced by what you can’t afford. This means you want to find salespeople who are OK showing you a bunch of cars and not being too pushy or trying to upsell you into a pricier model.
“That person who says, ‘What about right now, that car right out there right now? What would it take?'” repeatedly trying to sell you a car that very day she says that’s probably a sign you’ve got the wrong salesperson.
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A Few Auto Financing Tips
Unless you buy a rare Ferrari, your car is not an investment, its a depreciating asset. In fact, most cars will lose half their value in five years. Most luxury and sports cars depreciate even faster.
Thats why you generally want to pay off your car as soon as possible. Dealers will try to talk you into some combination of a low down payment, low monthly payments, and long loan terms . Why? Because they and their lenders will make tons of money off of you in interest that way.
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The longer you take to pay off your auto loan, the higher the likelihood that your car will go underwater or upside down, meaning you owe more on the loan than the car is worth . Thats an awful place to be, because even if you sell the car tomorrow, youll still owe thousands on a car you dont even have anymore.
Thats not to say that all auto loans are bad. Most of us use cars to get to our jobs and dont have the cash lying around to buy a reliable ride, so we need a car loan. Thats totally cool!
But the key difference is this: an auto loan should help you get a car that you can afford, not one that you cant afford.
I have the credit and income to go out and get a loan for a BMW M3. And I would love that car. But that doesnt mean I should get it. What the dealer will tell you you can afford for dealership financing and what you should spend are two very different things.
Loyalty Programme Introduced By Hyundai For New Customers
A new loyalty programme known as Hyundai Mobility Membership has been launched by Hyundai. Individuals who buy a car on or before 13 August 2020 will be eligible to avail the membership. However, according to Hyundai, all existing customers will also be eligible for the membership in the next phase. The steps that are involved to enrol for the programme are installing the Hyundai Mobility Membership app are registration, interest selection, details of the vehicle, and completing the registration. Details such as the email ID, mobile number, and VIN are needed to complete the registration. The three categories of the programme are lifestyle, mobility, and core. Hyundai has entered into a partnership with several companies so that various benefits will be provided under the programme. Various needs of the vehicle such as tyres, oil, and accessories are provided under the programme.
18 August 2020
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Know What You Can Afford
Finally, dont forget to know what you can afford in terms of monthly payments. This is extremely important in order to avoid making a purchase that becomes too expensive for you to handle once the excitement starts wearing off. Knowing what you can afford in monthly repayments means that it will be easier to compare loan options, because youll have a set limit of what you can afford each month in mind. To compare car loans online check out Driva for personalised rates from more than 30+ lenders.
Shorten Your Repayment Term
You should try to take on the shortest repayment term you can afford with your budget because you’ll likely receive a lower interest rate. You’ll pay less per month with a longer repayment term, which may seem appealing, but keep in mind that you’ll cough up more in total interest because you’re spreading your payments over an extended period.
The best way to get a low interest rate on an auto loan is by doing your research and understanding what terms make the most sense given your budget and credit history.
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When Is It Smart To Refinance Your Car Loan
Times, when you should consider refinancing your car, include various situations. Consider the following:
Consider Your Credit score
Has your gone up significantly in the recent past? If you find that your rating is drastically higher than when you initially took out your car loan, you will likely get a better rate if you refinance.
Can You Get a Lower Interest Rate?
Did you get your vehicle when interest rates were really high? It happens to countless households across the country. Many chose to refinance their vehicle when interest rates lower.
Where Do You Stand Financially?
If you have recently come across difficult times situations like unexpected expenses or even a decrease in income, you could find yourself unable to make regular payments. Instead of having a poor payment history on your credit, refinancing can make things more affordable.
On the other hand, if you have gotten a pay increase which you can substantiate with pay stubs, it can be wise to look into refinancing, too. This means that your income-to-debt ratio has improved and you will better qualify for a loan arrangement.
Have A Down Payment Ready
A down payment is one of the most useful tools you have at your disposal in car buying. The more you bring to the table, the less you have to finance, and the more opportunities open up in your auto loan. In some cases, this can include lower interest rates.
Remember, trading in a vehicle with equity adds to the amount you put down, too.
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Shop Around Without Enquiring
Don’t let the salesperson or dealership financer tell you that the offer they have provided is the best in the market for your circumstances. Each lender assesses their interest rates differently, where some lenders will base their interest rates on the applicant primarily, other lenders will base their interest rates more on the car you plan on purchasing.
So, depending on the vehicle you are looking to buy and the overall strengths in your application, there may be a better deal out there for you, if you shop around.
Don’t Stop At The Dealership
Just as your car dealer is a middle man when selling you a car, they are also a middle man when they want to set you up with a loan or a lease. Middle men always get paid for their trouble, and the person paying is probably you. Of course, you should get a financing quote from the dealer but if you stop there, you may very well end up paying too much for your loan. You probably did some shopping around for your car. Do the same for your loan.
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Build Your Credit Before Car Shopping
If you still arent getting car loan rates that work for you, it might be time to delay your car purchase and work on building your credit. That means:
Paying bills on time. A payment that goes 30 days past due can devastate your score, so pay at least the minimum on time.
Keeping credit card balances low compared to your credit limits. How much of your limits you’re using is called your credit utilization, and it has a big effect on your score. You can try a number of tactics to lower your credit utilization in order to bump up your score.
Avoiding applications for other credit within six months of applying for a car loan.
Keeping credit card accounts open unless there’s a compelling reason to close them. Closing cards reduces your overall credit limit, which can hurt your credit utilization.
Evaluate The Interest Rate Youre Offered
Customers with an excellent credit score may qualify for a single-digit APR loan, while those with average credit will usually be able to access a loan with 10% APR.
At Birchwood Credit, our average rate is 15%. We will help you find a payment plan that fits your lifestyle and budget, even if you have bad credit.
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