Category Archives: financing

How to Buy Car With No Down Payment

 Understanding Down Payment on Car Loan

no down paymentWe often hear the questions, “How can I buy a car with zero down payment?”, ” Is it possible to get a car with no money down?”, or “How much down payment will I have to make for this car?”

There are a number of ways to acquire a new or used car without making a down payment, or making a minimal down payment. Let’s take a look.

New car without down payment

Most new-car purchases require a down payment but here are four cases where it is possible to escape that requirement:

1. You get a highly discounted purchase price such that the loan-to-value (LTV) ratio is 100% or less — that is, the loan you need is equal to, or less than, the value of the vehicle. Most loan companies set a new car’s value at sticker price. So, when you negotiate a lower price, you reduce the requirement for a down payment — assuming your credit score, income, and income-to-debt ratio are acceptable.

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Can I trade my car for a cheaper car?

Can I lower my car payments by trading for a less expensive car?

trade for cheapere carYes — maybe.

But whether it’s a good thing to do will depend on your particular circumstances. Let’s take a look.

If you want to trade your car for a cheaper car, it probably means you are finding it difficult to afford payments on the car you now have. Or you simply want to trade down to have a little extra money each month by lowering your payments.

Let’s look at the two different possible situations, one of which will probably match your own situation.

Situation #1

You are “upside down” on your current loan. That is, you currently owe more on your loan than your car is worth as a trade-in vehicle. You can determine how upside down you are by first asking your bank or loan company to give you your loan payoff balance. Then compare that amount to the actual trade-in value of your car (see www.kbb.com and www.nadaguides.com). The difference in the two amounts will tell you how much you are behind in your loan (“negative equity”).

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Dealer Wants Car Back – Legal or Not?

Can a Dealer Take Back a Car After Papers Are Signed? Is it Legal?

dealer wants car backThe short answer to the above questions are Yes and Yes.

It’s a fairly common situation.

You buy a car from a dealer who arranges a loan, you sign the papers, possibly make a down payment and/or trade an old vehicle, and you drive away — thinking the deal is done.

Not quite.

You may have received the impression from the dealer that your loan was approved, which is presumably why you were allowed to drive away in your new car.

However, most dealers don’t provide or approve loans (except for buy-here-pay-here used car dealers). They use outside banks or finance companies. One of the papers you signed was a loan application, not a loan approval or grant.

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Actual Car Loan Interest Rate

The annual interest percentage rate (APR) you pay on a car loan can be deceiving.  Because of the way in which loan payments are calculated, the actual interest rate, as a percentage of the loan amount, is higher for loans longer than 12 months. The exact rate depends on the APR and the length of the loan, but does not depend on the loan amount. See for yourself with this calculator.

For example, say you have a car loan for 60 months at 12% APR, which might be the case if you have poor credit.  You can see from the calculator that the actual amount of interest you pay is about a third of your loan amount.

This means that for every three dollars you pay on your car loan, you pay another dollar for interest.  This is money you never get back.

To minimize the total interest you pay on a car loan, do the following:

  1. Borrow as little as possible
  2. Make as large a down payment as possible
  3. Choose the shortest loan term as possible
  4. Lower your APR interest rate by improving your credit and shopping for better rates online and at local banks and credit unions

Car Payment Widget

Can I Refinance My Car Loan? Answers

Is it possible to refinance and lower my car payments?

refinancing a carMaybe.

Let’s explain.

It is natural to consider refinancing a car loan as a way to reduce monthly payments but it may not always be possible

Under the right conditions, you can lower your payments as well as reduce your total finance charges.

Under other conditions, refinancing may not make sense.

In some cases it might not even be possible.

Let’s explain.

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Bad Credit Car Loan – Options

Buying a car with bad creditHaving bad credit can cause difficulties when buying a new or used car if you need a loan.

However, most people with a low credit score have options that will allow them to get the car they want.

About your credit history and why it is important

Just to be clear, anyone who has ever had a loan, mortgage, or credit card has a credit history file. That file is a detailed report of every loan or account a person has had. It shows account details, credit amount, current status and balance, and payment history. If there have been late payments, missed payments, repossessions, bankruptcies, or foreclosures, those are also in the file. Negative information in the file can remain there for up to 10 years.

When you apply for an auto loan, the lender (dealer, finance company, bank, or credit union) will check your credit history to determine your credit worthiness — which is a measure of how likely, or unlikely, you are to keep your promise to repay your loan — based on your past performance.

However, car dealers and finance institutions don’t take the trouble to read your detailed credit report. Instead, they look at your credit score, which is a numerical rating that summarizes your entire credit history.

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Best Car for Teenagers? Explained

What car is ideal for teen drivers?

cars for teen driversAsk a teenager what car they want and then ask their parents what car they prefer for their child. You can get some pretty different answers. However, you just might get some surprising agreements too.

We hear teens asking the same questions over and over again. “Which is the best car for me?”, “What car should I get?”, “What is the best car for a first-time buyer?”, and “Which car has the best reliability-safety-style-performance-gas mileage-cost?”

We will try to help answer those questions here in this article.

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Can I get a car loan?

Will I be able to get approved for a car loan?

approval for car loanThis question typically comes up if the potential car buyer 1) has never had an auto loan before and doesn’t know how the process works, or 2) has credit or income issues that might prevent them from being approved.

For those who are new to the car loan process, let’s briefly review how it works.

First, in order to get a car loan, you must be at least 18 years old (to legally sign contracts), have good credit, and have a good steady income.

Many young people, such as college students, who have never had a loan before may have no credit history and have little or no income. For them, if they can’t pay cash, getting someone to be a co-signer on the loan is the only remaining option.

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Can I afford this car? What car can I afford?

How much car can I afford to buy?

afford carBased on my monthly income, can I afford the car I want?

This is a common question but doesn’t have a set answer.

The answer depends on the following factors, assuming you will use an auto loan to pay for your vehicle:

  • price of the vehicle, including tax and other costs
  • cost of full-coverage insurance, as required by your lender
  • your monthly income, after taxes
  • your monthly expenses
  • your credit score (affects the amount you can borrow)
  • the amount of down payment you can afford

Some experts say that your car payments shouldn’t be more than 20% of your take-home pay. Others are more conservative and say 10%.

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