Whether you are buying your first new or used car or are planning to apply for online auto loans for the first time, understanding how automobile dealerships and lenders see you, and what you can do to improve that image, can help you to be prepared in advance of applying for online auto loans for the first time, so that you will be in a better position to get approved for an car loan with a lower interest rate and better terms. After all, you want your monthly auto loan payment to be the lowest it can possibly be, right?
Who might apply for first time buyer car loans? Some people that first time auto loan programs can help could be:
* Teenagers, personally buying their first car in their own name will need to apply for first time buyer auto loans as they have no credit history behind them
* College students living away from home for the first time frequently have not had time to build a credit history before leaving for school and so will often need to apply for first time buyer car loan programs
* People that have always paid cash for a vehicles in the past, but now want to upgrade to a newer one or are forced to take out automobile loan because they do not have the cash funds to buy a vehicle at present
* Immigrants that have moved here from other countries, and thus have left their credit histories behind, may need to apply for first time auto loan programs in order to start building a credit history
Not All First Time Auto Loan Borrowers are in the Same Boat
The first thing to realize is that not all first time borrowers are in the same boat. There can be a lot of differing factors that can either work in your favor, or against you when you are applying for online auto financing. For instance:
* Are you employed full or part time? If you are not employed, do you have an income? Not being employed is not necessarily a game stopper, but if you plan to have your name on the title of the car and on the auto finance, you will need to demonstrate that you have either a job, regular income, or other funds that you will be paying your monthly auto loan payment from. Of course, the higher that your income is, the easier it will be to qualify for lower interest rate first time buyer auto loan programs.
* Do you have no credit history, because you are just starting out your financial life, or do you have a bad credit history/low credit score because you have had a few credit slip-ups in the past? Dealerships will certainly work with you in either case. However, if you have a low credit score, depending on how bad your credit history is, the dealership may be inclined to offer you a higher rate of interest and a lower credit limit on first time buyer auto loans as opposed to someone that has not made any credit mistakes in their financial life yet.
Note, see our recent article entitled “How to Get Approved for an Auto Loan with Bad Credit if you have Low Income” to learn how to get unwanted items removed from your credit report to bring up your credit score.
* Will you have any funds available to make a down payment on your auto loan? Whether you are applying for first time buyer auto loans, or if you have had auto loans in the past and just need another one now, what every auto dealership or lender is going to take into consideration when assessing your application and the items on this list is; how much of a risk are they taking in making an auto loan to you and what if anything can they get you to do to mitigate that risk. Making a down payment is one thing that you can do to mitigate the dealership’s risk, making them more likely to quickly approve your automobile loan and to give you a more reasonable interest rate. In addition, a down payment will obviously bring down what you owe on the vehicle and so your monthly payments will be lower and more affordable. Down payments are usually not required to get online auto loans, but they can be very helpful when negotiating with a dealership. Even a small down payment can make a difference in how the dealership sees you.
* Is there someone that you know that would be willing to cosign for you on your auto loan? Cosigners are not required in order to get online auto loans, even if you have bad credit or no credit history at all. However, the use of a cosigner can save you a lot of money and make the application process go much more quickly and smoothly. A cosigner is someone that puts their name on your loan application along with yours, guaranteeing that the loan will be repaid. The limit and maximum amount of your automotive loan will be determined by the cosigner’s income and credit standing, not yours. So, if you choose to have a cosigner, make sure to pick one that has a high credit score. With a cosigner, there is really no need to look for first time buyer auto loans because you will be treated by the dealership as though the higher credit score and income were yours.
* What is the ratio of your monthly housing payment as compared to your income? A little known fact is that auto dealerships and lenders pay attention to this number. For instance, if you make $1,000 per month income, and your monthly housing cost is $300, then your housing cost takes 30% of your income. Anything over 40% will send up a red flag to the dealership/lender and they may need convincing that you can make your monthly payments on time. Take this into consideration when you complete your auto finance application.
Taking the above items into consideration, you should be able to get a clearer picture of how automotive dealerships and automotive loan lenders see you, and what you can do to control that image, at least to some extent. Once you have submitted your application, the die has been cast and you will see what the dealership offers you at that point.
Car buyers know the benefit of a loan. A loan can help you get a vehicle you want at a monthly payment that fits their budget. What you may not know is that in the case of an auto loan, you can avoid travel and apply for the car loan from your computer! The availability of online auto loans comes from the emergence of online financial institutions. Banks and several other businesses have become comfortable operating online, with some banks even performing loan interviews over the internet. In the case of online auto loans, banks and other financial aids can operate via online lenders to help people receive their loans through online transactions.
One of the benefits of applying for a car loan online is that the car loan application takes no time at all to finish. Whereas you would have to commute to the bank and then the dealership to fill out the paperwork involved with applying for a loan, you will not have to leave the house to fill out an online auto loan application! The streamlined service involved in applying for an online auto loan comes from the plethora of online loan lenders that will work with you quickly and efficiently to find the best loan that you need.
A simple search will reveal thousands of sites and lending services ready to help you on the spot and the applications are stress free. As with all loans, whether they are for a car or house, when applying for a loan online, research it! The online loan rates can differ wildly depending on what bank, company, or business the online lender works with. In order to find the best APR on a loan, I would recommend searching various lender web pages, such as Up2drive.com or Myautoloan.com. These sites have APR estimates on the main web page and can give you a rough idea of what you are looking at paying for your monthly bill.
As with all loans, the APR is extremely important to take into account when looking at repaying your loan. The APR, or annual percentage rate, is the interest returned on your borrowed loan from the bank or financial service. These institutions can help settle your financial matters through a fixed APR, meaning an interest rate that cannot change, regardless of the bank’s situation. A non-fixed APR means that the interest rate on the loan from the bank or in some cases, the dealership itself, would fluctuate at the end of a year. At the beginning of the New Year, the bank can either decrease or increase your APR, and although they are rare, a decreased APR could be obtained under the precedent that your financial institution is working with you to help you repay your loan.
This could stem from a financial hardship or simply not having enough money at the time to repay your loan. To counteract bad credit, a bad credit auto loan can be applied for. These loaning situations are for those that have a credit score of 600 or lower. When applying for loans, if your score is below 600, it’s very likely that a loan corporation or business will simply pass you over. However, applying further for loans will actually hurt your credit score more, so to counter this you could visit Myautoloan.com. This site helps you connect with high risk lenders and nearby car dealers that can help you finance your new car.
An online auto loan holds many benefits to the average consumer. In one example, an online auto loan will typically beat out a dealer’s overall APR. As well as being cheaper overall, an online auto loan application does not incur fees, such as one may be subject to at a dealer’s. Many car dealers tack on application fees to squeeze that extra bit of cash out of the customer beforehand. In another example of why an online auto loan is more beneficial than an in-person one, you may find that the online application is considerably easier to fill out, since you do have the internet at your fingertips. Besides having the information needed to properly fill out an app online, you will also be able to work at your own pace to fill the application out. Lastly, the best part about an online auto loan would be that with most online auto loans, there is no down payment involved. Unlike at a dealership’s, an online auto loan steps around any down payments by working directly with the lender, as opposed to working through the dealer to find financing.
The availability of online auto loans comes from the emergence of online banking and financial institutions. Banks and several other businesses have become comfortable operating online, with some banks even performing loan interviews over the internet. In the case of online auto loans, banks and other financial aids can operate via online lenders to help people receive their loans through online transactions.
One of the benefits of applying for a car loan online is that the car loan application takes no time at all to finish. Whereas you would have to commute to the bank and then the dealership to fill out the paperwork involved with applying for a loan, you will not have to leave the house to fill out an online auto loan application!
The streamlined service involved in applying for an online auto loan comes from the plethora of online loan lenders that will work with you quickly and efficiently to find the best loan that you need. A simple search will reveal thousands of sites and lending services ready to help you on the spot and the applications are stress free.
As with all loans, whether they are for a car or house, when applying for a loan online, research it! The online loan rates can differ wildly depending on what bank, company, or business the online lender works with. In order to find the best APR on a loan, I would recommend searching various lender web pages, such as Up2drive.com or Myautoloan.com. These sites have APR estimates on the main web page and can give you a rough idea of what you are looking at paying for your monthly bill.
As with all loans, the APR is extremely important to take into account when looking at repaying your loan. The APR, or annual percentage rate, is the interest returned on your borrowed loan from the bank or financial service. These institutions can help settle your financial matters through a fixed APR, meaning an interest rate that cannot change, regardless of the bank’s situation.
A non-fixed APR means that the interest rate on the loan from the bank or in some cases, the dealership itself, would fluctuate at the end of a year. At the beginning of each year, the bank can either decrease or increase your APR, and although they are rare, a decreased APR could be requested and obtained under the premise that your financial institution is working with you to repay your loan. This could stem from a financial hardship or simply not having enough money at the time to repay your loan.
For car buyers with bad or no credit there are special bad credit auto loans available. These loans are for those that have a credit score of 600 or lower. When applying for loans, if your score is below 600, it’s very likely that a loan corporation or business will simply pass you over. However, applying further for loans will actually hurt your credit score more, so to counter this you could visit Myautoloan.com. This site helps you connect with high risk lenders and nearby car dealers that can help you finance your new car.
An online auto loan holds many benefits for the average car buyer. In one example, an online auto loan will typically beat out a dealer’s overall APR. As well as being cheaper overall, an online auto loan application does not incur fees, such as one may be subject to at a dealer’s. Many car dealers tack on application fees to squeeze that extra bit of cash out of the customer beforehand.
Another example of why an online auto loan is superior to a traditional in-person one, you will find that the online application is considerably easier to fill out. Besides having the information needed to properly fill out an app online, you will also be able to work at your own pace to fill the application out.
Lastly, the best part about an online auto loan would be that with most online auto loans, there is no down payment involved. Unlike financing at a car dealership, an online auto loan steps around any down payments by working directly with the lender, it also lowers your cost and rate and removes dealer mark ups.
Car finance has become big business. A huge number of new and used car buyers in the UK are making their vehicle purchase on finance of some sort. It might be in the form of a bank loan, finance from the dealership, leasing, credit card, the trusty ‘Bank of Mum & Dad’, or myriad other forms of finance, but relatively few people actually buy a car with their own cash anymore.
A generation ago, a private car buyer with, say, £8,000 cash to spend would usually have bought a car up to the value of £8,000. Today, that same £8,000 is more likely to be used as a deposit on a car which could be worth many tens of thousands, followed by up to five years of monthly payments.
With various manufacturers and dealers claiming that anywhere between 40% and 87% of car purchases are today being made on finance of some sort, it is not surprising that there are lots of people jumping on the car finance bandwagon to profit from buyers’ desires to have the newest, flashiest car available within their monthly cashflow limits.
The appeal of financing a car is very straightforward; you can buy a car which costs a lot more than you can afford up-front, but can (hopefully) manage in small monthly chunks of cash over a period of time. The problem with car finance is that many buyers don’t realise that they usually end up paying far more than the face value of the car, and they don’t read the fine print of car finance agreements to understand the implications of what they’re signing up for.
For clarification, this author is neither pro- or anti-finance when buying a car. What you must be wary of, however, are the full implications of financing a car – not just when you buy the car, but over the full term of the finance and even afterwards. The industry is heavily regulated in the UK, but a regulator can’t make you read documents carefully or force you to make prudent car finance decisions.
Financing through the dealership
For many people, financing the car through the dealership where you are buying the car is very convenient. There are also often national offers and programs which can make financing the car through the dealer an attractive option.
This blog will focus on the two main types of car finance offered by car dealers for private car buyers: the Hire Purchase (HP) and the Personal Contract Purchase (PCP), with a brief mention of a third, the Lease Purchase (LP). Leasing contracts will be discussed in another blog coming soon.
What is a Hire Purchase?
An HP is quite like a mortgage on your house; you pay a deposit up-front and then pay the rest off over an agreed period (usually 18-60 months). Once you have made your final payment, the car is officially yours. This is the way that car finance has operated for many years, but is now starting to lose favour against the PCP option below.
There are several benefits to a Hire Purchase. It is simple to understand (deposit plus a number of fixed monthly payments), and the buyer can choose the deposit and the term (number of payments) to suit their needs. You can choose a term of up to five years (60 months), which is longer than most other finance options. You can usually cancel the agreement at any time if your circumstances change without massive penalties (although the amount owing may be more than your car is worth early on in the agreement term). Usually you will end up paying less in total with an HP than a PCP if you plan to keep the car after the finance is paid off.
The main disadvantage of an HP compared to a PCP is higher monthly payments, meaning the value of the car you can usually afford is less.
An HP is usually best for buyers who; plan to keep their cars for a long time (ie – longer than the finance term), have a large deposit, or want a simple car finance plan with no sting in the tail at the end of the agreement.
What is a Personal Contract Purchase?
A PCP is often given other names by manufacturer finance companies (eg – BMW Select, Volkswagen Solutions, Toyota Access, etc.), and is very popular but more complicated than an HP. Most new car finance offers advertised these days are PCPs, and usually a dealer will try and push you towards a PCP over an HP because it is more likely to be better for them.
Like the HP above, you pay a deposit and have monthly payments over a term. However, the monthly payments are lower and/or the term is shorter (usually a max. of 48 months), because you are not paying off the whole car. At the end of the term, there is still a large chunk of the finance unpaid. This is usually called a GMFV (Guaranteed Minimum Future Value). The car finance company guarantees that, within certain conditions, the car will be worth at least as much as the remaining finance owed. This gives you three options:
1) Give the car back. You won’t get any money back, but you won’t have to pay out the remainder. This means that you have effectively been renting the car for the whole time.
2) Pay out the remaining amount owed (the GMFV) and keep the car. Given that this amount could be many thousands of pounds, it is not usually a viable option for most people (which is why they were financing the car in the first place), which usually leads to…
3) Part-exchange the car for a new (or newer) one. The dealer will assess your car’s value and take care of the finance payout. If your car is worth more than the GMFV, you can use the difference (equity) as a deposit on your next car.
The PCP is best suited for people who want a new or near-new car and fully intend to change it at the end of the agreement (or possibly even sooner). For a private buyer, it usually works out cheaper than a lease or contract hire finance product. You are not tied into going back to the same manufacturer or dealership for your next car, as any dealer can pay out the finance for your car and conclude the agreement on your behalf. It is also good for buyers who want a more expensive car with a lower cashflow than is usually possible with an HP.
The disadvantage of a PCP is that it tends to lock you into a cycle of changing your car every few years to avoid a large payout at the end of the agreement (the GMFV). Borrowing money to pay out the GMFV and keep the car usually gives you a monthly payment that is very little cheaper than starting again on a new PCP with a new car, so it nearly always sways the owner into replacing it with another car. For this reason, manufacturers and dealers love PCPs because it keeps you coming back every 3 years rather than keeping your car for 5-10 years!
What is a Lease Purchase?
An LP is a bit of a hybrid between an HP and a PCP. You have a deposit and low monthly payments like a PCP, with a large final payment at the end of the agreement. However, unlike a PCP, this final payment (often called a balloon) is not guaranteed. This means that if your car is worth less than the amount owing and you want to sell/part-exchange it, you would have to pay out any difference (called negative equity) before even thinking about paying a deposit on your next car.
Read the fine print
What is absolutely essential for anyone buying a car on finance is to read the contract and consider it carefully before signing anything. Plenty of people make the mistake of buying a car on finance and then end up being unable to make their monthly payments. Given that your finance period may last for the next five years, it is critical that you carefully consider what may happen in your life over those next five years. Many heavily-financed sports cars have had to be returned, often with serious financial consequences for the owners, because of unexpected pregnancies!
As part of purchasing a car on finance, you should consider and discuss all of the various finance options available and make yourself aware of the pros and cons of different car finance products to ensure you are making informed decisions about your money.
Stuart Masson is founder and owner of The Car Expert, a London-based independent and impartial car buying agency for anyone looking to buy a new or used car.
Originally from Australia, Stuart has had a passion for cars and the automotive industry for nearly thirty years, and has spent the last seven years working in the automotive retail industry, both in Australia and in London.
Stuart has combined his extensive knowledge of all things car-related with his own experience of selling cars and delivering high levels of customer satisfaction to bring a unique and personal car buying agency to London. The Car Expert offers specific and tailored advice for anyone looking for a new or used car in London.
There are many reasons why consumers choose to go through the auto loan refinance process, but many often fail to fully understand the process of refinancing a vehicle and pursue it just because they want to get a lower monthly payment.
It may be the case that current tough economic times have got you in a tough spot leaving you unable to afford your current payment, or you simply want to lower your monthly payment so you have more money to spend on other bills or monthly expenses. Then an auto loan refinance can help you achieve a lower monthly payment.
Current interest rates are at all new low levels due to the swing in recent market conditions, so now may be the perfect opportunity for you if you are considering an auto loan refinance.
Auto Loan Refinance Defined
An auto refinance loan is a loan that aims to pay off an existing loan more effectively by providing a lower interest rate, reducing the monthly loan premium that the borrower is responsible for, and reducing the overall costs that the borrower ends up paying above and beyond the initial value of the loan.
Borrowers can refinance their vehicles by going through their current lender for the new loan, or they can research other lenders to see who has the best terms based on current market conditions.
Should You Refinance Your Auto?
Before you jump into the process of refinancing your vehicle, it might be a good idea to assess your particular situation in order to identify whether or not refinancing is the right decision for you. The decision you make will depend on what your goals are from a borrowing standpoint.
You should consider refinancing if:
You would like to get a lower interest rate in order to reduce overall interest costs on your loan. As mentioned before, interest rates are at all new lows. This means that a new loan with the same terms will cost less when all is said and done because of the lower interest rates. If your current loan has a 6% interest rate, and you now qualify for a 3% loan with the same terms, you will save dramatically on interest costs when your loan is finally paid off if you refinance instead of sticking with your current loan.
You might also consider an auto loan refinance if you want to reduce your monthly payment. Your monthly payment can be reduced if you are able to get a new loan with a lower interest rate, you extend the payoff period of the loan, or you get a lower interest rate and extend the period of the loan. Keep in mind that simply extending the period of the loan with all other factors remaining the same may increase your total interest cost in the long run.
How To Refinance Your Car
There are a number of options that you can choose from in order to refinance your current auto loan. The first and perhaps the simplest option would be to contact your current lender to see if they can offer you a better rate on your current loan or if they can simply extend the payoff period of your loan. Going through your current lender would save costs associated with lien transfer fees and would save you the hassle of having to find a new lender.
If you’d rather not stick with your current lender, then you can shop around to find another lender who is willing to offer you the best rates and terms on your new loan. The quickest and easiest way to find a qualified lender with better loan rates is by searching on the internet. There are numerous online lender comparison tools designed to get you in front of multiple lenders in order to compare the different rates and terms that they have available.
Once you locate your lender of choice, then all you have to do is apply for the refinance loan with them. They will normally check your credit score and if you are approved for the auto loan refinance, your new lender will pay off your current loan and your title will be transferred to them.
Calculating The Cost Of Auto Loan Refinance
The quickest and easiest way of determining how much it will cost to refinance your current auto loan is to use a refinance auto loan calculator. You simply input the total amount of the loan, the interest rate, the number of months it will take to pay off the loan, and any down payment that you will be making. The end result is the total cost of the new loan that you will be taking on based on the new refinance auto loan rates. You can use the loan calculator to perform the same calculation for your current loan in order to determine whether or not refinancing is more cost effective.
Advantages and Disadvantages Of Refinancing Your Vehicle
There are many advantages and disadvantages of refinancing a vehicle. In order to make the decision on whether or not refinancing makes sense for you, you have to consider the advantages and disadvantages and whether or not they apply in your particular situation.
Advantages
Lower Interest Rate – One of the biggest benefits of refinancing that consumers aim to take advantage of during certain economic conditions is lower interest rates. Lower interest rates on loans help save the borrower money in the long run. This is due to the fact that lower interest rates result in lower overall interest costs on the loan.
Reduce Monthly Payment – Another important advantage of the auto loan refinance is that it can help you reduce your monthly payment. Borrowers can reduce their monthly payment either by extending the term of the loan or by getting a lower interest rate.
Stress Relief – Often times borrowers enjoy lower stress levels when they are able to refinance and get a lower monthly payment. If you have seen a drop in income, have more bills to pay, or simply need more money for other expenses each month, refinancing can help give you the financial relief that you need.
Disadvantages
The auto loan refinance can also have disadvantages that you might want to consider before going through the process.
Increase Interest Cost – If you refinance simply to extend the term of your loan and get a lower monthly payment, the auto loan refinance will most likely end up costing more in the long run due to higher interest costs. This would be true if you refinanced with a loan that has the same interest rate and a longer payoff period.
If you are looking to refinance your vehicle even if your credit history is not great, you should find out what your credit score is. You can find guidance on what your credit report and score means on the page below: