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We provide financing for almost all types of credit, or even if you are just starting out and don’t have any credit established yet.
In most cases, you will need to make an investment in the vehicle. The amount of the down-payment depends on two factors: 1.) Your credit status, and 2.) The amount of the vehicle you are purchasing.
Your credit status comes into play and determines the minimum down-payment required. Simply, the better the credit, the lower down-payment required by the lender. As the expected risk level in providing financing increases (lower credit score), the amount of financing available for a vehicle decreases. In many cases, the minimum down-payment calculated amount is the vehicle sales price, less the maximum approved loan amount for a given vehicle. As an example, if the vehicle selling price is $15,000, and the maximum approved loan amount for your credit profile on that vehicle is $12,500, the minimum down-payment would be $2,500. In some cases, the lender will require a percentage of the sales price, such as 10%, which in the prior example would be $1,500.
You can always invest more than the minimum down-payment required, which has two benefits: 1.) Lower monthly payments, and 2.) Possibly reducing your interest rate. It is common for lenders to finance sales tax on the sale, license fees, and protection products, such as an extended warranty and GAP waiver, in addition to the sale price of the vehicle.
If you are new to credit and don’t have a credit history, or if you have run into a challenge in the past making payments on time and have a credit score below 660, an auto loan is a great way to establish or re-establish your credit, and improve your credit availability and cost in the future. Take the time to consider what you can afford to make sure you can make you new vehicle’s loan payments on time and set yourself up for success. Unexpected expenses can be difficult to manage, which is why lenders provide financing for vehicle protection products that pay for some or all of the expense of a mechanical issue.
Interest rate is determined based on your credit history, the amount the vehicle costs that you are purchasing, and the amount of down-payment investment you are making.
If you are new to credit or have had financial challenges in the past, most, if not all, of the banks are likely not going to approve what they view is higher risk loans. Many, if not most banks require a credit score above 700, and there are close to 80 million people in the US with a score below 680, and over 50 million Americans who don’t have a credit score. Finance companies fill the gap and have lent over $200 billion in auto loans over the past few years. So, to qualify for average interest rates, you need average credit. The key thing to consider is to make sure you are entering into a loan that you can be successful in to build and improve your credit, so in the future you are able to lower your cost of borrowing.
The most important factor to determine one’s ability to be successful in an auto loan, and the interest rate lenders will charge, is simply the monthly payment divided by your monthly income. A good target is 10%. So, if your monthly income is $4,500, you should consider a goal to keep your monthly car payment in the $450 range. As this percentage goes up, good chance your interest rate will increase.
Down-payment helps in a few ways from a lender’s perspective and will generally influence the interest rate. As mentioned above, the lower the monthly payment as a ratio of your monthly income, the lower your interest rate. So, the more you put down, the lower the loan amount and monthly payment, which are both positive from a lender’s point of view. In addition, a higher down-payment also lowers the second most important factor,
If your interest rate is higher than you expected, consider taking a longer-term view by selecting a lower price vehicle that may not be exactly what you had in-mind today, to improve your options in the future. The other option is to increase the amount your putting down, lowering the lender’s risk and correspondingly, the interest rate. Either of these options or some combination of the two should improve your interest rate.
Once you see what the relationship is between your investment or down-payment, and the lender’s interest rate, you can make a choice that is best for you. Maybe you prefer paying a higher rate for the vehicle you want, or only making the minimum down-payment and keeping your cash for other investments.
Loan terms are usually based on the age or mileage on the vehicle you are buying. The lender is going to want to make sure the vehicle will provide utility throughout the term of the loan. So the more miles the vehicle has on the odometer, the shorter the term.
Longer terms reduce your monthly payment and increase the amount of interest over the life of the loan. In reality, few buyers keep the vehicle for the entire term of the loan, and most end up trading the vehicle.
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