A Millennial’s Guide to Getting Your First Car Loan

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Buying a car is almost a rite of passage. Making that first car purchase, negotiating with the seller, and arranging financing (if you need an auto loan) all require a certain amount of savvy.

And, once you successfully achieve the car-buying milestone, another signpost looms in the distance: Refinancing.

Whether you’re getting an auto loan for the first time, or you want to refinance your existing car debt, it’s important to be an informed consumer. Here’s what you need to know.

Get your finances in order

Before beginning your car search, you need your finances in order, according to Joe Pendergast, the vice president of consumer lending for Navy Federal Credit Union.

“Know your budget, check your credit score, and review your existing credit accounts to ensure they are reported accurately,” Pendergast said. Your credit situation can directly impact the interest you pay on your auto loan.

Emily Shutt, a certified financial coach who works closely with millennial women to help them manage a variety of money issues, suggested calling around to different dealers and banks or credit unions to see what credit bureau they use to check your score. Then you can check your report for errors and have them fixed before you talk to someone about financing your car purchase.

“Having errors on a credit report can negatively impact score, which can put you at a huge disadvantage when you’re negotiating for an auto loan interest rate,” Shutt said.

You should also know ahead of time where you stand with your budget. Use an online loan calculator to determine what you can afford in terms of a monthly payment. For example, if you think you can handle a $305 monthly payment, and you have the credit to get an interest rate of 2.9% for a five-year loan, you might feel you can afford to borrow up to $17,000 for a car.

Save up for a down payment

Just because you might be able to borrow so much for a car doesn’t mean you necessarily should. In fact, saving for a down payment makes a lot of sense, Shutt said. Not only does having a down payment help you to better negotiate your loan rate, but it also can allow you a shorter loan term and save you money in the long run.

Play around with the numbers a little with an online calculator. If you can put $7,000 down, so that you borrow only $10,000 of that $17,000 car, you could maybe get an interest rate of 2.5% and a loan term of three years. Even better, your monthly payment would only be $289 — and you’d save $1,494 in interest.

The less you borrow, the more money you have in the end. And that’s money you can put toward investing in your future, rather than paying interest to someone else.

Know what you want — and what it costs

Once your finances are in order and maybe you have a down payment saved up, it’s time to figure out what you can actually buy. Avoid over-borrowing by knowing what you want in a car and having an idea of what it costs, Shutt suggested.

“Everything should already be online so you can get a sense of what all the options are,” said Shutt. A little research can go a long way toward helping you get a sense for which cars will fit into your budget.

Shutt pointed out that the job of salespeople is to get you to spend as much money as possible. The more you spend, the more you have to borrow — and the more you’ll pay in interest. “Confidently stand your ground when a salesperson tries to upsell you or steer you in another direction,” she said.

Pendergast agreed on the need to research your car choices ahead of time. “Know the price other dealerships in the area are offering so you can make an informed purchase,” he said.

It’s even okay to play one seller’s price off another’s to get the best deal. Don’t be afraid to let the other dealerships know you’re shopping around. They’ll be more inclined to negotiate with you, potentially resulting in a better deal.

Get an auto loan quote from a bank or credit union

Before you ask for dealer financing, suggested Pendergast, talk to a bank or credit union.

“You should see what type of loans your financial institution has to offer,” said Pendergast. “This will give you guidance for your budget, but will also increase your purchasing power to help you in negotiations, regardless of the dealer’s proposition being on par with the lender’s.”

Donald E. Peterson, a consumer lawyer with almost 30 years of experience, warned that dealer financing still often requires the involvement of a bank or credit union. Dealers submit your information to lenders and get interest rates quotes back.

“Sometimes dealers mark up the interest rate above the rate banks would buy the loan at,” Peterson said. “The bank and the car dealer split the excess interest, usually 50-50.”

This practice isn’t just limited to banks, either. “Some credit unions have entered into interest-rate kickback agreements with car dealerships,” Peterson said. “You must apply to the credit union yourself to get the best rate.”

Starting with a financial institution allows you to get an idea of what’s available to you. Then, you’re in a position where a dealer who wants to finance you has to match the rate you’ve already been offered, rather than steer you toward an alternative arrangement.

Consider a cosigner

With my own first auto loan experience, I had to deal with the fact that I had a thin credit file. I didn’t have enough credit established to get a car loan without an unacceptably high interest rate.

I went through the steps of creating a budget and deciding how much I could afford, including factoring in my car insurance costs. However, after checking my credit report, I realized that having a credit card for six months wasn’t enough for me to establish much of a credit history.

After compiling research about the types of used cars I could afford, and how my earnings from my job were enough to cover an auto loan payment, I approached my parents. My dad was willing to cosign on a modest car loan through his credit union.

My interest rate — and my monthly payment — were lower because I had cosigner with good credit. I made all my payments on time, helping build my credit history so that the next time I bought a car, I was able to get a good interest rate without the need for a cosigner.

As you research your options, don’t forget about the possibility of using a cosigner. If you don’t have the credit history to get a good auto loan rate on your own, borrowing someone else’s good name can help you save money — while at the same time allowing you a way to establish your own credit for the future.

Don’t fall for the monthly payment scheme

While you do want to figure out what monthly payment you’re comfortable with, you don’t want to get caught up in it at the dealership, cautioned Shutt.

“Focus on the all-in price of the car,” said Shutt. “If the salesperson can get you to verbalize a monthly payment target, they’ll just manipulate other factors like the duration of the loan.”

When that happens, Shutt pointed out, you might end up hitting your targeted monthly payment, but long-term interest charges and other factors could mean that your car ends up being a lot more expensive. She said you should figure out about how much you’ll pay each month over a loan term you’re comfortable with, and then buy a car with a final price that fits those parameters.

“Take your time, and don’t be manipulated,” Shutt said. “If you’re not comfortable negotiating, bring a friend or family member who can support you in sticking to your budget.”

What about refinancing?

In some cases, you might discover that you qualify for a lower auto loan interest rate than you currently pay.

“Maybe you’ve been making timely payments for a year or two and your credit score has gone up,” said Shutt. “Now you can consider refinancing the loan.”

However, it’s important to be careful moving forward. Just as you shop around for the best auto loan rates on a new loan, it makes sense to shop for refinancing rates. Check with a few banks and credit unions to see if you can get a few quotes for refinancing.

When you refinance, watch out for lengthening the loan term. If you only have three years on your term, it might not make sense to refinance to a five year loan. Instead, only refinance what you have left. You could save on interest charges and still get rid of your car debt in the original time frame.

Shutt also recommended looking online for car loans. Compare the rates you find with online auto loan refinancing platforms to what your local financial institutions offer. By playing different lenders off each other, you could strike a better bargain — especially if you have good credit.

Know your finances and be ready to negotiate

Auto loans are a massive industry, with more than $1 trillion owed to U.S. lenders. Rather than being just another statistic, consider how you can come out on top.

Know your finances and understand what you can expect, Pendergast said. When you know where you stand, and when you research ahead of time, you can call dealers and lenders out. Shop around for the best auto loan rates and terms, and let dealers know you’ve done your homework, so that negotiations will go much better, saving you time and, importantly, money.

 

If you want to be sure your credit is good enough to purchase a car, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get two free credit scores updated every 14 days.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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The post A Millennial’s Guide to Getting Your First Car Loan appeared first on Credit.com.

Source: credit.com

A Guide to Rental Reimbursement Coverage

You’re involved in an accident, your car is wrecked, and your insurer has stepped in to cover the damages. All is well, and you only have the deductible to worry about, but what happens before the car is fixed? How do you continue to get to work every day and take the kids to school when your car is in the repair shop for the next few days or weeks?

That’s where rental car reimbursement coverage steps in. If you have this optional coverage on your car insurance policy, you won’t need to worry.

Keep reading to learn how this coverage option works.

Rental Car Reimbursement vs Rental Car Insurance

Before we go any further, it’s worth clarifying the potential confusion surrounding rental car coverage and rental car reimbursement coverage. The former includes damage waivers, property insurance, and liability coverage and protects you when you are driving a rental car.

You will be offered this type of insurance when you rent a car and can also get it through your current insurance policy or through your credit card, bank account or travel insurance.

As for rental car reimbursement, it is designed to cover the costs of renting a vehicle when your car is in the shop or has been stolen.

Rental car reimbursement only applies if your insurance company is paying for the repairs and those repairs are covered by your insurance policy. It is a coverage option that is typically only available to policyholders who have collision coverage or comprehensive coverage insurance.

What Does Rental Car Reimbursement Cover?

Rental car reimbursement is designed to cover the cost of a rental car, but there are limits. Most insurance companies will only cover you for 30 days and many also set a daily limit, often between $50 and $100. This means that you can’t claim for costs above this or for a rental period that extends beyond it.

In some states and in some situations, you may not even need to add rental reimbursement coverage to your policy as the at-fault driver could be responsible for your rental costs. In the event of a car accident caused by a fully-insured driver, their liability insurance may cover you for transportation costs, while also paying for the damage done to you and your vehicle.

However, there is a coverage limit that means they may not be liable for all the costs you pay to the rental car company. In such cases, having rental car reimbursement coverage on your policy will cover the difference and ensure you’re not out of pocket.

How Much Does it Cost?

The cost of rental reimbursement insurance differs from state to state and provider to provider. Your costs will also be higher if you are deemed to be a high-risk driver and have a history of at-fault accidents and insurance claims. Generally, however, you can expect to pay anywhere from $3 or $4 a month extra to $15 or $20 a month extra.

It’s not a huge amount because the cover provided is very limited. For instance, at $50 a day over 30 days, the insurer’s liability is just $1,500, which is a fraction of the amount they can expect to lose with other coverage options.

How Does the Process Work?

You’re involved in a minor accident and your car is taken to the body shop, now what? If you have rental coverage, you can do one of the following:

1. Pay for it Yourself

When you pay for the vehicle yourself, you have more choice about what car you rent and from where you rent it, and you can also get it as soon as you need it. If you choose this option, just make sure you keep a record of all the costs so you can report these to the insurer and get your money back.

By choosing this method, you have more control and providing you have cover, you shouldn’t encounter any issues when seeking reimbursement. Get the rental vehicle you want, drive it off the lot, and wait for your car to be fixed and your expenses to be covered.

2. Let Your Insurance Company Do It

The second option, and the best option, is to go through your insurance company. They will contact the rental company on your behalf and deal with all of the red tape, ensuring you only get a car that you are fully covered for and providing you with all the necessary details at the same time.

By going through your insurer, you can avoid the hassle and they may even help you to get a better deal. 

It’s worth noting, however, that your insurer will not pay for additional rental car coverage like damage waivers. But as noted already, your auto policy may already provide you with the cover that you need.

Should You Get Additional Car Rental Reimbursement Coverage?

On average, you will use rental car coverage just once in a 10-year period, and you may only need it for a few days at a time. To determine whether this additional coverage option is right for you, simply calculate how much it will cost you on a monthly basis and then compare this to how much it is likely to offer you.

For instance, let’s assume that you are charged $10 a month for this additional option. This means you will pay $120 a year or $1,200 over ten years. Assuming you’re being offered a maximum of $50 per day for 30 days, this means the benefits are capped at $1,500.

If you’re paying $15 a month instead, that’s $180 a year, $1,800 a decade, and more than you will get back. And, in both cases, we’re assuming that you rent a car for the full 30 days at the maximum allowed price, which is somewhat rare. As a result, you can probably overlook this additional coverage option when those are the prices quoted.

Bottom Line: Choosing Insurance Coverage

From car rental coverage and rental car reimbursement to roadside assistance, new car replacement and more, there is no shortage of options for the average driver. 

But as tempting as it is to add all of these options to your auto insurance policy in the knowledge that you’ll be fully covered, the costs can spiral out of control very quickly. You could find yourself spending an excessive amount of money unnecessarily, and at a time when everyone is watching their budgets, that’s never a good thing.

Think about rental car reimbursement carefully and reject it if you don’t need it, even if it is only $10 or $20 extra a month. 

 

 

A Guide to Rental Reimbursement Coverage is a post from Pocket Your Dollars.

Source: pocketyourdollars.com