If you’re in the market to buy a car and are searching for a suitable car finance method, you’ll be surprised to find all of the options that are available to car buyers today.
BUY HERE PAY HERE
One of the newest car finance options is the method of Buy Here Pay Here. Buy Here Pay Here (BHPH), gives you the ability to buy the car you want and pay on your loan, all at the dealership. There’s no middle man involved. When financing through the dealer, you don’t need to go through a bank or lender. Instead, payments are made on a weekly or bi-weekly basis directly to the car dealership.
The Buy Here Pay Here concept got its start in the 1970’s when a production-based economy became more service-oriented and cash-strapped customers were leery of paying for a new vehicle. Auto dealers had to find creative ways to sell cars in the midst of a savings and loan crisis, even as unemployment was on the rise.
It was during this time that dealers stepped in to finance loans where banks would not. Related car finance (RCF) companies were created to approve the loans. This was beneficial because BHPH not only lessened the risk on the sale, but the car company also had the opportunity to finance the vehicles it was selling.
HOW BUY HERE PAY HERE CAR FINANCE LOANS WORK
Buy here pay here dealerships and traditional dealerships are different in several ways. A BHPH car dealership caters to the needs of customers who aren’t able to secure a loan through a credit union or bank due to poor credit scores.
A buy here pay here dealership is willing to work with its customers no matter what their credit situation is; and with so many cars to choose from, it’s possible anyone can get a BHPH car finance loan.
A BHPH dealership generally begins the car-buying process by obtaining any information needed, running a credit check, and analyzing your credit history. Once that process is complete, they begin to show you cars that are best suited for you.
Many BHPH dealerships will work with customers when payments are made on time, to help build their credit back up. Some dealers engage in credit reporting – working with agencies that monitor your credit as it improves.
One of the advantages of a BHPH car finance loan, is that customers who would have not otherwise been offered a loan, have the opportunity to purchase a car. If you’ve been turned down for a traditional loan in the past, this may be the best option for you.
An additional advantage of a BHPH dealership is the emphasis it places on the value and relevance of a vehicle’s long-term use. While it’s generally not the policy of many car dealerships to accept trade-ins on older model cars, a BHPH sees the benefit in doing so.
Many BHPH dealerships are committed to offering quality, reliable vehicles. A negative credit score doesn’t mean you deserve a lemon. In many cases, these dealerships offer maintenance and repairs on the premises and are happy to provide you with information regarding their inspection standards and reconditioning processes.
BAD CREDIT CAR FINANCE
While many people think that having a poor credit score means they either won’t be able to purchase a car or automatically qualify for the highest terms offered by a dealer, in most instances, this isn’t the case.
Your individual car finance terms, depend on your personal credit score and the organization that is handling your loan. The key, here, is to shop around. With a decent enough score, you may find a lender that is willing to take on a little more risk than they otherwise would. With the worst of the recession behind us, car finance loan requirements are loosening up.
Just a few short years ago, things were so tight in the automotive finance market that the majority of car buyers with a low credit rating had been all but shut out from being approved for a loan. The average credit score of new car buyers shot up to 776 in 2010. If a lender specialized in subprime car financing, it’s a good chance they didn’t have the funds to lend during this time.
But, according to data released by Experian Automotive, lower scores are now being factored into the average because lenders are willing to take a second look. The 776 average score for a new car has now fallen below 760.
Financial sources that are stepping back into the market due to a burgeoning economy, and if you’re in the market for a non-prime auto loan, experts say, this is the best time to begin looking.
GET A BETTER RATE
It also helps to be proactive in your search for a lender that specializes in car finance. Things like pulling your own credit history can not only put you in a better position to get a loan than someone with no credit, it can also help you steer clear of a subprime car loan situation that could result in less favorable terms than you need.
Check with your employer, bank or local credit union to find out what kind of finance options might be available to you. Also, be on the hunt for the lowest APR over the shortest period, while comparing the different interest rates you’re likely to get for your score.
It’s helpful to remember that the odds of you getting the kind of terms you want are better today than they were yesterday. Lenders are making more loans, offering lower monthly payments, and increasing loan amounts.
HAVE FUNDS? YOU’LL TRAVEL
Saving a little more money before you make your purchase could land you the car of your dreams. According to Edmunds.com consumer advice editor, at the very least, you should put a 20% down payment on a new car and 11% down on a used vehicle.
The advantages many financial institutions are providing are due, in part, to customers who have paid back their loans as established in their terms. Late loan payments and vehicle repossessions seem to be dwindling and when that occurs, losses are lower, translating into better rates.
NEW CAR FINANCE
As with most other car finance options, the amount of interest you pay and the rate you receive to finance a new vehicle, is directly associated with your credit score.
You should also be aware that with new car financing, you will likely pay the same interest rate for the life of the loan. So, if you have a higher credit score, you’re probably going to get a lower rate.
Many people choose to finance a car by getting a loan. If this is your choice, you’ll be given the option to do so through either a car dealership, bank or credit union. It’s during this part of the car finance process that you want to determine exactly how much you can and are willing to spend. Experts say, anything over 20% of your budget could be too much.
BEGINNING THE PROCESS
Getting clear on all your expenses will help determine how much you can afford to spend on a car. Also, putting cash down on your vehicle not only lowers your monthly payments, but helps you save money on interest.
These days, you can find pretty much anything online. The same can be said for your credit history. Finding and obtaining this information before you visit the dealership will be helpful when you need to figure out your monthly payments.
If you don’t plan to purchase your vehicle right away and are still a few months out from making a decision, it’s a good idea to correct any errors that might be bringing your score down. Pay down high-balance credit cards and continue to make payments on time. Cumulatively speaking, it’s the small things can impact your chances of getting credit or even finding the best rate available to you.
Have your report in hand before going to the dealership so that you an idea of exactly what the dealer will be looking for once you get there. A little bit of fore-planning gives you more control over your car financing options.
When doing your research, take a look at the manufacturer’s website. There, you’ll find special incentives, rebates or other deals on the car you want. Be sure to also scout out any information about the price of your vehicle, features, options, specs, and safety ratings, as well.
Now that you have an idea of the kind of credit you’ll be negotiating with, financing options, and vehicle specifics, you’re ready to shop for your car.
HELPFUL TIPS AT THE DEALERSHIP
Keeping an eye on your target price is helpful once you get to the dealership. But it should only be part of the equation. You may even find a car that is affordable, but may not necessarily meet your needs. Incorporating other factors into your decision-making process, will help you make the best choice possible in a vehicle.
When you’re at the dealership, try to avoid centering price negotiations around how much you’ll be paying a month. In the long run, adding a dollar here or there to the monthly payment could mean hundreds or even thousands of dollars paid over the life of the loan.
Remember that you can also negotiate your car finance terms. This may include the number of years on the loan, gap insurance, extended warranties or any extras you decide on.
If you have good credit, you can even negotiate a lower interest rate. With that being said, a good score may land you with a single digit APR. Others with average credit, could get anything between 10 – 12%. Anything else might be offered 15% or higher.
Things have changed since you first bought your vehicle. You’ve taken on a few more obligations that require you to spend a little more each month, and before you know it, you’ve over extended yourself. How do you find any relief?
What most people don’t realize, is that while they’re making monthly payments on their car, they still have the option to refinance.
If you’ve ever refinanced a home, you’re probably thinking it’s going to be a lengthy drawn out process that requires tons of paperwork. The reality is, that the road to car refinance is much less of a hassle than you might think.
WHY YOU SHOULD CONSIDER REFINANCING
- There’s no appraisal involved and little to no fees
- You’ll have lower monthly payments, saving you money over the life of your loan
- Your original car loan is over 6%
- You’ve suffered a financial setback
- You plan to purchase the vehicle after your lease is up
It’s always a good idea to weigh the pros and cons of refinancing your vehicle. If one or more of the above examples fits your situation, then you may need to research available car refinance options. On the other side of the coin, you should also be aware that if your vehicle is more than seven years old or if the balance on your loan is less than $7,500, you could be precluded from refinancing your loan.
Before jumping in, be sure to shop around for the best rate. There are a number of resources on the internet to help you find a lender that’s offering great rates for qualified borrowers.
RUNNING THE NUMBERS
In order to determine how much you’ll need to refinance, you first need the current payoff amount of your loan. The lender should be able to give you this information. Using an online calculator, you can then determine how much you’ll save each month by subtracting your new payment from your current payment.
The next step would be to apply for the loan at several different banks or finance companies. They usually check your credit and other information and then give you an answer right away. Once you’re approved, you’ll receive a check from the new lender to pay off the old loan.
CAR TITLE LOANS
If you find yourself in a tight spot financially and need a bit of cash, another car finance option that’s available is a title loan. A car title loan is a short term loan that‘s obtained using your vehicle’s equity. Many people choose this option because lending requirements are too tight or a reluctance on the part of the lender to offer a loan.
With this type of loan, the amount of your loan is determined according to the value of your vehicle, not your credit score. Your car becomes collateral in exchange for cash.
HOW A TITLE LOAN WORKS
You agree to give the lender your vehicle title in addition to a fee, in order to borrow the money. You also agree to pay the loan off in a specified amount of time. In addition, you’ll need to be the owner of the vehicle.
A few things to keep in mind about car title loans: they can expensive and risky. If you don’t make timely payments or fail to repay the loan, the lender takes the vehicle. Since the money is loaned on a short-term basis, you may only have 30 days or so to pay it back. Some lenders allow you to extend the loan, giving you a little extra time to repay.
It’s best to weigh the pros and cons when deciding if a title loan is right for you. Many times, a car title loan’s high interest rates could be good reason to be on the lookout for other car finance methods that might be more reasonable, and a little less risky.
CAR LOAN CALCULATOR
As with any major purchase, you first want to consider the costs of buying a car. Maybe you already own a vehicle and are looking for a second to accommodate the needs of your family or maybe all you need is a car get around.
Whatever the case, a car loan calculator will help you come up with a monthly car payment in order to find the car you’re looking for.
When trying to figure out your monthly payments there are three factors that should help determine, how much you can afford to spend on a vehicle: the down payment, interest rate, and term of your loan.
USING THE CALCULATOR
Finding out your monthly payments is simple. Plug in the value of the vehicle, annual interest rate, and the loan period. The car loan calculator will give you the amount of the loan with interest plus your monthly payments.
You can also find out how much of your monthly payment will go toward the capital and interest, in addition to your remaining balance.
A car loan calculator is a great navigation tool when trying to determine how much you’ll be spending a month on a car finance loan. While it’s only meant to be a guide, it will help you plan your budget for a car finance, accordingly.