4 Credit Cards That Can Help You Save for a Car

Saving for a car can be much easier when you've got credit cards with major rewards and perks.

[DISCLOSURE: Cards from our partners are mentioned below.]

The more you save up for a down payment on your next car, the better off you’ll be financially when you drive off the lot. A bigger down payment can reduce the amount you need to borrow,  increase the range of cars you can afford and even lower your monthly payments. But saving up for a car can be difficult when you’ve got many other expenses.

Cash back credit cards can help you save by earning money back on your purchases, putting cash back in your pocket.

These four credit cards can earn you cash back and that you can use to help you pay for your next ride.

1. Discover it Card

Rewards: 5% cash back on up to $1,500 in purchases per quarter for rotating bonus categories, 1% cash back on everything else
Signup Bonus: Discover will match the cash back you earn in the first year.
Annual Fee: $0
Annual Percentage Rate (APR): 0% for six months on purchases and 18 months on balance transfers, then variable 11.99% to 23.99%
Why We Picked It: Long-term planners can use Discover’s cash back match for down payment assistance.
For Your New Car: This card earns 5% cash back on bonus categories, such as restaurants and home improvement stores, that rotate every quarter. All other purchases earn 1% cash back. Plus, Discover will match all the cash back you earn in the first year. If you have a year or more to save up for your new ride, that bonus can help you make a final push to boost your down payment.
Drawbacks: To get the most out of this card, you’ll have to do the work of tracking and activating spending categories each quarter.

2. Chase Freedom

Rewards: 5% cash back on up to $1,500 in purchases per quarter for rotating bonus categories, 1% cash back on everything else
Signup Bonus: $150 bonus cash back when you spend $500 in the first three months
Annual Fee: $0
APR: 0% for 15 months, then variable 15.74% to 24.49%
Why We Picked It: The 5% cash back bonus categories and signup bonus can help you quickly save.
For Your New Car: With 5% cash back on quarterly rotating bonus categories like gas stations and grocery stores, you’ll have plenty of ways to save. There’s also a $150 bonus when you spend $500 in three months, which shouldn’t be too difficult.
Drawbacks: Like Discover it, this card requires a bit more maintenance.

3. Blue Cash Preferred by American Express

Rewards: 6% cash back on up to $6,000 in yearly spending at supermarkets, 3% cash back at gas stations and select department stores and 1% cash back on everything else
Signup Bonus: $150 bonus cash back when you spend $1,000 in the first three months
Annual Fee: $95
APR: 0% for 12 months, then variable 13.99% to 24.99%
Why We Picked It: Multiple ways to earn special cash back rates means you’ll have many ways to save for your car.
For Your New Car: With 6% cash back at supermarkets, 3% cash back at gas stations and certain department stores and 1% cash back elsewhere, there’s no shortage of opportunities for saving. Plus, $150 bonus cash can go right toward that down payment.
Drawbacks: There’s a $95 annual fee, which slightly reduces the potential profitability of your card.

4. Citi Double Cash

Rewards: 1% cash back on all purchases and an additional 1% upon payment
Signup Bonus: None
Annual Fee: $0
APR: 0% for 18 months, then variable 14.49% to 24.49%
Why We Picked It: If you religiously pay off your balance each month, you’ll consistently earn 2% cash back on all purchases. (Full Disclosure: Citibank advertises on Credit.com, but that results in no preferential editorial treatment.)
For Your New Car: With all purchases earning 2% cash back by the time you pay, you can earn a solid cash back rate no matter what you’re buying.
Drawbacks: You’ll have to wait until you pay to earn the full cash back rate.

Choosing a Credit Card to Help Save for a Car

Cash back is the primary way credit cards can help you save for a car. When picking a credit card to help you afford your next ride, you’ll want to choose a card that rewards the way you spend. You can try to find a card that offers special cash back rates on the purchase types you make most frequently. Or, if you tend to spread your purchases around at many types of merchants, a card with quarterly rotating purchase categories or a flat cash back rate on all purchases might be a good fit.

Be sure to check the cash back redemption options on any card you’re evaluating. Some cards will let you redeem your cash back as a deposit to your bank account, while others may only provide a credit to your credit card statement. The latter method can still help you save for a down payment as you’ll have a smaller credit card bill, but it’s something you should keep in mind.

It’s also important to remember that a cash back card works best when you pay off your balance in full each month, especially once any 0% APR period expires. That’s because interest charges will eat into the cash back you’ve earned.

What Credit Is Required for a Card That Helps You Afford a Car?

Cards with strong cash back offers and signup bonuses usually require good to excellent credit. Before you apply, you’ll want to be reasonably sure you can get approved, as a hard credit inquiry resulting from a credit card application can slightly hurt your credit score. You can check two of your credit scores completely free at Credit.com.

At publishing time, the Discover it, Chase Freedom, Blue Cash Preferred by American Express, and Citi Double Cash credit cards are offered through Credit.com product pages, and Credit.com is compensated if our users apply and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment. This content is not provided by the card issuer(s). Any opinions expressed are those of Credit.com alone, and have not been reviewed, approved or otherwise endorsed by the issuer(s).

Note: It’s important to remember that prices for products and services frequently change. As a result, rates, fees and terms cited in this article may have changed since the date of publication. Please be sure to verify current rates, fees and terms with the company directly.

Image: BraunS

The post 4 Credit Cards That Can Help You Save for a Car appeared first on Credit.com.

This Woman Fell Into a Used Car Loan Trap — Now She’s Fighting Back

Mary McDuffie, 31, was sued by an auto financing company after she stopped making payments on a used car that had mechanical issues. Now the mother of four, who said she was misled by the company, is fighting their claims in court.

This story is the first in a two-part series on the risky business of buying a car from a used dealer.

In the summer of 2013, Mary McDuffie Morton, 31, needed money to buy a car. At the time, the recently divorced mother of four had a poor credit history. So she was excited to hear she could get a subprime loan at a used auto dealership in Bronx, N.Y.

“It [seemed] too good to be true,” Mary recalls. “As long you have a job, you’re approved. It’s like wow, OK, I’m guaranteed approval.”

Nationwide, customers like Mary owe more than a quarter-billion dollars in high-interest, high-risk subprime auto loans. A recent report by Moody’s Investor’s Service found that Santander Consumer USA Holdings Inc., a major originator of subprime auto loans, has been slacking when it comes to verifying the income reported by loan applicants, according to Bloomberg. This can make it easier for car buyers to take on more debt than they can afford to repay.

But big banks aren’t the biggest problem in auto lending. About three-fourths of subprime auto loans do not originate in banks or credit unions. Instead, they are often signed at car lots like the one in Bronx, N.Y., where Mary was lured by the promise of easy credit.

In many cases, those customers are taken for a ride by predatory dealerships and finance companies alike.

“Their main job is not to care for you. It’s to care for their pocketbook, and that’s all they’re there for,” says Remar Sutton, a former car dealer turned consumer advocate.

“How many of you have seen the ads that say, ‘No credit, bad credit, no worries, we’re the credit fixer’? That is not why those ads are running. Those ads are running because they know if you think you have bad credit, you will pay anything for a car, and they’ll knock a homerun on you,” warns Sutton.

That’s what happened to Mary. To buy a used 2003 GMC Envoy XL, the dealer told her she needed to first borrow roughly $7,000.

“The dealership told me they were going to shop around for lenders for me – and they were going to call one and get back to me,” Mary says.

The dealer selected Dependable Credit Corp. of Yonkers, N.Y.. The interest rate on Mary’s loan was a whopping 24.9% – just one-tenth of a point below the threshold of criminal usury in New York State.

Mary signed the contract, despite an interest rate so high that it was nearly illegal.

“I was scared that if I didn’t go along with that deal, I wouldn’t get a car, ” she says.

The Secret Bonus

Like many lenders that work with auto dealers, to get business from dealers, Dependable offers them a secret bonus. It’s called a “Dealer Reserve Advance,” and it can add an extra two points of interest to the consumer’s loan. The dealer keeps 70% of it as a reward for making the referral to the finance company.

“When you go into that dealership, do you think they’re going to point you in the direction of a cheap loan? Of course not. They’re going to send you to the finance source that will pay them cash up front on the loan,” says Sutton.

Dependable executives did not respond to multiple requests for an interview or comment.

On its website, the finance company claims it does business with 250 used car dealers in seven states – Massachusetts, Connecticut, Pennsylvania, New Jersey, Delaware, Maryland, and New York – and has financed more than $200 million in loans.

“They’re in hundreds of dealerships because they’re making millions of dollars because people who are poor, people who are worried about their credit, are being taken advantage of by that business,” says Sutton, a co-founder of FoolProof, a nonprofit website devoted to consumer education.

Mary said the vehicle she purchased had mechanical problems that the dealer refused to fix. Sensing that she was being cheated, the former Bronx resident refused to make loan payments until she received a title proving she owned the car.

“They sold me a lemon,” complains Mary. “I knew that the deal was just a big scam.”

A Long Fight in Court

Dependable repossessed the Envoy when Mary’s payments were five weeks delinquent. By the time she received the title, the car was gone – and she was thousands of dollars in debt.

According to records obtained by MagnifyMoney, the finance company sold the vehicle to an undisclosed owner for $4,200 – a price that was $5,000 less than what Mary paid just four months earlier.

Then Dependable sued her in Bronx County Civil Court for a bill packed with extra charges. The tally includes nearly $1,200 in repairs by Westchester Auto Center and more than $1,700 in storage fees charged by Saw Mill River Realty.

The three businesses are located at the same address. State records show that all three share the same chief executive.

Dependable continues to charge Mary 24.9% interest on a loan for a car it repossessed and sold to someone else three years ago. Last year, the company told the court Mary owes nearly $11,000.

“Unfortunately, most places that want to make you a subprime loan simply want to make more money on you,” says Sutton.

With the help of a legal aid group, Mary is countersuing. She alleges she was cheated through deception and illegal business practices by the finance company and the dealer.

In a counterclaim filed by Mary’s attorney, Shanna Tallarico with the New York Legal Assistance Group, in October 2016, Mary claims that the dealer also required her to trade in her 2004 Cadillac CTS in order to purchase the used Envoy.  The dealership agreed to give her just $1,900 for the vehicle, citing “a significant problem with the Cadillac’s engine,” according to Mary’s counterclaim. Days later, she claims the dealership listed that same Cadillac for sale for $9,999. Efforts to reach the dealer for comment were unsuccessful.

Efforts to reach the dealer for comment were unsuccessful. Mary’s case is still pending, Tallarico says.

“I felt like I had just thrown money in the garbage,” says Mary. “The whole experience was a waste of money.”

How to Buy a Used Car Without Being Cheated

Shop for financing before you look for a vehicle: The subprime interest rate a credit union can offer may be half of what a car dealer charges you. Don’t assume that your poor credit history means you won’t have a shot at getting a loan from a reputable lender. It’s perfectly fine to get your own financing outside of a dealer — and, as our story shows, it’s often much more affordable. To make matters better, if you come in with a verified offer from another lender, the dealer has an incentive to try to beat their offer.

Check your credit score yourself. Don’t take a dealer’s word on it when it comes to your credit. Your score may be good enough to qualify for a better rate on a loan elsewhere, but the dealer may not want you to know that. You can check your credit score on a number of sites for free, including the Discover Scorecard. And again, if you shop around for rates before you go to the dealer you will know exactly what rates you deserve — and when they are offering you a bad deal.

Buy a car that works: Bring a mechanic or a knowledgeable friend to check it out before you decide. You can also check the vehicle’s background by getting a vehicle history report through resources such as the National Motor Vehicle Title Information System, CARFAX, and AutoCheck.

Buy a car you can afford: If a dealer makes promises, be sure to get it in writing. Go in with a firm idea of what kind of car you want and how much you can afford to pay.

And slow down: Never sign a contract in a hurry. Dealers may be friendly, but they’re not really your friend. To double check a dealer’s reputability, check out their reviews and rating on the Better Business Bureau.

Additional reporting by Mandi Woodruff

The post This Woman Fell Into a Used Car Loan Trap — Now She’s Fighting Back appeared first on MagnifyMoney.

13 Ways to Drive Down Your Car Insurance Premium

If you have a car, paying for insurance is a necessary evil. But you don't need to pay as much as you are now.

Paying for car insurance is a necessary evil. It helps protect you and your property from the cost of accidents. Unfortunately, it can cost a bunch to insure yourself against the unpredictable conditions of the open road.

There are several ways to reduce the cost of your car insurance premium, letting you cruise past high payments. Here are 13 ways to reduce your car insurance premium:

1. Choose the Right Car

In part, your car insurance premiums are calculated using the risk and cost associated with your vehicle. That means the price, the potential cost of repairs, the odds of theft and the safety features of your specific car impact your cost of insurance. Insuring a sports car won’t cost the same as insuring a family sedan. When you’re car shopping, consider the cost of insurance for specific vehicles. (Taking out an auto loan? Brush up on the lingo here.)

2. Maintain Good Credit

In most states, your credit score helps determine your premium. Those with excellent credit can access the best rates, while those with poor credit see higher costs. You get a snapshot of your credit report free on Credit.com.

“The insurance company may not necessarily pull a credit score or credit report, but they will use some type of insurance score that is based on one’s credit score. This varies from one state to another, but generally speaking, the better your credit score, the better your car insurance rate,” said Joel Ohman, certified financial planner and founder of CarInsuranceComparison.com.

3. Install Anti-Theft Devices

Most insurers offer discounts for a having an anti-theft device, which can prevent theft or identify and locate stolen vehicles. You’ll have to purchase the device, but it may save you money in the long run.

“Almost any insurance company approved anti-theft device will result in a discount of anywhere from 5% to 25%,” said Ohman. “For details about whether or not a particular device will result in a discount, it’s always best to verify directly with the insurance company.”

4. Get a Good Driver Discount

Good driver discounts are available at many insurance companies. Each insurer may define good drivers differently, but if you successfully avoid causing accidents and moving violations, you may qualify. Check with your insurer to find eligibility requirements for good driver programs.

5. Choose Higher Deductibles

You can lower your premium by signing up for higher deductibles, which means you’ll pay more out of pocket for repairs before your insurer steps in to cover the rest. Of course, you’ll want to make sure you can afford to cover the deductible before you take this route.

“The fastest way to lower your monthly auto insurance premium … is to increase deductibles. Changing deductibles from $500 to $1,000 saves about $150 annually,” said Neil Richardson, licensed insurance agent at The Zebra.

6. Bundle Insurance Plans

Bundling your car insurance with other types of coverage can save money. For instance, you could bundle your car insurance with homeowners insurance from the same provider.

“Drivers who bundle homeowners insurance save about $110 annually on their auto policies, and even bundling renters coverage saves drivers about $72 each year,” said Richardson.

7. Sign Up for Group Insurance

Many employers, universities and organizations offer group insurance plans from certain providers, which may offer cheaper rates. Check with your employer, current or former educators and any other official groups you’re a part of to see if they offer group insurance.

8. Find High-Risk Auto Insurers

If you have a poor driving or financial history, you may be considered a high-risk customer. Some insurers offer better rates for high-risk drivers than others.

“Certain auto insurance companies specialize in higher-risk drivers. This means that if one has a DUI in their history, many accidents or even poor credit … it becomes all the more important to shop around and compare rates from many different car insurance companies,” said Ohman.

9. Sign Up for Automatic Payments

Like many service providers, some insurers offer discounts when payments are automatically withdrawn from your account every month. As a bonus, you’ll avoid missing payments.

10. Make Bulk Payments

Insurers may offer discounted rates for paying your premium in bulk instead of month-to-month. In this scenario, you’d have to pay your premium for a longer time frame — for instance, six months or a year — to receive a discount. This could save you anywhere from 5% to 11%, according to DMV.org.

11. Eliminate Unnecessary Features

When you first signed up for car insurance, you may have opted for features that are no longer necessary. For instance, many insurance providers offer roadside assistance, but if you’ve since become a member of AAA, which provides roadside assistance, you no longer need the service from your insurer. You can regularly review your plan to make sure you’re only paying for what you need.

12. Find Other Discounts

Car insurance providers offer various discounts, which may include usage-based driving discounts, defensive driver courses for the elderly, mileage-based discounts and student discounts. The odds are good there is a discount available if you hunt around. You can call your insurance provider to find available discounts or look for competing offers. Which brings us to our next point:

13. Shop Around

Many people may sign up for an insurance plan and never revisit their options. But shopping around with providers is the best way to ensure you’re getting a good rate, and there are many online resources available to help with your search.

“Every six months or year, consider shopping around with as many companies as possible,” said Richardson. “Since each insurance company weights rating factors differently (and these change as your coverage needs or lifestyle changes), you won’t truly know if you’re getting the best rate until you check with multiple providers.”

Image: funduck

The post 13 Ways to Drive Down Your Car Insurance Premium appeared first on Credit.com.

5 Lies a Car Salesperson Might Tell You

Handshake between two business people in a car showroom.

Driving a new car home can be a huge relief, especially after going through the stressful process of purchasing a vehicle. In addition to finding the perfect car and getting your lowest loan rate, you’ll ultimately have to haggle with a car salesperson whose main goal is to get you to spend the most money they can.

“[Salespeople] can sense if you come in blind, and they are going to fill in the holes to their advantage,” says Jack Nerad, executive market analyst at Kelley Blue Book. “It’s not that they are dishonest people. It’s not their job to make the best deal for you. It’s their job to make the best deal for the dealership.”

Staying one step ahead of the salesperson by knowing the tricks they use can help you avoid signing a bad deal. Here are a few ways car salespeople might lie to you:

1. “Wait here, I’m going to consult with my manager.”

Nerad says chances are, if a salesperson says this to you, they aren’t talking to a manager. It’s more likely that they are taking a coffee break and trying to wear you down by having you invest more time in the transaction. They may also be trying to keep you on the company’s grounds while they come up with a deal closer to your asking price.

You can beat them in this game. Say you’ll leave while they talk it over. A salesperson knows your chances of coming back are minimal, and they want to make a deal with you that same day. If they are serious about selling you a car, they won’t let you leave the grounds, and they will return quickly with a better offer.

2. “This is our final offer. It’s the best deal you’re going to get.”

This is usually an outright lie. The salesperson always wants you to believe that you are getting the best deal that you can at their price. That’s because most people aren’t confident in their knowledge and are fearful that if they don’t make a deal right now, they won’t get the best deal.

“They don’t just want to sell you a car, they are trying to sell you a car today,” says Nerad. “Don’t fall in love with a particular car. There’s the same kind of car, in the same color, with the same equipment or comparable darn near everywhere.”

His advice is to stand firm and understand what the vehicle is worth to you. Don’t go over your asking price. He says to remember “if you get up and walk out, you’re going to find an equally good deal tomorrow and the day after that and the day after that.”

3. “There’s no need to test drive the car.”

Always test drive the car. You should have access to the car, you should be able to look inside and outside and be allowed to test drive it. It’s a huge red flag if they don’t let you test drive the vehicle for any reason.

The salesperson might say they can’t find the keys or that it’s in a position where it’d be difficult to move. They might also have you test drive a car that’s similar to it. Don’t do that either. You want to test drive the actual car that you are actually considering paying thousands of dollars and interest for.

Rosemary Shahan, founder of Consumers for Auto Reliability and Safety (CARS), a consumer advocacy group for the auto industry, encourages shoppers to go one step further and hire an independent mechanic to inspect the car first. You can use a resource like Car Talk to find a mechanic in your area.

4. “We can’t print out the contract.” or “You can’t take the contract with you.”

A salesperson could say this to get you to go ahead and sign for the purchase, but it could also be a tactic salespeople use to barrel-roll things you didn’t ask for into the contract.

The contract may be presented to you on a computer to sign electronically, but contracts are long and chances are you won’t have the time to carefully read each section before signing. The contract could include extra fees or add-ons like tire insurance that you don’t need and that will inflate the final purchase price and hurt the deal that you’ve worked hard to get. Just say no to most of it, or sign it aware that you’re financing the add-ons for the next few years.

“Insist on a paper contract,” says Shahan. “We believe it is a violation of the Federal Truth in Lending Act for [dealerships] to sell you a car with an electronic contract, because you are supposed to be able to take it physically with you to comparison shop. But if it’s on a screen you can’t do that.”

You should have reasonable time to make up your mind. Take a day or two to check out the contract and shop around until you are comfortable, but keep in mind that they could sell the car in that time. Don’t feel like you’ve spent too much time not to sign the contract if you’re unhappy with the terms. Even if you are in the contract phase, you can still walk out of the door.

5. “We just sold the car you saw online.”

The dealership may have just sold the car that you saw online, but that could also be a lie. Many dealerships may advertise a popular car for a low price as bait to lure consumers. When you show up looking to buy it, the salesperson will say it’s just been sold or out for a test drive and try to sell you something else.The tactic is called a “bait-and-switch.” The idea behind it is, again, your valuable time.

The assumption is that you wouldn’t want to waste this trip to the dealership, so you might as well stay and see your options. The bonus for the salesperson is that they already have an idea of what your price range is and what you’re looking for so they may even have some alternatives conveniently top of mind.

You have two options at this point. You can either stay and let them show you other vehicles, knowing that they may have used a bait-and-switch tactic, or leave and explore your other options. You could also try calling the dealership before you get there to ask if the vehicle is still available. If they really have just sold the vehicle to someone else, it’s unlikely any online resources like a vehicle history report would have been updated already. Cut your losses and see their other options, or find a dealership that does have the car you want.

How to complain about a shady auto dealer

If you feel as though the salesperson is engaging in questionable practices, you should walk away from the purchase. Nerad says to remember that “as a consumer, you have all of the power. You have all of the power because you are a rare commodity. You are someone who can afford to buy a new car.”

Before you leave the dealership, ask to speak with the manger on duty. After you leave, file a complaint with the Consumer Financial Protection Bureau, the Federal Trade Commission, or the BBB. You won’t be alone. New and used auto dealership complaints ranked 4th and 6th, respectively, of all complaints in 2015.

If you feel as if you’ll need legal assistance, you can find an attorney with experience in consumer law under “Find an Attorney” on the National Association of Consumer Advocates website.

The post 5 Lies a Car Salesperson Might Tell You appeared first on MagnifyMoney.

A Quick Guide to How Much Car You Can Really Afford

how-much-car

If you’re planning a car purchase, and even if you’re in the middle of financing your car, a few tips from financial experts can help you save money (and hopefully guard against becoming “underwater” on your loan).

Paying off a car is, of course, a highly individual process dependent on many different personal factors like credit score (you can view two of your credit scores, updated every 14 days, for free on Credit.com), financing rate, down payment, and how much you can afford to pay each month.

When budgeting, it’s also critical to consider expenses such as your auto insurance premium, gas, and maintenance into the total cost of ownership of your vehicle.

Still, there are some general guidelines that most people can follow:

  • Financing: Experts The Zebra spoke to said they recommend auto loans not exceed 10% (for just the loan) to 20% (for the loan plus related expenses like gas and insurance) of a consumer’s gross monthly income.
  • Timeline: You should take the shortest term you can afford for two reasons: Shorter terms come with lower interest rates and they allow vehicle equity to build faster, Bob Harwood, vice president of Carloan.com in Richmond, Virginia, said. Experts cited four or five years as the ideal balance of affordable monthly payments and reasonable total interest. If you have to spread your payments out over six years (72 months) or more to get monthly payments you can afford, you might want to consider a less expensive car.

“Your goal as a consumer is to decide what works best for your monthly budget so you can decrease the long-term expense,” banker Deric Poldberg from American National Bank in Omaha, Nebraska, said.

Hypothetical Financing

The Zebra asked three financial experts from around the country for their input about what type of loan over what time period a person living in Texas making $50,000 a year (the average statewide income) should expect to pay for a 2016 Honda CR-V LX (one of the most popular cars in the U.S.) for $23,000 (a little below the MSRP).

The Verdict(s): You’ll pay between $400 and $500 per month, depending on your credit and how quickly you can/wish to pay the vehicle back. Here are three ways of getting there:

  • Per Poldberg: “For this customer, the interest rate is going to be between 4.79% – 5.49% based on the U.S. average credit score (687). Because most people finance their vehicles for five years, that would lock our customer into a rate of 4.99% for 60 months, making the monthly payment $433.93. During the term of the loan the customer would end up paying an extra $3,035.97 in interest, bringing the total out-of-pocket expense to $26,035.97. Financing your vehicle for the least amount of time possible will save hundreds or even thousands of dollars in the long run, but often people just want a lower monthly payment and disregard the long-term cost of the loan. If you financed that same CR-V for the maximum 75-month term, you’d end up paying $3,820.11 in interest (quite a bit more). But most consumers just look at the low monthly payment of $357.60 and think it’s a better deal.
  • Per Rob Jupille, president of RTJ Financial in Santa Monica, California: “Assuming a relatively ‘normal’ level of other debt, when doing a budget, generally target your auto loan to be in the neighborhood of 10% of gross pay (excluding other auto-related costs like gas, maintenance, insurance, etc.) and put at least 20% down to reduce the likelihood of being ‘upside down’ on your loan. This way, you’d look for a monthly car payment not exceeding $400 and we’d recommend shopping for a combination of interest rate and term to stay within that number.”
  • Per Harwood: “Considering that your monthly car expense (including insurance, gas, etc.) should be no more than 20% of your take home pay, we can assume that an annual income of $50,000 translates to about $3,300 in take-home pay monthly after taxes. Budgeting around $250 for secondary auto expenses leaves room for a payment of around $450. For a consumer with decent credit, the $23,000 financed over 60 months at an interest rate of 6.9% lands the payment at $454 per month. (Of course, everyone should pay off their car loan as quickly as they can, but this is a realistically affordable scenario.)”

The bottom line: For a smart financing deal, pay the most you can for the shortest amount of time and after you’ve paid off your car loan, keep saving for your next car – or for a “rainy day.”

Image: Squaredpixels

The post A Quick Guide to How Much Car You Can Really Afford appeared first on Credit.com.

12 Cars That Depreciate Quickly (& Are Good to Buy Used)

cars-that-depreciate-quickly

If you’re in the market for a new car, you may be tempted to drive a brand-new one off the lot. After all, many manufacturers are already releasing their feature-packed 2017 models, and the weather hasn’t even turned cold yet.

But, before you do, consider this: A new study by iSeeCars.com, an automotive data and research company, found that buying a new car is not always going to get you the best bang for your buck. In fact, the company discovered that purchasing some cars that are just a year old can provide consumers with substantial savings.

“Most people know new cars depreciate the most in the first year and that different cars have different depreciation rates, but we wanted to determine which used cars experienced the largest price drops compared to their new models,” Phong Ly, the CEO of iSeeCars.com, said in a press release.

To establish the savings, iSeeCars.com analyzed the more than 14 million cars sold from August 1, 2015 and July 31, 2016, excluding models with fewer than 250 new and 250 used cars sold. The average asking prices of year-old cars were compared to those of new cars from the same model, according to the release, with the difference in price expressed as a percentage of the new model average price. This percentage was then compared to the overall percentage difference across all models.

Using this data, iSeeCars.com researchers found that the average price difference between a new car and a lightly used car was 21.2%, ranging from $6,099 to $19,966 in savings. (Note: For this study, a lightly used car is defined as a vehicle from the 2014-2015 model years with mileage within 20% of 13,476, the average annual miles traveled in the U.S., according to the Department of Transportation.)

But it isn’t all cars — iSeeCars.com established a dozen cars that offer the best value when purchased lightly used instead of brand new, with price differences between 31.2% and 34.6% — at least 1.5 times more than the overall average. Below are those 12 cars.

1. FIAT 500L

Price Difference: $8,096 less
Percentage Price Difference: -34.6%

2. Lincoln MKS

Price Difference: $16,039 less
Percentage Price Difference: -34.5%

3. Volvo S60

Price Difference: $14,204 less
Percentage Price Difference: -34.4%

4. Kia Cadenza

Price Difference: $12,940 less
Percentage Price Difference: -34.3%

5. Mercedes C250

Price Difference: $15,247 less
Percentage Price Difference: -34.3%

6. Nissan Maxima

Price Difference: $12,469 less
Percentage Price Difference: -34.0%

7. Lincoln MKS + MKZ Hybrid

Price Difference: $14,177 less
Percentage Price Difference: -33.8%

8. Jaguar XF

Price Difference: $19,966 less
Percentage Price Difference: -32.3%

9. FIAT 500

Price Difference: $11,106 less
Percentage Price Difference: -31.9%

10. Cadillac ATS

Price Difference: $6,099 less
Percentage Price Difference: -31.8%

11. Chrysler 300

Price Difference: $13,351 less
Percentage Price: -31.7%

12. Buick Regal

Price Difference: $11,525 less
Percentage Price Difference: -31.2%

If you’re considering purchasing a new car — whether it’s straight from the manufacturer or simply new to you — it’s a good idea to make checking your credit part of your shopping process. Knowing where your credit stands can help you get an idea of what terms and conditions you may qualify for with your auto loan. You can see two of your credit scores for free, updated every 14 days, on Credit.com.

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The Average New Car Loan Payment Is $499

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New car loans continue to set all kinds of records — average monthly payments are now essentially $500 — and a long-feared subprime lending bubble has yet to show signs of popping. But suddenly slumping auto sales raise plenty of questions about the overall health of the car sales market.

The car loan market expansion has been remarkable. Total outstanding loans have jumped from $840 billion in 2014 to just over $1 trillion last quarter, according to Experian’s latest State of the Automotive Finance Market report. The average monthly payments on new car loans is now $499, up from $483 last year. And the average new car loan size is up, too — $29,880, up $1,356 from last year’s $28,524.

Car sales have been juiced partly by the continued embrace of buyers with less-than-perfect credit. The fastest-growing segment of buyers are deep-subprime borrowers, who have the lowest credit scores, Experian said. Deep subprime borrower loan volume grew nearly 12%, compared to about 8% among other credit segments. Late payments among subprime borrowers have grown slightly, Experian found. Still, they represent only a tiny fraction of total outstanding loans, lowering the systematic risk to the auto market, Experian said.

“Automotive lenders seem to be keeping cool heads when it comes to how much risk they are willing to take with subprime and deep-subprime customers,” said Melinda Zabritski, senior director of automotive finance for Experian, in a statement. “Yes, subprime and deep-subprime loans are growing, but the entire market is growing from a volume perspective across all risk tiers. In fact, the subprime loans have actually dropped as a percentage of the total market. That, combined with only a slight uptick in delinquencies, makes clear that the sky is not falling.”

The sky might be falling on the auto sales market, however. Record auto sales and the strength of the new car market have been a big success story in the otherwise lackluster economic recovery.

But August turned out to be a bummer of a month for auto makers, with sales falling 4.2%. Lower sales hit all major manufacturers; many started waving the white flag in stories on the bad news, conceding that the years of record-setting sales may be over.

“We had a period of several years coming out of the financial crisis when growth in auto sales outpaced broader economic growth, and that period is over,” Bryan Bezold, Ford’s senior U.S. economist, told Bloomberg News. “We’re no longer in a period where we have a lot of pent-up demand.”

Used Cars Are Popular 

Sluggish new car sales don’t necessarily indicate any additional risk of an auto loan bubble that might burst. It will be tempting for auto lenders to move even deeper into the subprime market to keep up transaction volume, however — particularly as buyers abandon the new car market for other alternatives.

Drivers are clearly returning to the used car market in response to high prices and other factors. The average used vehicle loan reached an all-time high of $19,101 in Q2 2016, up from $18,671 in Q2 2016, Experian said. The average used car loan payment was $364 a month.

In a bit of a surprise, customers with good credit scores are now hustling to the used car market. According to Experian, 43.3% of super-prime consumers selected a used vehicle, which represents a 10% increase over 2015. Among prime consumers, 59.9% chose used, a 6.6% increase over the previous year.

“One of the biggest trends we continue to see is the shift to used vehicles by customers with excellent credit,” Zabritski said. “As vehicle prices continue to rise, savvy consumers are looking for ways to control costs. That appears to be pushing more customers toward used vehicles.”

Overall, used vehicle loans also reached a new peak, accounting for 55.61% of all vehicle loans during Q2 2016.

Used car loan terms are also up, with the average loan term now lasting 63 months (the average new car loan is 68 months). Long-term used car loans are generally a bad idea, as drivers are often upside-down on the car loan throughout its life — meaning it has no value at trade-in. Also, used car loans have far higher interest rates — the average new rate is 4.82% versus 8.97% for used — so the costs of borrowing for five years or longer is much higher.

Drivers are looking for other ways to lower monthly payments, too, as vehicle leasing continues to surge — in both new and used car markets. New car leases jumped from 26.92% last year to 31.44% this year. Even used car leases, while still rare, are growing fast. Last year, they represented 3.26% of all leases; this year, that rose to 3.71%, Experian said.

Remember, having a good credit score can help you spend less on a vehicle since it will generally qualify you for the best interest rates. You can see where your credit currently stands by viewing two of your scores for free each month on Credit.com. And, if you’re credit is looking second-rate, you may be able raise your scores by paying down high credit card balances, limiting credit inquiries and disputing errors on your credit reports.

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10 Cars Young People Are Buying

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The post 10 Cars Young People Are Buying appeared first on Credit.com.

What You Need to Pre-Order a Tesla Model 3

Tesla Model 3

Tesla’s Model 3 is set to hit roads in late 2017 — and anyone saving up for or on the fence about buying the company’s “most affordable” electric car yet may be happy to learn that it’s surprisingly easy to pre-order.

Per the company’s website, prospective buyers can reserve a vehicle for $1,000. This down payment is refundable, should you decide you don’t want or can’t afford to buy the vehicle once you receive a formal purchase agreement.

“If you proceed with the order, we will apply your Reservation Payment towards the order payment,” the reservation agreement reads. “Until you enter into a Purchase Agreement, your Reservation may be cancelled at any time, in which case you will receive a full refund of your Reservation Payment.”

The purchase agreement will be sent when your Model 3’s production date nears and will indicate the purchase price of the vehicle, plus estimates of applicable taxes, duties, transport and delivery charges and other fees, Tesla said.

The car’s starting price is $35,000, minus any tax incentives you may receive for driving an energy-efficient vehicle. (It advertises a 215 miles range per charge.)

Reserving the vehicle gives you delivery priority “within your region”, the agreement says. Still, there’s no telling when your Tesla 3 will arrive, given there’s no set release date and already a lot of pre-orders. Tesla CEO Elon Musk tweeted that the company has already received 276,000 pre-orders for the Model 3.

The Model 3’s reservation agreement does feature two potential caveats to be aware of: You can’t transfer your reservation over to another person without Tesla’s permission. And you do have to turn over some personal information (name, email, billing address and phone number) alongside your credit card number to pre-order the car. (You can find the company’s privacy policy here.)

Car Buying Basics

High demand can make it hard to negotiate a good price on a vehicle, but if you are considering buying a Tesla Model 3 or any other car in coming months, you may want to check your credit. Good credit scores generally help people qualify for better terms and conditions on a car loan. You can see where your credit currently stands by pulling your free annual credit reports at AnnualCreditReport.com and viewing your credit scores for free each month on Credit.com.

If your credit is in rough shape, now is the perfect time to start working on it before you buy your Model 3. You can improve your score by paying down high credit card balances, disputing any errors on your credit report (here’s a quick guide for that) and focusing on smart spending behaviors, like making all existing loan payments on time, until your dream car hits the market.

More on Auto Loans:

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Car Leasing Is All the Rage. Is It a Good Deal?

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Old Betsy’s reign in the American driveway may be over. After all, why would you name a leased car?

Americans are no longer looking for a long-term relationship with their cars. Auto leasing is in the midst of a historic rise, setting all-time records quarter after quarter, and now makes up nearly one-third of the new car market, with millennial leasers leading the way. Consumers have begun to treat cars the way they treat cellphones — holding on to them until contracts run out, then happily exchanging them for the newest thing.

The records come just a few short years after leasing was all but left for dead during the Great Recession, when auto sellers shunned the practice, and leasing fell to only about 10% of the market. At the end of last year, auto leases made up 33.6% of all new car financing during the quarter — and 28.9% of all purchases — according to Experian Automotive.

A Nicer Car for Less

The appeal of leasing to consumers is obvious: The monthly payments are less. Experian offers these examples: An average new Toyota Rav4 loan last year cost $431 per month, while a lease cost $322; a Chevy Silverado costs even less per month, $544 vs. $384.

Many consumers use that savings to end up in nicer cars, and leasing can really expand consumers’ options. Here’s a calculation from Edmunds.com: Buyers with a $3,000 down payment and willing to pay only $300 per month can buy a $20,000 car, but they can lease a $35,000 car.

“People shop for vehicles largely based on monthly price, and right now, average dollar amounts for new-vehicle loans are soaring,” Melinda Zabritski, senior director of automotive credit for Experian Automotive, said. “In order to stay within their budget goals, we have seen that more consumers — even those within the prime and super-prime risk categories — are turning to leasing.”

Millennials are even more likely to opt for leasing, according to Edmonds. Leasing among younger adults is up 46% in the past five years, the firm says.

“Most millennials understand and accept that they’re on a tight budget and that they need to stick to it,” said Jessica Caldwell, director of industry analysis for Edmunds.com. “But it doesn’t mean that their financial constraints limit them only to the most basic vehicles to get from Point A to Point B. If they see a chance to get into a nicer car while staying within their budget, they’re likely to explore that opportunity. In most cases, leasing opens the door to the bells and whistles that they couldn’t otherwise afford.”

The Drawbacks of Leasing

Of course, leasing is hardly perfect, and has a well-earned reputation for causing consumer headaches. The biggest bugaboo is mileage limits: Many limit drivers to 12,000 miles annually, a serious disincentive for road trips. Also, while it’s easy to turn in a leased car and get into a new lease, it can be harrowing to drop off a leased car at the end of a term and face potential damage claims from the dealer or mileage overage payments. Many drivers find their insurance rates go up when they lease because of increases in mandatory coverage (check with your insurance company before you shop around).

And while leasing is attractive to people with long-term car commitment issues, a lease can be even more of an anchor than an owned car. Consumers who move and can’t take their car find out the hard way that getting out of a lease is even worse than getting out of a cellphone contract. Car leases can be transferred, but it’s easier to sell a car you own.

Still, leasing has become mainstream. Once more popular with luxury car drivers, leasing is now common for mid-level and discount brands. The Honda Civic was the most-leased car last year, followed by the Accord, Camry and Rav4, Experian says.

So, should you lease? One truth overrides all the details about leases: In the end, leasing costs more than buying. You pay for those lower payments by not owning anything at the end of the lease term. The best deal, financially, is buying the car. But the difference can be only a few thousand dollars, and that may not matter to you.

On the other hand, if you are leasing mainly because it feels cheaper than buying, you are almost certainly making a mistake. Long-term, buying is the cheaper option, especially if you don’t mind holding onto your car for more than a few years.

Luxury cars that lose value quickly (and often aren’t needed as “everyday” cars) still make the most sense to lease. People who live very close to work (or work at home) and don’t pile up telecommuting miles are good lease candidates. And if you really do want a new car every three years, and don’t mind knowing that you haven’t gotten the absolute best deal you can, consider leasing. But know that there is always a risk when you turn the car in at lease’s end that a dealer in a bad mood may try to nickel-and-dime you for every carpet stain. If you tread very lightly on your floor mats, you’ll probably be fine. But if you drive hard, a surprise end-of-lease wear-and-tear bill could make those lower monthly payments seem pretty expensive.

Remember, your credit score can directly impact your ability to get the best deal on a car lease. You can check your scores, along with the major factors impacting them, with your free credit report summary each month on Credit.com.

More on Auto Loans:

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