Ally Bank Auto Loan Review

ally bank review

If you’re familiar with online banking products, you’re probably very aware of Ally Bank’s presence in the online banking market.

But contrary to what it may seem, Ally isn’t a direct-to-consumer auto lender. That means you can’t find out whether or not you prequalify for an Ally Bank auto loan unless you go through a dealership. In 2016, Ally Auto served 18,000 auto dealerships and over 4 million auto dealership customers.

The thing is, it’s never a good idea to walk into a dealership before you’ve shopped around to get financing offers from multiple lenders. But with that being said, you might find yourself looking at a financing offer from Ally through a dealership and want to better understand how it works and what some alternatives might be.

In this post, we’ll take a look at the Ally Bank auto loan to let you know what steps are required to borrow and our take on the entire process. We’ll also cover rates and terms of Ally auto financing because we found them to be lacking transparency.

Who Ally Bank auto loan financing is best for

We don’t recommend that anyone chooses an auto loan through a dealership unless you get a ridiculously good deal compared to other offers.

The far better move is to first shop around for interest rates on auto loans with multiple lenders. Then go to the dealership with financing already secured. This way you’ve had time to get preapproved for the most affordable financing you can get, and you won’t fall victim to a subprime auto loan.

When reviewing a dealership auto loan, compare the interest rate, monthly payment, and total costs to other loans to make sure it’s truly a better agreement overall.

Check out this post for an in-depth guide on how to borrow money before car shopping.

Here’s a summary of the steps you should take:

  • Improve your score. Work on your credit score health since a higher credit score is what will get you the best loan offers.
  • Get preapproved. If you’re worried that shopping for several loans will damage your credit score, you can breathe a sigh of relief. Having your credit pulled by several lenders within a 14- to 45-day period can count as a single inquiry and has a limited impact on your score.
  • Take your preapproval with you when car shopping. You can make well-informed buying decisions with a preapproval in hand.

How Ally Bank auto financing works

Ally Bank is an indirect auto lender. An indirect auto lender is one that offers loans through dealerships. You can’t call up Ally Bank directly to get auto loan rate estimates.

Instead, here’s how it works:

  • Step 1: You go to a dealership that has a relationship with Ally Bank.
  • Step 2: You choose a car you want to buy.
  • Step 3: The dealership performs a credit review.
  • Step 4: The dealership crunches numbers and comes up with loan offers you qualify for based on your credit and the car you’re buying.
  • Step 5: You choose between offers, which can include an offer from Ally Bank.

One thing to be highly vigilant of with any indirect auto lender is that they may set a base interest rate and allow the dealership to tack on an additional markup on top of that rate. The interest rate markup can be revenue for the dealership and is an incentive to give you a more expensive loan.

Ultimately, it’s the dealership’s prerogative to make the most money possible regardless of what it costs you. To avoid getting finessed into a bad deal, it’s imperative that you search for auto loans from many lenders before car shopping at a dealership.

Ally Bank auto financing products

Ally Bank has four auto financing options:

Buying. According to Ally Bank, their auto loans have flexible terms. Auto loans come with online account management, auto-payments, and speciality financing for accessibility needs.

Leasing. There are lease financing options as well. A lease is kind of like renting a car for a certain time frame. You may have a limited number of miles you can drive on your lease, and you may be responsible for car repairs. Leasing cars long term can be more expensive than buying. A situation where a lease may make sense is if you want to drive new cars every few years.

Otherwise, you’re likely better off saving to buy a car in cash or financing to own it outright. Learn what you need to know before leasing a car here.

Ally Buyer’s Choice. Ally Bank offers a middle ground option between leasing and buying called Ally Buyer’s Choice. With the Ally Buyer’s Choice program, you make regular payments on an auto loan until the 48th month. At that point, you can decide to sell back the car to Ally Bank, or you can continue making regularly scheduled payments on the car.

Ally Balloon Advantage. Balloon financing is when you have smaller monthly payments and a larger lump-sum payment at the end of the contract. The benefit of a balloon loan is that you can have payments that are lower than a regular term loan. The drawback is obviously the large payment you’ll have to come up with down the road. Learn more about Ally Balloon Advantage loans here.

What we like about Ally Bank auto financing

The educational resources and account management tools. Ally Bank has an online and mobile app that can be convenient for account management. Ally Bank offers some articles on their website that can teach inexperienced car buyers what they need to know about auto loans.

There’s a post on whether it’s better for you to lease or buy. Ally Bank also encourages you to shop for rates with other lenders before car buying in its auto financing guide, which is sound advice.

What we don’t like about the Ally Bank auto loan

Transparency is lacking. Since Ally Bank is primarily an indirect auto lender, there’s hardly any information available online or through Ally Bank customer service about fees, terms, or interest rates. There are no details on what type of cars (make or age) that qualify for financing.

Ally Bank points you in the direction of dealerships you can visit to see what loans you qualify for. The dealerships are pretty much the middleman.

In comparison, some lenders will give you more insight on auto loan products. You can also get preapproved for these products before ever stepping foot on the car lot. We’ll give you examples in the next section.

Alternative auto loans

You should always shop around to compare rates before you head to a dealership. The dealer’s financing office may be able to beat your rate from another lender — but they won’t do that unless you’ve got an actual rate for them to see.

Use MagnifyMoney’s auto loan comparison tool to find great offers in your area.

Here are some lenders that will let you shop for loans before going to the dealership:

U.S. Bank – Rates start at 3.12% APR

The maximum you can borrow is $100,000. You can get a 0.50% discount off of your interest rate if you buy an EPA-Certified SmartWay vehicle or sign up for automatic payments.

U.S. Bank lets you get preapproved online to check for rates and terms. The preapproval is free but does require a hard inquiry credit check. Remember, if you shop for auto loan rates with several lenders within a short time frame, it can count as a single credit pull.

LightStream – Rates start at 2.49% APR

You can borrow from $5,000 to $100,000. If you sign up for automatic payments, you can get a 0.50% rate discount. The process of getting a loan is simple. You apply online, accept your loan terms, and receive your funds to make the car purchase.

Your loan can get approved and funded the same day if your application process is complete before 2:30 p.m. ET on a bank business day.

Capital One – Rates start at 3.24% APR

Capital One lets you borrow between $4,000 and $40,000 for new and used cars. The car has to be 12 years old or older with less than 120,000 miles on it.

You can prequalify for rates on the Capital One website without a hard inquiry. Once prequalified, you can search for cars through Capital One partners and personalize your loan terms.

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4 Questions to Ask Yourself Before Leasing or Buying a Car

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When you’re looking for a new car, it can be difficult to decide whether buying one outright or leasing one for a period of time makes more sense. It’s true that cars only go down in value the longer you own them, but there are still some solid arguments for owning one outright rather than essentially renting one.

Car-related decisions can be stressful, and there’s a lot you need to know before buying or renting, but don’t worry. If you’re in the market for a new car and aren’t sure which way to go, you can use the following questions to help you make the best decision for your situation.

Question 1: How Much Will I Be Driving This Car?

If you only need a car for weekend adventures and plan to use public transportation or to carpool during the week, then leasing might be the better option for you, if you can get a good deal. Most lease contracts come with stipulations on how many miles you can put on the car while you’re using it, but if you’re only using it for a few quick trips each week, you likely won’t come close to hitting that mileage mark. Still, you’ll want to pay close attention to that number if you do end up going for a lease. Always ask what happens if you go over the mileage count, since the penalties can be steep. On the other hand, if you have a lengthy commute to get to work and you need a reliable car to get you there—or you just aren’t interested in tracking miles—buying might be better for you.

Question 2: What Do I Plan to Use It For? 

You probably wouldn’t go into a car purchase intending to rough up the car, but stuff happens, so you’ll need to decide what you plan to use your car for to know if leasing is right for you. If you lease a car, the dealer generally allows normal wear and tear upon return at the end of your lease, but you’ll be charged extra if they think the car has been more weathered. Be sure to get the specifics from the dealership on what exactly they consider “normal” wear and tear, and if that doesn’t match your plans for the car—if you plan to off-road in the Colorado Rockies on most weekends, for example—it might be better to buy.

Question 3: How Long Do I Plan to Keep It?

One appealing thing about leasing a car is that most car leases end after three years—so you have the opportunity to upgrade to a new model every three years if you’d like. Of course you could buy a car and upgrade that way, but it can be harder to deal with the sale of a car than it is to just turn your lease back over to the dealer.

Question 4: How Much Can I Afford to Put Down?

Most lease agreements will come with lower down payments than buyer agreements have. In some cases, if you lease a car, you may even be able to negotiate with the dealer to skip a down payment altogether. (Keep in mind, though, that this will likely result in higher monthly payments.) Either way, if you really need a car now, and you don’t have the cash for a decent down payment, then going with a lease may put you in the driver’s seat faster than if you waited to buy a car.

Buying a car is a very personal decision, and whether you lease or buy will be determined by a number of factors. At the end of the day, buying a car is almost always the cheaper option if you need a car for the long term, but signing up for a short-term lease can be a solid option depending on your needs. Putting in a little bit of extra thought before searching for your next ride can ensure you make the right decision.

Whatever move you decide to make, be smart in how you approach car buying or leasing. Don’t forget that having good credit will improve your car-buying experience, so before you make car-related decisions, check your credit and see where you’re at. You can always check your credit for free at Credit.com.

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How to Deal with an Underwater Car Loan When You Can’t Sell

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According to experts at the automotive website Edmunds, a new car loses up to $7,419 of its value during the first year on the road. Over the next three years, new cars lose an average of $5,976 in value, mostly due to age and wear and tear.

This shows just how quickly a fancy new car can depreciate in value—and how quickly it can become worth a lot less than what you owe. After all, if you financed that new car without a down payment, the average car owner would have to pay $7,419 in principal payments the first year just to keep up with rapid depreciation.

But what if you want to sell your car and your loan is underwater? Unfortunately, this is a real issue, and one that happens all the time. If you’ve financed a car and can’t afford the monthly payment, if you need a different vehicle to fit your family or job, or if you just want a do-over, it may be difficult to find a solution without taking a loss.

If you’re underwater on your car loan and can’t sell, here are some potential solutions and why they may or may not be a good fit for you.

1. Trade in Your Car

According to another study from Edmunds, 32% of all automotive trade-ins were underwater during the first quarter of 2016. Car owners who owed more than their cars were worth had an average of $4,832 in negative equity before they traded up to something shiny and new.

This just goes to show that if you owe more than your car is worth, you’re in good company. But that doesn’t mean trading up is good for your wallet. The dealership you work with may be able to wrap your debt into your new loan, but unfortunately, you’ll remain underwater, even with the new loan.

If you’re trying to get out from under an oppressive car loan, this isn’t the solution. The only time to consider this option is when you need a different car to accommodate a changing life situation, such as with your job or your family.

2. Make Extra Payments

If you’re tired of being underwater and just want to sell your car, some experts advise making extra payments on your loan to pay it off faster.

However, if you’re struggling to come up with cash, you may want to consider halting your investment or retirement contributions to free up cash, notes Joseph Carbone of Focus Planning Group. According to Carbone, while it might sound over the top to stop investing for a while, this strategy might be the best choice, especially if the interest rate on your car loan is over 10%. Once you pay down your car loan and sell your vehicle, Carbone says, you can resume investing as usual.

Another option is to go on a limited-time spending freeze, says Texas financial planner Matt Adams.

“If cash flow is an issue, then it is time to tighten your budget and/or find a way to earn some additional income to pay the note down,” he says. This might be a good idea if you want to free up cash without changing your investment strategy.

3. Refinance Your Car Loan

While it might seem counterintuitive to take out another loan, refinancing your loan can make sense in certain situations, says Anthony Montenegro of Blackmont Advisors.

If you’re struggling to keep up with outrageous payments, for example, a new car loan could help you score a lower monthly payment, so long as you’re willing to extend your repayment timeline. It can also make sense to refinance if you have a high interest rate and you’ve improved your credit enough to qualify for a new loan with a significantly lower rate.

Before you refinance, make sure you look around for auto loans with no or low closing costs. Also, read the fine print on your new loan to make sure you understand your new payment and when the loan will be paid off.

4. Use Your Car to Make Money

Consider using your car to earn some extra cash. One way you can is with Turo.com—a website that lets you rent out your car. Alex Whitehouse of FinHealthy.com says that Turo.com is like “Airbnb for your ride” and notes that according to Turo, “hosts can typically cover their car payments by renting out their cars just nine days a month.”

If you have some spare time for a side hustle, you could also start driving for a rideshare company like Uber or Lyft. Financial planner Charles C. Scott says that you can “let your car work for you” this way. And since this side gig is flexible, those extra hours can fit nicely into your regular work schedule and social calendar.

5. Keep Your Underwater Car

Whatever the reason for wanting to ditch your underwater car loan, keep in mind that your alternatives may not be perfect. Sometimes it makes the most sense to just keep the car and pay it off the slow and painful way, says Ryan Cravitz of Milestone Wealth Management & Insurance Solutions.

If you’re able, paying your car off at a regular pace would eventually put you in an enviable situation—being free from car payments completely. The challenge at that point would be to avoid trading in your paid-off car and starting the whole process over.

The Bottom Line

The next time you find yourself itching for a new car, try to avoid a situation where you’re buying more than you can afford. According to Steven Rocha of Define Financial, “If possible, take your time and save money for a larger down payment,” and “doing so will make the purchase feel more real and might make you reassess just how much car you really want.”

Regardless of how you deal with an underwater car loan, keep in mind that you could easily make this mistake again if you’re not careful. Car dealers are more than happy to sell you one overpriced car after another, and you could spend most of your adult life owing money on cars that depreciate at lightning speed.

If you find yourself stuck in a pattern of underwater loans, or if you just want to get better at managing your debt, you can find more information online that may help. And before you buy another car or make any other big purchase, take a look at your credit report. You can see your credit report for free at Credit.com.

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10 Things You Need to Know before Buying a Car

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Buying a new or used car can be an intimidating experience. Many car salespeople may pressure you to leave the lot with a purchased vehicle, so it’s crucial you’re armed with information about the cars you are interested in, the budget you can afford, and the value of your trade-in—if you have one. With these details, you have all the tools you need to negotiate properly.

Here are 10 tips and strategies for making sure you get the best-quality vehicle at the lowest price.

1. Think about Financing

Prior to visiting any dealership, have a sense of what kind of deposit you can put down and what monthly payment you can afford. It also helps to do some research on available auto loans to get a sense of what you qualify for. Or try a service like AutoGravity, which allows you to select rates and terms that fit your budget and then obtain offers from lenders.

2. Check Your Credit Score

Knowing your credit score can be helpful as well. Justin Lavelle, chief communications officer for BeenVerified, says, “Having a good idea of your credit report and credit score and the interest rates available can help you negotiate a good deal and save hundreds, if not thousands, of dollars.”

3. Shop Around

Research the cars you might be interested in before you head to a dealership, rather than going in unprepared. To determine what kind of car you want, use resources like US News Best Cars, where you can search anything from “best cars for families” to “best used cars under 10k.” Another resource is Autotrader, which can be used to search new and used cars in your area by make, model, price, body style, and more.

4. Compare Prices

Lavelle also stresses getting detailed pricing info in advance: “Price the car at different dealerships and use online services to get invoice and deal pricing.” A reliable tool is Kelley Blue Book. Use the site’s car value tool to find out the MSRP and the dealer invoice of a car as well as a range of prices you can expect to see at dealerships. TrueCar is also helpful to use. You can search for and request pricing on any make, model, or year of car. You may get a slew of phone calls, emails, and texts from dealers immediately after, but having information from different dealerships can help you negotiate prices. You should also visit dealer sites to look for rebate offers.

5. Research Your Trade-In’s Value

If you have a trade-in, don’t wait for the salesperson to tell you what it’s worth. On Kelley Blue Book, you can get a sense of the value ahead of time so you know if you’re receiving a good offer. Or try the Kelley Blue Book Instant Cash Offer feature, where dealers will give you a guaranteed price for a trade, eliminating complicated haggling at the dealership. 

6. Test Drive Potential Purchases

You may want to pass on the test drive if you’re familiar with a particular make and model, but Lavelle recommends taking the time to do it anyway. “It is a good idea to inspect the car and give it a good test drive just to make sure all is working and there are no noticeable squeaks, rattles, or shimmies that could cause you headaches after your purchase,” he says.

7. Look at Car Histories

Before selecting dealerships to visit, search for consumer reviews so you can avoid having a bad experience. However, Lavelle warns that just because a car sits on a reputable, well-reviewed lot does not necessarily mean that the car is issue-free. So he recommends digging deeper, especially for used cars. “Services like CARFAX represent that they can tell you about the car’s life from first purchase forward, so that might be a good place to start,” he says. He also recommends checking the title, which you can do online via the DMV.

8. Find Repair Records

In addition to checking the repair history on the specific car you are interested in, Autotrader suggests looking up the repair record of the make and model. “Check J.D. Power and Consumer Reports reliability ratings to see if the vehicle you’re considering is known to be a reliable one,” the site states. It also recommend Internet forums and word of mouth.

9. Spring for an Inspection

Autotrader also suggests telling the seller you require an inspection from a mechanic before purchase to ensure there aren’t any problems. “While a mechanic may charge $100 or more for such an inspection, it can be worth it if it saves you from thousands of dollars in potential repairs,” it recommends. Some sellers may try to dismiss a mechanic’s inspection. Don’t give in—the seller could be covering up a serious issue with the car. Insist an inspection is done, or rethink your purchase.

10. Know Your Rights

For any new or used car, take the time to get familiar with the warranty package and return policies. Do you need to supplement the warranty? Is there a lemon law in your state? Currently, there are only six states that have one, so be sure to check.

Shopping for a car can be frightening, but with the right research and preparation, you won’t have any regrets. Use the tips and resources above, and snag a free credit report from Credit.com so you know what kind of financing you can expect.

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The Dark Side of Leasing: What Car Buyers Should Know

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Leasing a car can be the right decision in some cases. You can enjoy driving a new car without putting down a large sum of money or slide behind the wheel of a used car with little investment.

The average lease payment in 2016 was $120 less than an average finance payment on a new car, according to a 2017 report from Edmunds, a car-comparison and research site. For large pickup trucks, the savings were even higher: $206.

Lease contracts also require less commitment because they last an average 36 months, while finance agreements average 69 months, Edmunds reports.

What you need to know about leasing a car

For drivers who are unlikely to exceed a contract’s mileage cap and will take good care of the vehicle, leasing can be a good option.

A growing number of Americans are leasing instead of purchasing, according to the 2017 Manheim Used Car Report. A record-breaking 4.4 million new leases originated in 2016, according to the Atlanta-based provider of vehicle remarketing services. (Edmunds puts that number at 4.3 million, but either way, it’s a new high.) Leases also exceed 30 percent of the new vehicle market for the first time ever in 2016, Edmunds reports.

But there’s a dark side to leasing. Autos were the number one subject of consumer complaints in 2016, according to the Consumer Complaint Survey Report conducted by Consumer Federation of America (CFA) and the North American Consumer Protection Investigators (NACPI). The report cited multiple complaints about leasing, including used-car leasing.

“It seems like more and more people are not wanting to fork out lots of money for a new car, which makes sense. But it’s very shocking to see a growing number of people lease used cars when they don’t have protection,” says Amber Capoun, president of NACPI.

While the cheaper price tag on a used car lease can be enticing, consumers leasing older cars may lose protection if it is no longer covered by a warranty, says Mark Anderson, a consumer protection attorney at Anderson, Ogilvie & Brewer in San Francisco.

Must-know facts about leasing

If you are considering leasing a car, watch out for these six pitfalls.

1. Credit score hit

When you lease a car, a credit inquiry is conducted, just like when applying for a car loan. Your credit score will fall slightly, but it can be rebuilt by making timely payments.

A lease payment may be less per month than a finance payment, but missing a payment or ending your lease early can further reduce your credit. If you don’t have a strong credit history, you may need a co-signer. However, both you and your co-signer should be aware that late payments can damage both credit scores.

2. High interest rates

At first glance, the interest rate — the amount you pay for borrowing the lease company’s money while you drive their car — may appear lower than the annual percentage rate (APR) you would pay to finance a vehicle. That is because the rate is expressed in the leasing agreement as the “money factor” and is a very small number, like 0.0022. To calculate your lease’s APR, multiple the money factor by 2,400, which would be 5.28% APR.

The interest rates on used cars are usually even higher, since the vehicle value at the end of the lease is difficult to predict. Don’t forget to multiply that low “money factor” to figure out your interest rate. It could make all the difference in your ability to afford leasing a car. Good credit will help you get a better interest rate.

3. Lack of consumer protection

An older car with higher mileage may have exceeded its warranty by the time you lease it, which means you are responsible for repairs that would have been covered under a warranty on a newer car, or a car with lower mileage.

The Consumer Leasing Act requires lessors to disclose certain information, including conditions for early termination, the lessor’s standards for wear and tear, and all fees and taxes before a lease is signed, but a company can take advantage of you if you are unprepared. Consumer protections and lemon laws differ state to state, Capoun says, and can leave drivers on the hook for costly repairs. While all lease agreements allow
for normal wear and tear, contracts vary greatly.

“You are the one who’s responsible if your car breaks down, so it’s very important to read the fine print before signing a lease and know what’s included in the contract,” Capoun says.

Consumers should also be wary of third-party “extended warranty” offers, which Anderson says are far more reliable than automakers in providing services and repairs.

“Lemon law applies to leases, but it won’t protect you if you don’t fulfill your payments. You’ll get hit by some steep fees,” Anderson says. “And people often forget leasing doesn’t mean you own the car. If you miss a payment and the car gets repossessed, you don’t have any rights.”

4. Hidden costs

Anything from a small scratch to ending your lease early could result in a hefty fee. The acquisition and delivery fees (which both range from $300 for compact cars to $900 for luxury vehicles) are some of the largest, and unexpected, expenses.

Upon returning your car, be prepared for the car to be looked over with scrutiny. The dealership wants the car returned in “salable” condition so it can be sold or leased to someone new at its highest value. Any damage or changes detract from that value, and you can be fined. If you want to make alterations to your car, they should not be permanent. You also will be responsible for the majority of the maintenance and repair costs, which add up the longer you lease.

Even leasing new cars can be dangerous, says Stacey Nix, a 52-year-old mother of three in Valdosta, Ga. Nix and her husband once leased a car, but say they never will again after being stuck with extra costs for exceeding the mileage limits stipulated in the leasing contract.

“I felt we were misled and not told all the facts,” she says.

Exceed that mileage limit — even by a mile — and you’ll be hit with another fee. Be sure to know exactly how many annual miles your contract allows, usually 15,000 miles or less, and keep an eye on your odometer. Mileage fees typically range from 15 cents to 30 cents per mile, depending on the vehicle.

5. Lack of equity

Over time you will likely end up paying more than the vehicle is worth, but you haven’t gained any equity toward buying a new vehicle. At the end of a lease, you do not own the vehicle, which means you cannot sell it and take advantage of its residual value and profit off the vehicle. Despite higher monthly costs, when you purchase a vehicle, its cash value is yours to do with it as you wish.

6. Pricey, and limited, exit options

Ending your lease early can result in having to pay anything from a fine to the remaining balance on your lease. No one can predict the future, so it is important to know your exit options, and how much each will cost, before signing your contract.

One exit option is buying the car outright. Each lease has different payoff or buyout options, some of which can be negotiated, but each car’s value varies so it is difficult to predict just how much your car will be worth. You also can trade in your car for one with a cheaper lease, but you will have to pay penalties and fees for ending the other lease early. Finding someone to take over your lease is another option, but yet again, you won’t avoid fees.

Tips for protecting yourself from a bad lease

1. Consider all of your options

Is leasing really for you? Once you sign a contract, you’re bound to that agreement. If you don’t think you will exceed the mileage allowance, damage the car, and have to end the lease early, and don’t mind not building equity, then leasing might be the right decision. The Federal Trade Commission has guidelines to help you decide whether you should finance or lease a car.

2. Remember the old school rules

Taking a car to a mechanic you trust first can prevent you from driving off the lot with a car full of problems. Asking about warranties and what is and isn’t covered by the dealership or the manufacturer can even save you legal trouble, Anderson says.

3. Negotiate, negotiate, negotiate

Everything from the overall price to aesthetic changes to a car can be negotiated. Good credit could give you the edge: Lessees had an average FICO Score of 716, eight points higher than new vehicle buyers, according to the Manheim survey. Other smaller fees, like document-processing fees to service fees, can be negotiated if you’re willing to put in the effort. Negotiations also can help save you money in unpredictable situations like accidents or terminating a lease early. Finally, never forget to ask about any leasing specials.

4. Understand your contract, down to the nitty-gritty

Leave with a copy of your lease so you always have the official contract to reference and can hold your lessor accountable to the agreement. You also can use the Consumer Leasing Act’s examination checklist to ensure all of the proper details are disclosed during a lease signing.

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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

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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.

Image: AdrianHancu

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The Average New Car Loan Payment Is $499

new-car-loan-rates

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.

Image: Xavier Arnau

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