What Credit Score Do I Need to Buy a Car?

What Credit Score Do You Need to Get An Auto Loan?

Article Updated July 18, 2018.

If it’s time to purchase a new vehicle, you may be wondering about one obstacle that could get in your way: your credit. Maybe you’re unsure how good your credit is, and you don’t know what credit score is needed to buy a car either. It is better to educate yourself with the knowledge you need to move forward with the car buying process to help alleviate any frustration or challenges you may find along the way to car ownership.

No matter your credit score, you can probably find a way to finance a car loan if you absolutely must buy a new vehicle. The real question is what your credit score will cost you when you make the purchase. The better your credit score, the better your chances may be of receiving a cheaper and more affordable interest rate and payment per month.

So, while there’s no minimum credit score required for car loans, your credit history and credit score can definitely make a big difference in the car buying process.

Bad Credit Scores Mean Much Higher Interest Rates

According to data from Experian Automotive, the difference in interest rates on a new car loan for someone with excellent credit versus someone with very poor credit is over 11 percentage points.

In fact, 2.84% was the average interest rate someone with a super-prime (excellent) credit score paid in the first quarter of 2017, while those with deep subprime (very poor) credit paid an average interest rate of 13.98% or higher.

To illustrate this difference, consider that you apply for a 60-month loan on a car that costs $25,000. With a 2.84% interest rate, the total cost of your car would be $26,847 with payments of $447 per month. Not too shabby.

For the same loan but an interest rate of 13.98%, your car loan would cost you $34,887, and you’d pay $581 per month. That’s more than $8,000 extra! Clearly, poor credit can result in you paying a lot more for your new vehicle.

The difference was even starker in comparison to those financing used cars. Those with super-prime credit paid an average rate of 3.56%, while those with deep subprime credit paid an average of 19.62%—more than 16 percentage points higher.

Average New Car Loan Rate by Credit Score (Q1 2017)

  • Super-prime (781–850): 2.84%
  • Prime (661–780): 3.77%
  • Nonprime (601–660): 6.60%
  • Subprime (501–600): 11.05%
  • Deep subprime (300–500): 13.98%

Note that the credit labels above represent Experian’s credit ranges. Other credit reporting agencies use different scales and labels so the information may differ between each credit bureau.

Experian uses a scoring model of 300 to 850. You will find the prime borrowers on the top of this spectrum, and the deep subprime borrowers are at the lower end of the spectrum.

Even if your credit score doesn’t fall into the average ranks as outlined below, you may still be able to qualify for a vehicle loan with a score of between 600 and 660.

Average Used Car Loan Rate by Credit Score (Q1 2017)

  • Super-prime: 3.56%
  • Prime: 5.29%
  • Nonprime: 9.88%
  • Subprime: 16.48%
  • Deep subprime: 19.62%

The dealer may also evaluate your credit using another type of credit score called VantageScore. VantageScore, which was developed by all three of the major reporting agencies, assigns different weights to different parts of your credit history, such as on-time payments, balances, and utilization.

Some people may benefit from a lender using their VantageScore, while others may be at a disadvantage.

Subprime Auto Loans

If you find that you are ineligible for a traditional car loan because you have a low credit score or less than perfect credit, or your income is below where it needs to be, then you will need to look into a subprime auto loan.

Subprime auto loans tend to be a lot riskier than regular or traditional car loans, and they typically come attached to much higher interest rates and fees, and you are paying for much longer terms.

Subprime lending is also often referred to as near-prime, subpar, non-prime, and second-chance lending. However, instead of using this type of high interest loan, if available, you should instead improve your credit, so it is no longer less-than-perfect-credit. You could also see if you could instead qualify for in-house financing at the dealership, so you do not have to be a subprime borrower and risk putting yourself under even more financial strain.

Where to Start If You’re Unsure

If you’re nervous about letting a car dealer check your credit—but even if you aren’t—it’s helpful to check your score yourself in advance. You can check your credit report for free to make sure you don’t have any surprises and to find mistakes.

Note that the credit scores an auto lender uses may be slightly different because it will be tailored for an auto loan. Still, it’s a good start—if your general credit score is strong, you can also bet that the score the dealer uses is strong.

We also recommend that you try to get pre-approved for a car loan from a bank or credit union before setting foot in the dealership. With a set interest rate in hand, if the dealer can offer you a better rate, perfect! If not, you’ll be prepared to pay what your bank approved you for.

How to Get Pre-approved for a Car Loan

You can apply for pre-approval for a car loan easily online, in person, or even over the phone. The lender will perform a hard credit check to see the state of your credit, and they will then gather all of your financial information such as your monthly income, and they will then have a better idea about whether or not they will provide you with the car loan.

All of these factors will figure into the interest rate, monthly payment, loan amount, and even the length of the loan. There is also something called pre-qualification, but this process will not be as accurate as the pre-approval process because they are not able to take such a close look at your credit.

If and when you are pre-approved, the lender will provide you with an offer statement in the form of a letter, certificate, or another form of proof so you can take it to the car dealership of your choice and begin the car buying process.

Remember, even if you are pre-approved, you will want to set a very realistic budget for yourself prior to looking at cars so you will have a better idea of what you can afford and what you should be looking into.

Getting the Best Auto Loan

Getting the best auto loan is important when it comes to affordability and value. It is recommended that you look at options from different banks and credit unions and other online lenders to make sure you are getting the lowest possible interest rate you can get. Finding a car dealership that offers financing may also prove to be a beneficial idea as well; especially if your credit is less than ideal.

When planning to finance a new or used car, it is always best to take your time and plan it out because it is a big purchase and investment. If you are able and have the time, you should consider working on your credit score to improve your credit, so you are able to lock in a much better deal.

Pull your credit report and look through it thoroughly. Always be on the lookout for any errors so you can dispute them and get them removed. It is also important to make sure you are paying all of your bills on time, your credit balances are low, and you are not opening any new lines of credit except when you actually need to.

You will be presented with better financing options if you can show the potential lenders that you are responsible and can pay your bills on time and maintain good credit.

A Word of Caution

Credit inquiries related to auto loans made within a short time frame (usually 14 days, or 45 days depending on the credit score model being used) are supposed to count as a single inquiry. However, some of our readers have found their credit scores dropping after multiple car dealers sent credit inquiries for financing. This is another reason why getting pre-approved before going to the dealership is a good idea.

 

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

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

Here’s What Else You Should Know about Auto Loans:

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Source: credit.com

How to Take Advantage of Low-Interest Loans During the COVID-19 Health Crisis

A woman looks at her cellphone while sitting on her couch

The following is a guest post from Dr. David L Tuyo II, president and CEO of University Credit Union.

While there is rampant fear and caution against a global economic downturn due to COVID-19, this does not mean that every individual will be hit as hard as the next.

Certainly, there has been and will be even more severe impact across some key industries, but this shouldn’t be a cause for panic, particularly if you aren’t financially tied directly to any of the hardest-hit industries.

In fact, overly cautious decisions right now could equate to missed opportunities for personal financial growth. What many people don’t realize is that now is the time to take advantage of low-interest loans.

Interest rates are bottoming out at historic lows, which means that it is more affordable than ever to borrow money from financial institutions. There is even some speculation that interest rates could become negative—meaning that financial institutions would actually pay people to take out loans. Although unlikely, this has been seen before in places like Switzerland, Denmark, and Japan.

This means that there is a fantastic opportunity to borrow money in order to ease the financial burden of your debt, increase the cash flow that you have on a monthly basis, and potentially provide some peace of mind during these unprecedented times.

So how can you take advantage of low-interest rates to get ahead financially?

In this article, we will explore three financial strategies that can be implemented now.

Refinance Your Mortgage

When interest rates are low, refinancing your mortgage should be on the top of every prudent homeowner’s list.

If you are not familiar with refinancing, it is essentially the process of replacing an existing mortgage with a new loan. This is primarily done to allow the borrower to obtain a better interest rate than the one that is currently held on the existing mortgage. The old loan is paid off and a new one is created at a better interest rate.

There are plenty of examples of people who are refinancing their mortgages right now during the COVID-19 outbreak and finding significant financial relief, which is an important lesson for anyone who might be struggling to keep up with their payments.

Even with some of the social distancing restrictions in place, accommodations can be made for safe appraisals, so don’t assume that it’s not possible to take advantage of low-interest rates through refinancing right now.

Refinance Your Auto Loans

Similar to mortgages, it is even easier to refinance a loan on your automobile to acquire a better rate or a new term.

This can be advantageous if a borrower needs to free up some cash or reduce their monthly payments and with incredibly low rates available—it’s an easy choice to make.

Refinancing your car loan is also much simpler than refinancing your mortgage as it can be completed entirely online, so no physical contact with other people is actually required. This can make it a less complicated financial decision and very quick to process in most cases.

By reducing your monthly payments through refinancing, you will have better cash flow and it will be more feasible to fit your payments into a budget that may be contracting due to the economic downturn.

The Time to Buy Is Now

If you have been considering purchasing a home or investing in property, this is an ideal time to make a purchase if you want to take advantage of the very low interest rates that are available.

Right now, it is possible to lock in low interest rates if you take out a mortgage before interest rates climb back up, which means that you can enjoy years of cost savings as a result of a fixed-rate mortgage.

Of course, you need to carefully consider your financial position before taking out any loan, but if you hold any confidence in your cash flow and assets, then it’s a very appealing time to take out a mortgage.

That said, there is potential that housing prices could come down further, but if buying activity is encouraged by low interest rates, then it might not dip that far depending on where you live. If you are considering entering the housing market, then you should keep a careful eye on price movement—and if you see a deal, be ready to jump on it.

Be Cautious—Not Afraid

Markets and the economy are always going up and down. Sometimes it goes in one direction more than the other, but ultimately, it’s not the state of the economy that matters the most. The most important financial decisions are the ones that you make in response to economic trends.

Believe it or not, it is very possible to make money during economic turmoil. If you take careful consideration of your position and your options, then you can find a way to get ahead despite all of the existing challenges.

Granted, we haven’t seen economic problems like this since the Great Depression, but it’s important to understand that the context and root causes that affect us today are very different than back then.

This is a time to be cautious, but not afraid. Cautious investors make smart decisions. Financial decisions driven by fear are rarely the right choice.

Think carefully, but don’t be afraid to act now in order to take advantage of low-interest loans.

Dr. David L Tuyo II, DBA, MBA serves as the President and CEO of University Credit Union. He is a veteran of the financial services industry where he has served financial institutions in a multitude of roles including COO, CFO, and Chief Investment Officer. His career in the financial services industry spans over 20 years, with the majority dedicated to serving credit unions.

The post How to Take Advantage of Low-Interest Loans During the COVID-19 Health Crisis appeared first on Credit.com.

Source: credit.com

Shigeru Ban-Designed Home in Sagaponack, NY is the Prized Architect’s Only Project in the Area

Many million dollar homes come with name-bragging rights. Sometimes, it’s because a celebrity once lived in the house, or because a famous designer left its touch on the home’s interiors; or maybe the address itself is well-known, for one reason or another.

But there’s a whole other level of name dropping that comes with owning a home envisioned by one of our generation’s leading architects. And that’s exactly the case for this modern glass home in Sagaponack, NY, designed by world-renowned architect Shigeru Ban.

In fact, the property is the award-winning Japanese architect’s first and only work in Long Island, and has recently hit the market with a $4,995,000 price tag. Listed with Matt Breitenbach of Compass, the architectural masterpiece was already marked as Contract Signed on the brokerage’s website mere days after it came to market, which means it’s likely that an architect buff has already seized on the opportunity to own a home designed by the Pritzker-prize winner.

outside a Shigeru Ban-designed home in Long Island, NY
Shigeru Ban-designed home in Sagaponack, NY. Photo credit: Compass
Interiors of a Shigeru Ban-designed home in Long Island, NY. Photo credit: Compass
Shigeru Ban-designed home in Sagaponack, NY. Photo credit: Compass

Famous for blending traditional Japanese elements with modern Western architecture, Shigeru Ban was named to TIME magazine’s shortlist of 21st-century innovators, won the 2014 Pritzker prize (the biggest distinction in the architecture world), and left his imprint on structures like the Aspen Art Museum, Centre-Pompidou-Metz in France, and Tainan Art Museum in Taiwan.

Despite the many accolades, the Japanese architect is most known for being a champion for sustainable architecture and has been instrumental in designing disaster relief housing from Rwanda to Turkey.  His design philosophy is centered around creating uniquely free and open spaces with concrete rationality of structure and construction method, and the Sagaponack home is a perfect embodiment of this.

With a design based on Ludwig Mies van der Rohe’s unbuilt Brick Country House (which dates back to 1924), the 8,000-square-foot home boasts unique architectural features, including a row of pillars that line the path to the front door — and that can double as hidden storage.

Shigeru Ban-designed home in Long Island, NY
Shigeru Ban-designed home in Sagaponack, NY. Photo credit: Compass
Shigeru Ban-designed home in Long Island, NY
Shigeru Ban-designed home in Sagaponack, NY. Photo credit: Compass
Shigeru Ban-designed home in Long Island, NY
Shigeru Ban-designed home in Sagaponack, NY. Photo credit: Compass
Shigeru Ban-designed home in Long Island, NY
Shigeru Ban-designed home in Sagaponack, NY. Photo credit: Compass

The 5-bedroom, 5.5-bath home comes with exceptional furnishings by renowned designer Shamir Shah. It has floor-to-ceiling windows, an oversized living room (with a wood burning fireplace and wraparound views of the landscaped lawn), and a massive workout room that is more akin to a private high-end gym — complete with floor-to-ceiling mirrors and every piece of equipment you could think of, including a spin bike, elliptical, treadmill, press machines, and more.

The indoors seamlessly open to the outdoor areas, where there’s a heated in-ground pool and a pool-side terrace with multiple lounging areas — adding to the tranquil zen garden area (with a modern stone fountain) which greets visitors as they enter the property.

Shigeru Ban-designed home in Long Island, NY
Shigeru Ban-designed home in Sagaponack, NY. Photo credit: Compass
Shigeru Ban-designed home in Long Island, NY
Shigeru Ban-designed home in Sagaponack, NY. Photo credit: Compass

More beautiful homes

This Brooklyn Condo Has a Dreamy Backyard that Will Make You Forget You’re in the City
Power Couple Loren & JR Ridinger Selling Palatial Unit in Jean Nouvel-Designed Building
This Stunning Former East Village Synagogue is Seeking Renters
Former Home and Office of Marilyn Monroe’s Psychiatrist Listed for Sale in Manhattan

The post Shigeru Ban-Designed Home in Sagaponack, NY is the Prized Architect’s Only Project in the Area appeared first on Fancy Pants Homes.

Source: fancypantshomes.com

How Much Does a Cosigner Help with Getting Auto Loans or Better Loan Terms?

A woman in a bright yellow dress drives a silver car.

Imagine you’re shopping for a new car and finally find a reasonably priced set of wheels that you like. But when the dealer pulls your credit, that seemingly affordable monthly payment is no longer available to you. Instead, you’re offered a subprime car loan at 10% or even 20% interest because your credit isn’t strong enough to get a better rate.

How much does a cosigner help on auto loans when you’re facing this type of situation? Get more information below to help you decide whether seeking a cosigner is the right option for you.

How Does a Cosigner on a Loan Work?

A cosigner is basically someone who backs the loan. They sign agreeing that if you don’t make the payments as promised, they will step in to pay them.

If you don’t have much of a credit history or your credit is bad or poor, lenders are typically hesitant to give you an auto loan. They perceive you as risky. Will you pay as agreed? There’s not enough data or credit history for them to make that call.

However, a cosigner with a long history of good credit is different. The lender is more likely to believe that this person willpay as agreed. So, if you can get a cosigner to back you, you might have a better chance of getting a loan or getting better terms.

How Much Does a Cosigner Help With an Auto Loan?

How much can you save? Imagine you finance $37,851, the average price for a new light vehicle in the United States as of February 2020.

The average interest rate as of the end of 2019 for new car loans was 5.76%. If you’re able to get that interest rate and a loan term of 72 months—that’s 6 years—you would pay a total of $44,742. That’s $6,891 in interest and a monthly payment of around $621.

If you financed at 10% without a cosigner for the same terms, you’d pay a total of $50,488 for the vehicle. That’s $12,637 in interest and around $701 in monthly payments.

This is obviously just an example, but you can see that a cosigner can save you a lot. In this case, it’s $80 a month and more than $5,700 total.

Cosigner Versus Co-Applicant

It’s important to note that having a cosigner for a car loan is not the same thing as having a co-applicant. A co-applicant buys the vehicle with you. Their credit history and income are used alongside yours to determine if you, together, can afford the vehicle. The co-applicant also has an equal share of ownership in the vehicle purchased with the loan.

A cosigner, on the other hand, doesn’t have an ownership share in the vehicle. Their income may also not be a factor in the approval. Typically, they’re along only to provide a boost in the overall credit outlook.

What Are Some Downsides of Having a Cosigner?

Most of the risks or disadvantages are held by the cosigner. If you don’t pay the loan, they could become responsible for it. They could also suffer from a lower credit score if you’re late with car payments because it might get reported to their credit too.

As a borrower, you might experience a few disadvantages in using a cosigner. First, you have to get someone to agree to this, and you typically want it to be someone with good credit. Trusted family members are the most common cosigners, but that could mean that they might want to have a say in what type of vehicle you get.

And if something happens and you can’t pay the vehicle loan for any reason, you run a personal risk. You could damage your relationship with the cosigner if they do end up having to pay off the loan or face damage to their credit.

So, Should You Get a Cosigner for an Auto Loan?

The decision is personal. Before you do anything, check your credit and understand where you are financially. That helps you know what your chances for getting approved for a loan are on your own and how much loan you might be able to afford.

Then, check out some potential auto loans and consider whether you should apply for them on your own. If you know your credit is too poor or you try to apply for a loan and don’t get favorable terms, talk to a potential cosigner. Be honest about your situation and have a plan to pay the loan on time each month so they feel more confident supporting you as you make this purchase.

The post How Much Does a Cosigner Help with Getting Auto Loans or Better Loan Terms? appeared first on Credit.com.

Source: credit.com