Making Wise Use of Used Car Loan and Availing Good Interest Rates

When it comes to buying a car, new or used, you get the liberty to go for a long drive down the highway. Yes, it’s a symbolism of freedom, independence, and individuality. Then, the prices of new vehicles have gone up down the years. And so, owning a brand new Ford or Hyundai is beyond the capacity of salaried people unless one is working as a top company executive. This is the reason most people opt for a used car loan to cover the cost of a plush, modern vehicle. Such loans are beneficial for people with bad credit rating.

The best thing about auto loans for bad credit is that you get affordable interest rates despite the fact that you have a bad credit history. This helps borrowers to improve their credit situation in the future. In this connection, it is important to note that used auto loans come in two forms. One is the secured car loan and the other unsecured auto financing. Depending on a borrower’s financial needs, he or she can make wise use of the two formats. People who cannot pledge for collateral must opt for unsecured financing. So, such borrowers need not worry about collateral. The person has to look for online providers who have wide experience in the field.

As far as bad credit loans are concerned, there are a plethora of benefits to reap. The primary advantage is that you get an opportunity to improve your credit score. And, once the credit score improves, lenders will be more than happy to offer you loans at low rate of interest in the future. So, next time you are buying a car, there is no need to worry about exorbitant interest rates. And, most important fact is that there are no hidden terms or conditions.

The rates of interest are extremely competitive and, so it is beneficial for borrowers in a number of ways. So, if you are in a bad financial situation, or had past bankruptcy records, then used auto financing option is the best for you.

When researching on used car loan providers on the internet, take your time. There is no need to rush. Since there are multiple companies offering car financing facilities, you need to select carefully. There are some unscrupulous lenders who will leave no stone unturned to make you opt for the wrong deals. They might trick you into a monthly payment plan that’s too expensive for you. It’s not that all companies are alike, but there are a few to misinform and mislead you. This is the reason you must do a detailed research on the companies that you are going to opt for. Look at things like down payment options, interest rates, flexibility, and round-the-clock customer support. It is also essential that you read up reviews and customer testimonials. You can also get business ratings from sources like better Business Bureau. Check whether the loan providing site has a live chat facility.

How Your Credit Score Affects Applying for a Loan

During your lifetime, you most likely will need to apply for a loan. That may finance a new home purchase, an automobile, or college tuition. Walking into a lender’s office without knowing how your credit score affects loan rates and your qualification options is a grave mistake.

Let’s look at what your credit means to potential loan rates for buying a home or a car or financing a college education.

Loan Rates and Your Credit Score
From home mortgages to automobile loans, each financing option has a common factor: a rate. These rates dictate how much interest you will pay over the lifetime of the loan.

There are various determinants that figure into a rate, but one of the most important factors is your credit. Before even determining your rate, most lenders use your credit score to decide whether to consider you as a qualified candidate. Once you are approved for financing, your credit score is again used to select an appropriate rate.

For some loans, a lower score may increase your percentage rate and for others, such as an automobile loan, a low score may even require you to place a down payment.

Possibility of a Co-signer
Sometimes, your credit score will get you approved, but may result in a higher rate. In these financing situations, your lender may allow you to get a co-signer to change (preferably for the better) the rate of your loan.

A co-signer is someone who would sign with you and allow the loan to become part of his or her credit history. The most common types of co-signers include parents for some of those first large purchases such as a vehicle or even a first credit card.

Samples of Loans Rates
Depending on your credit score, rates will vary. For some more common types of loans a higher rate could add a significant amount of interest and an increase in monthly payments. For instance, on a $300,000 30-year mortgage, you may see these types of loan rates:

  • A score of 760-850 could earn you a 5.780% rate
  • A score of 700-759 could earn you a 6.002% rate
  • A score of 600-699 could earn you a 6.286% rate

Using the mortgage scenario above, the difference between the lowest rate and the highest rate is almost $100 per month and over $34,000 during the lifetime of the loan.

For auto loans in June of 2011, an average 60-month rate started at 5.43%, which could go up or down depending on your credit score.

When it comes to buying a home or a vehicle or to applying for a student loan, you need to understand how your credit score impacts rates. By knowing some of the ranges of rates available, you minimize any surprises when it comes to your loan rate.

If you’re looking for more information on how your credit report affects loan rates, look at other resources in our credit library.

Eighty Twenty Loans and Variations

Home prices are growing at a faster pace than incomes these days. It can be disheartening when you dream about owning your dream home but cant seem to put any money away for a down payment no matter how hard you work. Some of you may be young professionals that have recently graduated from college and have great jobs but obligations to pay debt that has accumulated from the college days. But you found the home you want and you want it now.

You know you can afford the monthly payments; you just dont have the money for the down payment. So what do you do? Well there is always the option of an 80-20 loan. These loans combined finance 100% of the cost of the home. The first loan is for 80% of the homes value. It works like a normal mortgage in that it can be financed for a 30 year fixed rate interest.

The second mortgage, the 20% loan, is a piggyback loan. It may be treated like a line of credit or may be financed as a fixed rate mortgage as well. It depends on the mortgage company and the conditions agreed to at the time of the contract. 20% loans usually have a higher interest rate than the 80% loan. Still, the two loans added together are typically cheaper than the mortgage would be
financed as one mortgage with PMI.

Private Mortgage Insurance is a mandatory, expensive insurance for any home that finances over 80% of the value of the home. The 20% loan waves the 20% down payment that would be required in order to avoid paying the PMI.

There are other variations of the 80-20 loan. There are the 80-15-5 loan and the 80-10-10 loan where 80% loan is the first mortgage, the 15% loan is the piggyback loan with a 5% down payment or 80% is the first mortgage, 10% is the piggyback loan with a 10% down payment.

All three of these variations come to the same conclusion. They all avoid PMI. The only money that the buyer has to come with up front is the closing cost, unless the buyer can get the seller to pay it and then essentially the buyer gets into a home without any money up front.