Category Archives: Financing a Vehicle

Advantages of Trading in Your Car

Should I Trade in My Car?

The majority of drivers who purchase a car or truck usually own another vehicle that they would like to dispose of. They’re faced with an important decision: should I trade in my current vehicle to a dealership or should I try to sell it myself? Despite the attractive benefits of private selling, in most cases the obvious and most convenient decision is to simply trade your vehicle in and accept the dealers’ trade in allowance.

We’ll be discussing, the pros & cons of selling your car privately in our next article “Is It Hard To Sell A Car Privately?”

Sales Tax Savings with Trade-ins

One of the greatest benefits of the trade in format, comes with how sales tax on your new purchase is calculated. Across most of the country, when you trade in a car to purchase a new one, you will get some sort of sales tax credit based on the value of your trade. What exactly does this mean? States which allow a sales tax credit for a trade-in, calculate the tax you will have to pay on the final purchase based on the cost after the value of the trade is subtracted from the cost of the new vehicle. For example, if you are buying a new car for $20,000 and the dealership offers you $8,000 for your trade-in, you will pay sales tax only on the $12,000 difference! The existence of a bank lien payoff has no effect on the sales tax calculation. Whether the trade-in is owned free and clear with no bank lien, or the lien payoff is thousands more than the actual value of the vehicle, the sales tax savings will be the same. Any lien, or no lien, has no effect on the sales tax savings.

If you owe more on your old bank loan than the vehicle is worth, this is considered to be “upside down” or have negative equity in your old car. If your credit status is strong enough, the lender who is financing the second purchase might agree to refinance the negative equity, in addition to the new car loan. This refinancing arrangement is only available if you trade in your old vehicle.

Less Hassle

When the customer trades his old vehicle, all of the DMV tasks are handled by the dealer. The transfer of ownership, the assignment of title, the lien payoff, obtaining new plates and surrendering the old plates, are all handled by the dealer. If the trade in is sold privately, most of the DMV tasks must be handled by the customer.

Bottom Line

Trading in the old vehicle gives the owner the convenience, the sales tax savings and the freedom from any hassles after the sale. The only real issue remaining is whether the trade in allowance is fair. If the dealer really wants the trade, then the customer might ask for a larger trade allowance. As the trade in allowance goes up, the sales tax savings also goes up, and the amount financed on the new vehicle goes down.

The bottom line really depends on the reasonableness and fairness of the trade in allowance. If the trade allowance is way below the lien payoff to the bank, or simply far below the advertised prices, the customer must make a tough decision.

Whether you’re trading in your car to buy a new on or just looking to get rid of your current vehicle, Trust Auto makes it quick and easy. We utilize a multitude of reputable third-party data to establish the true market value of your car and get you a fast, free appraisal. Afterwards, we review your vehicle on-site and give you an offer through our transparent assessment process. When drivers trade in their old vehicle for a new one at Trust Auto, you can do so with the confidence of knowing that you will always get the fairest offer for your trade.

What to Expect if You Have Bad Credit When Applying for a Car Loan

Just because you have bad credit doesn’t necessarily mean you can’t get a used vehicle with financing, but it will affect the terms of your loan.

Millions of people face this situation every year – How to buy a car with poor or bad credit? – and what to expect when trying to purchase a used vehicle and if they’ll qualify for any financing options.  In fact, at the end of 2017, 1.24 million car loans were offered to customers with subprime credit scores – 649 or worse for Vantage Score and 669 or worse for FICO.

What To Expect If You Have Bad Credit

Many dealerships are unwilling to help customers figure out financing options. At that point, the customer should move on and find a dealership that will.  There are numerous used car dealerships who do not work with financing, simply because they haven’t invested the time and efforts into creating relationships with leading lenders.  At Trust Auto, we work with major banking institutions in order to offer an appealing financing option for 85% of our customers.

Expect Higher Interest Rates

People with bad credit are still able to purchase decent used cars, but it will affect the terms of their loan and financing options available. And, the lower the credit score, the higher the interest rate will be, since you are considered a higher risk  of default than people with outstanding credit scores, who are rewarded with lower rates. While it may not seem fair, it’s a way for banks and lenders to protect themselves.

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To lower your interest rate, it may be helpful to offer a substantial down payment. In fact, many lenders may require a larger percentage down payment to decrease their risk of lending you money. A larger down payment will also reduce your monthly payment, so it can be beneficial to save up a sizable amount of money before shopping for a new vehicle. Not only that, but by offering a larger down payment, you will end up paying less in the long run, since you will pay less interest.  It’s something to consider if you have bad credit and are looking to purchase a used car.

Know Your Credit Score

Before you ever call or step foot into a dealership, it will help if you already know your credit score.  This reduces the risk of the dealership lying to you, but it will also give you an idea of what kind of options are available.  However, there are some credit situations that no lender will work with – many pre-owned car dealerships won’t accept credit that is lower than 435. In the event that you have extremely poor credit, work on improving your score before buying a new car.  This means lowering the amount of debt you have (pay off credit cards, any outstanding balances, etc.) and making payments on time.

Have a Reasonable Budget In Mind

Make sure you know what is an affordable monthly payment before agreeing to any financing option and locking in any interest rates.  This will also give you an idea of what cars are manageable and what cars are out of your price range before you fall in love with a luxury vehicle that costs more than you can afford. Look at your monthly bills, average used car loans, and how much you can afford before setting your sights on any used vehicle.  This will make your experience at any car dealership more meaningful and worthwhile.

Consider A Co-Signer

If the lenders have concerns with a customer’s credit and risk they pose, it may be required to have a co-signer on your loan.  In some cases, having a co-signer may allow lenders to provide you with a lower interest rate. With that in mind, the co-signer should know their responsibilities to pay the car loan in the event that your account is delinquent.

Of course, many lenders look at more than just your credit score when determining the kind of loan option they want to extend to customers with bad credit.  They will consider your employment history (stability, length of employment, etc.), gross income (to ensure you are able to make timely, monthly payments), and a variety of other factors.  Providing documentation of these financial factors may be required, so be prepared with the proper forms and documents.

Trust Auto takes the time to with with all customers to determine a finance option that is agreeable to all parties and makes an effort to find available vehicles for every budget.  They work with some of the leading lenders in the area in order to provide a variety of finance options. To see the full list, click here.

Why Paying Your Car Loan Weekly Will Save You Money

Everyone is looking for ways to save money, pay fewer bills, and have some extra money each month.  Paying smaller, more frequent amounts can help free up some money and pay off your car loan faster.

On larger loans like a mortgage or car payment, your interest is charged monthly, based on the principal balance after last the previous month’s payment was processed.  There are a few ways to lower your loan amount and pay your debt off faster than if you make regularly scheduled monthly payments. Let’s take a look at your options.

More Frequent, Smaller Payments

If you are currently paying a monthly bill on your car loan, you are paying exponentially more towards your car due to the interest rate.  If you pay weekly, the interest charge will be less, since the payments are coming more frequently.

Divide your monthly bill by 4, and you’ll see that it only takes 48 months to equal your annual payments. So the other payments will go directly to paying off your loan.

This means that making frequent payments will reduce the amount of your principal, therefore affecting your interest.

Benefits of Weekly Payments

There are 52 weeks in a year. If you divide 52 by 12 (months), the result is 4.33. This means that some months technically have 5 weeks, instead of 4.  By making weekly payments instead of monthly, it’s the equivalent of paying 13-monthly payments in a year, instead of 12. Again, helping you pay off your vehicle faster and lowering the interest payments.  

car-loan-calculator

For the sake of easy math, let’s say you have a $200/month car payment.  If you divide that by 4, you’ll be paying weekly payments of $50. Now multiply $50 by 52 weeks, and you’ll have an annual total of $2,600.  If you pay $200 each month, for 12 months, the annual total is $2,400.

Now, saving $200 a year may not seem like much.  But if you have a 60-month car loan, you’ll save a total of $1,000 just by paying a weekly amount of $50.  

In 2017, the average monthly car payment was a whopping $479, with an average length of 68 months.  Dividing $479 by 4 equals weekly payments of $119.75, which, multiplied by 52 equals an annual total of $6,227. The same monthly payment, if paid monthly, will equal an annual amount of $5,748.  The total savings over your 68-month loan term will be approximately $2,680. That’s a lot of cash.

Free Up Your Budget To Save and Invest

While paying your car off weekly may not save you a ton on interest,it will free up some cash and perhaps make your monthly budget more reasonable.  Especially if you get paid weekly. This freed up money can be used to put towards paying down other debts (who doesn’t want to be debt-free?!) or invested.  

If, after your car is paid off, you continue to set aside that $479 each month and invest it wisely (at an average 6% interest rate), after 10 years, you’ll have over $77,000 saved up. THis kind of cushion is unusual for most Americans these days, yet necessary in many cases to put towards retirement or unexpected life events.  Or, it would simply give you some flexibility and breathing room in your monthly budget.

Once you see how much you’re saving by doing this, it will be hard to go back to making monthly payments, and you’ll be inspired to find more ways to save money.

Let’s start saving!

Knowing When an Extended Warranty is Worth it… and When to Walk Away

If you are buying a used car, you may be considering an aftermarket extended warranty as well. After all, a used car could be troublesome and a warranty could give you some peace of mind to avoid potential risk.  But is an extended warranty worth it? Let’s take a look at when they are worth it, and when you should walk away.

In a survey by Consumer Reports, only half of the people who purchase extended warranties actually use it to file a claim, and have the claim covered by the warranty company. So why be cautious? It’s very rare that the premium you pay on the warranty will equal the amount of paid repair claims down the road.

Are Extended Warranties a Waste of Money?

Considering premiums on extended warranties can be so high, and there’s a chance you’ll never even need to make a claim, it can be a waste of money.  Let’s look at some numbers:

  • ½ of people who buy a warranty have filed a claim over the last 5 years.
  • ⅓ of people of buy a used car with extended warranty use it within the first year.

Which means ⅔ used car buyers needed their warranty later down the road, and sometimes outside of their extended warranty contract.  

Instead of buying a warranty, a lot of car buyers are putting that money aside in a second savings account or a “rainy day” fund for when their used vehicle needs work or repairs.

Things to Consider When Looking to Buy an Extended Warranty

A lot of companies who provide extended warranties do their homework… and will charge more for a warranty on a used car because there is a greater likelihood that a used vehicle will need repairs or be at a higher risk of needing service work than a new car. Used car reports like CarFax are great for learning the accident history and service history of a vehicle, but occasionally, the reports don’t cover everything if the accident report was “wiped” before the initial sale.  

So when you looking into buying an extended warranty, there are a few things to consider:

  1. The reputation of the company selling the warranty. Some companies have a well known, nationwide presence, while other are lesser known and may not back up the claims if your car starts acting up.  Be sure to research your options thoroughly before purchasing an extended warranty.
  2. The reliability of your car. If your car is very reliable, then purchasing an extended warranty will prove to be a waste of money. You will spend more money on the premium than you’ll ever need in claims.  If your car is older and perhaps a bit more unreliable, than an extended warranty may provide you with peace of mind.
  3. The type of warranty.  Inclusion warranties should typically be avoided, because they only cover specific parts, and aren’t comprehensive, unlike their counterpart. Exclusion warranties cover all parts except for the ones that are listed. Read each policy very carefully before deciding which one is best for you.

At the end of the day, having an extended warranty can help you feel more comfortable when purchasing a used car. By following our tips, you’ll avoid spending money on a warranty you don’t need or on one that won’t cover the majority of your car’s issues.  

Knowing Your Options for Financing a Used Vehicle

If you’re in the market for buying a new car, but don’t want to spend the money to buy a brand new make or model, buying a used vehicle is your best option.  Although you may not have the cash to buy a used vehicle upfront, a lot of used car dealerships offer financing options.

Before you get started, it’s important that you know your credit score so you can find the best possible loan.  This will give youa good idea of what kind of loan and term options you will have available. In the United States, you are entitled to one free credit report a year.

Here are some options for Financing a Used Vehicle:

Direct Loan

If you have a credit score of 680 or higher, you will be considered a desirable candidate for a direct loan and should receive the best rates.  A higher credit score equals lower interest rates. If you have had a checking or savings account with the same bank for a number of years, check with them about getting a direct loan.  Because of your history as an existing customer, you may be eligible for a better loan.

It’s also recommended that you get rate quotes from multiple lenders so you can compare rates. This will ensure you get the lowest rates and have checked every option.  

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Offer a Sizable Downpayment

The more money you can offer upfront on the purchase of your vehicle, the lower your payments and rates will be. This will also prevent you paying more in interest than the vehicle is actually worth.

This may seem like a no-brainer, but a lot of used car dealerships don’t require their customers to put any down any money upfront, regardless of their credit score.  

Pay for the “Extras” in Cash

It can be tempting to bundle all the miscellaneous expenses into your car payment, such as sales tax, registration fees, documentation fees, and any other extras that you choose to include such as extended warranties.  

Often, your dealership is willing to roll all these fees into your financing. Unfortunately, that ensures that you will be upside down on your loan, since you are increasing the amount of your loan, but not the value of the car which secured the loan.

Get approved today!

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