Why You Should Consider Refinancing Your Car Loan

Why You Should Consider Refinancing Your Car Loan

 

If your auto financing plan isn’t working for you, you aren’t stuck with it. After working with the same loan for a year or two, it might be time for you to consider refinancing. The process of refinancing involves applying for a new loan to cover the current loan, and still using the vehicle as collateral. Refinancing is a fantastic option to consider if your financial situation has changed since you first started financing your vehicle, you want to reduce or lengthen the loan term, or you want to lower your interest rate in order to pay less interest in the long run.

 

Keep in mind that refinancing doesn’t always reduce your monthly payment; for example, refinancing for a loan term of three years instead of five will increase your monthly payment. So how do you know if financing is a good idea for you? Here are four reasons why you should investigate the process of refinancing your auto loan.

Lower Your Interest Rate

If you make timely payments and your credit score has increased since you first applied for the loan, you can benefit from refinancing by getting a lower interest rate. It is normal in the loan market for interest rates to be higher for those who have lower credit scores or challenged credit histories. The American borrower’s average credit score is 697, which falls in the Fair ranking. Nerd Wallet reports that a borrower with that credit score would qualify for an average auto loan interest rate of 5.5% on a used vehicle.

 

The more you can increase your credit score, the more progress you make on qualifying for a lower interest rate. Seeing as interest easily adds hundreds or thousands of dollars to the cost of the car, you want to lower the overall interest rate as much as possible. Although you may not think that affects you too badly, as everything gets factored into your payment each month, that still ends up being money that doesn’t go directly into your car.

 

Maintaining good credit is the easiest way to decrease your interest rate and save money in the long run. Even if you start out with a longer loan term and a higher interest rate, you can make those changes after paying off some of your vehicle. However, keep in mind that refinancing too early is rarely successful, or there is a very low chance you will end up with a lower interest rate. In addition, plan to see your credit score dip slightly during the refinancing process, as that is the effect of the inquiries made to investigate refinancing.

Change the Loan Term

The average auto loan term is more than five years. This can be good for borrowers who have a tight budget and want to minimize monthly payments. However, longer loan terms almost always have much higher interest rates as a part of the financing plan. (Think of it as a trade off). If you are able to afford slightly higher monthly payments, avoid longer loan terms. Use a loan calculator to figure out how much you’ll be paying in interest vs. how much you might be saving on a slightly larger payment that fits into your budget. Will it make a big enough difference to be a worthwhile move?

 

In addition to budgeting, think about the value of your car and how much you’re paying interest on an asset that gradually depreciates. A car is worth 10 percent less as soon as you drive it off the dealership’s lot. A vehicle is a great asset to have, but the value of the car itself will decrease as time goes on. If you can afford the payments on a shorter loan, why should you pay more interest on your investment that decreases in value?

 

Refinancing will give you the opportunity to reduce your loan term if you have more room in your budget for a larger monthly payment, but you can also do the opposite. Extending the loan term will reduce your monthly payment, which is useful for if you are going back to school, expecting a child, or need to stretch your budget for all the other important things in your life. Extending or reducing a loan term is all about prioritizing not just the auto loan, but all the other payments you need to make in order to keep everything running smoothly.

Make the Loan Fit in With Your Other Finances

Remember that changing the loan term is in your best interest if you’re having trouble making payments or anticipate needing to free up room in your budget in the near future. It’s best to refinance and make your loan work better for your needs than not be able to make minimum payments or miss them entirely. Missed payments stay on your credit report for several years and are one of the key factors that determine your credit score.

 

Like many investments, the key is deciding how to best allocate your funds and what other value you can get out of maintaining an investment or financial relationship. In the case of a vehicle and auto loan, it isn’t in your best interest to sign up for a loan that sounds good but will make you miss payments; and this is becoming more and more commonplace. Across the country, Americans are making risky investments that eventually overwhelm them with debt.

Thinking About Your Future

In the long run, your goal regarding your auto loan should be to pay the vehicle off as quickly and painlessly as possible. Once you pay off the loan, the car is your property, and that is extremely empowering in terms of being able to claim it as one of your assets, even if the value is depreciating. In addition, narrowing down and selecting a financing plan that has attainable goals will help you reach even more financial milestones down the road.

 

For more questions about auto loans or refinancing, don’t hesitate to reach out to Eden’s professional Finance Team. And if buying a new vehicle is in future, check out our extensive inventory of quality pre-owned vehicles.

 

7 Ways to Build Your Credit

7 Ways to Build Your Credit

 

Nobody wants to be in debt. We all want to get through life with the right amount of money and the right ratio of expenses to income, but it’s not always easy to make that a reality. Unfortunately, life circumstances lands countless people with bills they simply cannot afford to pay, and debt that keeps increasing and increasing. The more debts you have, and the less of them you’re able to pay off, the worse your credit score will be. This may be more important than you realize, as letting your credit score drop can have wide-reaching consequences.

 

One of the most significant of the consequences is the difficulty you will face trying to secure financing in the future for a variety of reasons; you may have to make repairs on your car, and need an auto loan; you may have to undertake maintenance on your home, such as roof repairs, and look to a bank for a home renovation loan; you may need a vacation and a credit card to make it happen. Whatever the motivating factors, loans are essential at times, but poor credit can leave you unable to get one.

 

How Credit Scores Are Measured

Credit scores reflect your personal creditworthiness and suitability as a borrower. A bank or lender will look at your score and history, and often make a snap judgment about your application. A low rating and poor history for making timely payments will mark you as a high-risk borrower, who may appear unlikely to make payments to the lender as required. Obviously, financial institutions depend on those payments to survive, and if a borrower’s rating and history indicates payments are unlikely to be met, there is little reason for them to grant a loan. This may be harsh, but the lenders are unlikely to listen to your reasons or offer much in the way of sympathy.

 

Credit scores range from 300 to 850, and the most commonly-used system is FICO, the Fair Isaac Corporation. Any rating at 750 or higher is considered excellent, 700 to 749 is good, 650 to 699 is fair, and anything below 650 is regarded as poor. You need to take care with your credit and spend wisely to keep your score in the good or excellent range. Here are seven ways that can help you do just that:

 

Monitor Your Credit Card Balances

One of the most important ways to avoid a poor credit score is to stay on top of how much credit you use, compared to your credit card limits. In general, it’s better to keep the amount as low as you can, ideally to no more than 30 percent of the credit available. The most obvious and simplest way to do this is to pay your balances off in full and stop using them when approaching the limit. While this is certainly easier said than done, it really does matter. Even by paying your balances in full every month you can have a bigger ratio of usage than you might imagine.

 

Certain lenders take the balance on your statements and report these to their credit bureau, so even if you do pay those balances off in full, your credit score may not always reflect that. One effective trick is to try paying your balances off throughout the month rather than letting them build until the closing days of the final week. If you have multiple credit cards or loans to cover, staying on top of your balances can be more difficult, but it’s important to do so. If you have two or three, or more, credit cards, try to pay off all balances and just stick to using one or two; spreading your credit can lead to more debt than you can pay off as you need to. If need be, talk to your lenders about such things as changing payment due dates and reducing the interest rates.

 

Be Careful When Applying for New Credit

Some people think it’s always helpful to have more credit; the more credit cards or loans you have available can mean the more you’re able to enjoy a better lifestyle. However, you need to be careful when applying for credit; do it too often and you could wind up with a poor or bad rating that makes it harder to get credit in the future. Your credit lines’ average age contributes to your rating significantly, as much as 15% overall, and the higher this is, the better your score. Individuals with the strongest credit scores and history have credit lines with an average age of 11 years, while those with bad scores average around six months instead. For this reason, if you keep closing credit cards and applying for new ones, you may be doing yourself a disservice. Keep your accounts open for as long as you can, even with small charges that you are able to pay off each month.

 

Don’t Borrow More Than You Can Afford

Too many credit cards and loans may make borrowers think they have more money than they really do. Whether you take out cards or loans to cover special occasions, essential repairs on your car or home, or to have a little spending money at one time or another, it’s vital to only go with financial commitments you can afford to repay. Borrowers who manage to stick with cards or loans they can afford are much more likely to be regarded as responsible by other lenders in the future. You will find getting credit and loans is far easier if you have a history of making payments when due, or even ahead of time, without letting interest build or missing due dates. Taking care to only get cards or loans that you can realistically afford minimizes your risk of spiraling into debt.

 

It’s vital to work out a monthly budget ahead of speaking to a lender. Make sure you know how much you can pay back on top of your current expenses, and if your projected payments exceed that amount, avoid it. Reputable credit-card issuers and lenders will avoid giving you more than you can afford to pay back, too. While they might have a chance to get more out of you, in the long run this is unethical and potentially damaging to their reputation. Be wary of any lenders who try to increase your credit or loan amount despite you presenting them with your realistic monthly expenses, and be prepared to say no, no matter how tempting the offer may be.

 

Pay All Bills on Time

While not every monthly payment you make appears on your credit report, any bill can end up being listed if you fail to pay it on time. Making your payments on or before their due dates every month can be quite daunting; you may think you can let one or two bills slide and pay off double the following month instead. However, late payments are the most common negative feature on individuals’ credit reports, and can lead to big drops in your credit score. It’s vital to keep this in mind as your bills continue to come in and you’re trying to manage your finances. It can be tempting to favor one over another, but covering them all is the only way to avoid impacting your credit score in a negative way.

 

Take the time to work out your monthly payments and note the due dates of all bills. Even missing a payment by a day or two can have a negative result on your credit report. One effective way to avoid this is to set up automated payments, if possible. This means the money will be deducted from your checking account automatically on a specific day every month. Just make sure you have enough money in your account to cover the payments, and you’ll be fine.

 

Watch How Often You Move

Believe it or not, moving too often within short periods of time from one house or apartment to another can have a detrimental effect on your credit rating. For starters, when you first apply for a new apartment, the owner or management firm is likely to check your credit history and score. This inquiry into your past will be logged, and remain on your history for a couple of years. Just like applying for excessive credit cards or loans, having too many prospective landlords or managers making a hard inquiry into your past can drag your score down.

 

Moving too often may also make you appear to be unreliable or unstable. On top of this, moving from one property to another brings an additional risk; with all that’s involved with planning and executing a smooth relocation, you can easily forget to inform each of your lenders of your new address. Unless you arrange to have your mail forwarded, your bills may be sent to your former residence, leading you to possibly forget and miss payments. This would drag your credit score down considerably. Try to limit how often you move, and always keep lenders informed of your current address, as they may see your failure to do so as an attempt to avoid your debts.

 

Pay More Than the Minimum Monthly Amount

Paying only the minimum amount of money owed each month might seem like a perfectly fine way to manage your debts, but be careful. If you only pay the bare minimum each month for consecutive years, your lenders might take this as meaning you can barely afford your current expenses. As a result, these same lenders could well refuse to offer you any further credit or loans in years to come. Try to pay a little extra on each payment to make a bigger dent on your overall debt and demonstrate that you can afford to pay off more than the minimum.

 

Don’t Get Carried Away with Credit

For first-time borrowers, building a collection of different credit cards within a short period of time can be tempting. The freedom and flexibility that comes with credit, allowing you to spend what and when you like, can become compulsive. Banks and lenders might offer incentives and rewards with which to tempt you into signing up for new cards and loans. You may be promised competitive cashback, gift cards, freebies, and more.

 

It’s vital, though, to ensure you don’t take on more than you can handle. Opening and using too many credit cards too soon can leave you struggling to cover the monthly payments. Start off with just one card, get used to it, and think carefully before taking out another one. This is true of loans, too. If you take out a loan, such as an auto loan for a new vehicle, you must avoid going for an amount greater than you financially afford. However, if you have little or no credit history, taking out a manageable loan can help you build up a good rating over time. Hopefully, by following these seven tips you should be able to achieve and maintain a good credit rating for a more secure financial future.

 

Constant auto loan turndowns because of a poor credit report can be extremely frustrating, especially when your need for a new vehicle is crucial to your family or employment needs. And it can be even more frustrating if you are now in a better financial condition than you were in the past. That is why Eden Autos has financing options to meet virtually any personal financial situation. If you are now able to meet all your existing expenses and make the car payments, we have plans that will allow you to get the car or truck you need. With instant credit approval, we are committed to helping you drive away in one of our quality pre-owned vehicles, with a payment plan you can afford. Give us a call, or stop by anytime and one of our professional staff will work with you to make it happen.

 

 

 

 

 

What is GAP Insurance?

WHAT IS GAP INSURANCE?

Guaranteed Auto Protection – better known as Gap Insurance covers the difference between the actual cash value of a vehicle and the balance that is still owed on the loan or lease to the company the vehicle was financed with.

Typically, if a vehicle is damaged to such an extent as to be considered a total loss, without gap coverage, the insurance company will only pay the value of it as listed by a company like Kelly Blue Book or Edmunds. That means, if you owe more than that amount to the finance or leasing company, you will have to pay that amount.

So, should you always buy gap insurance? In our opinion at Eden Autos, it’s often a wise choice, especially for these situations: 

·      You are buying or leasing a new, or fairly new, car or truck

·      You bought a car that does not have great resale value

·      The car you are buying has features that make its value higher than normal

·      You are purchasing a vehicle with little or no down payment, making the amount financed (including taxes and fees) higher than the its actual value

·      You are financing the vehicle for a long term - 60 months or more

·      You don’t enough reserve cash to cover the difference if your vehicle is totaled or stolen

·      You expect to put a lot of miles on the car in a short period of time

So, as is the case with most insurance coverage, it comes down to the amount of risk you’re willing to take. If you feel comfortable not paying the added cost of gap coverage, are you in a position to handle the financial burden if something unforeseen happens to your car? According to Edmunds, the average loss in value of a one-year old car is about a 20-25 percent drop from its original purchase price.

Here’s an example of what could happen: You buy a car for its Blue Book value of $24,000. With taxes and fees, it comes to $26,500, and with a $1,000 down payment, you finance $25,500 and get insurance coverage with a $500 deductible. A year later, your car is totaled and you file a claim with your insurance company, only to find out the value of your car is only$19,200. And after your deductible, the insurance company will only pay your finance company $18,700. But you still owe $23,500 on the car, so are left with a gap of $4,800.

If you had gap insurance that also covered your deductible, the entire amount owed, $23,500 in this case, would be paid off. Without the gap insurance, you would be paying for that difference out of your own pocket, for a car you no longer owned.

A word of caution: many car owners think gap insurance covers more than it does. Here is a list of things it does NOT COVER:

·      Car payments in case of financial hardships

·      Vehicle repairs

·      Paying off loan balance if vehicle is repossessed

·      A down payment for a new vehicle

·      Extended warranties you may have add to your car loan

So, in our opinion, here’s the bottom line: it is usually a worthwhile outlay for anyone with a vehicle loan or lease who would be in financial trouble if they totaled the vehicle and were unable to pay off their loan or lease.

PAY OFF A CAR LOAN MORE QUICKLY

PAY OFF A CAR LOAN MORE QUICKLY

Purchasing a car is a major milestone in anyone’s life. It’s one of the first major purchases you make that will set you back several thousand dollars, and chances are you’re probably going to be paying off that auto loan for a long time. However, no one likes the thought of having to pay back a large sum of money for their vehicle, which is why you need to be financially secure before you take out a serious loan. However, it’s almost always a necessity, and even if you’re secure with a job and a decent amount of income, it’s not a guarantee that you can pay off all of your outstanding credit cards and loans. 

So, to help you out of this predicament, we’ve gathered up some tips on how you can quickly pay off your car loan. These tips apply to both before and after you purchase your vehicle, so no matter what stage of your car loan you’re at (be it planning or several months into repayments) here’s how you can pay it off faster. 

Take an Interest in Your Repayments

If you learn more about your repayments, then you’ll learn how to pay it off faster. For instance, if you start skipping payments (something that some lenders offer you) then you’ll quickly build up higher interest rates. Unless you plan to skip a payment then pay back double the next time you have to pay, don’t skip payments. You should also take a look at your interest rates. Generally, the longer you leave your loan running the more interest you will be paying off. If you start paying instalments more frequently or making large deposits to pay off your credit, then you’ll have less to pay in the future which means your interest rates won’t go up.

If this all sounds like a bit too much work, then you may want to speak with a friend who’s a little better at managing money. Failing that, simply pay a bit extra each time you make a payment. Increasing your payments by an extra 10% or more can quickly add up over time, which could save you a lot of money that would have otherwise gone to interest. Even if all you do is round up your repayments to the nearest hundred, it will all help to pay off your loan quicker, and also incur less interest.

There’s a lot of focus on repayments when it comes to loans, so make sure you’re taking all these factors into consideration. Paying off your car loan faster will ultimately depend on how much time you’ve spent looking at your repayments and optimizing how much you can pay per month without impacting your lifestyle. The more you contribute, the less interest you pay and the faster you can pay off the debt, both of which are advantageous to you, but require some serious budgeting. If you aren’t very good at budgeting or struggle with it, then you may want to learn some basics before even taking on a car loan to help you pay for a vehicle. 

Reduce the Cost of Your Vehicle

A simple way to reduce the costs of your repayments and pay back earlier is to reduce the cost of your vehicle itself. There are several ways to do this, such as looking for an earlier model with fewer features or toning down the extras you buy. Shop around for a better deal and try to look for a vehicle that can fit your needs, but still be within or well below your budget.

A good place to look would be at a used car dealership. Most secondhand cars are well below their original retail value, and there’s always a possibility that you can find an older model of a vehicle. These are usually worth a lot less, but still pack quite a punch in terms of features and utility. This is perhaps one of the best ways to quickly pay off your car loan, but it only really applies to people who have yet to actually take a loan out. In short, the less you pay for your vehicle the less your car loan amount will be and the faster you can pay it off. Unless you absolutely need certain features in your car, then you can probably make some compromises and pay less for a vehicle.

Consider Refinancing Your Loan

An option that you’ll have if your credit rating is decent is to refinance your loan. Unless you have a terrible history of borrowing money and not paying back, most banks and lenders will allow you to refinance your loan. There are several reasons for doing this. For starters, it could lead to you paying less interest or you could try and renegotiate the terms so you pay more often. However, this option won’t make much sense if you end up wasting your time or more money. Only do this if you’re confident that it will lead to something positive. 

If you’re smart about refinancing and negotiating, you could potentially reduce your interest rates by a couple percent which can add up when you’re paying tens of thousands of dollars for a vehicle. In some cases, you may be able to negotiate a very low, or even a zero-percent, interest loan.

Make Extra Money

This is easier said than done, but it’s a sure way to pay off your loan faster. There are plenty of ways to earn some extra income, be it by selling your old and unwanted items or by having a second job. Depending on what method you pick, you may have to put in twice the effort in order to shorten your loan repayment time.

If you’re out of ideas, then this is perhaps the fastest way to ensure you pay off a loan quickly. Earning extra income will let you pay off your loan faster, which also results in paying less interest. You could commit your entire second paycheck or funds from selling your belongings to paying off your car loan. Even if it’s just a little bit, it adds up over time.

 

At Eden Autos, we work with you to find the best car loan rates, regardless of your credit history. To find out how much you qualify for, go to our Get Pre-Qualified Page.

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