Madison Credit Union Blog

Starting from Zero: Financing a Car When You Have No Credit History

Are you searching for a new car but confused about finance? Are you struggling to see a way forward with no credit history? Buying a car is an exciting time, but it can also be confusing and stressful. While unlimited funds will get you the vehicle of your dreams and a perfect credit score is a huge advantage, not everyone is lucky enough to be in this position. Whether you’ve just left home, migrated from overseas, or recently become independent, everyone has to start from somewhere.

If you have no credit history whatsoever, there is still a way forward. Starting from this position does make the road more challenging, but there are multiple options available. Let’s take a look at credit scores in the United States and review the impact of credit on your lending opportunities. When you understand the basic tenets of the credit landscape, you can make smart choices about your future and look for viable alternatives to get the car of your dreams.

What is a credit score?

In the United States, your credit score is a number assigned to you by one or more recognized credit bureaus. This simple numerical expression is based on a detailed analysis of your credit files in order to represent your creditworthiness at any particular time. Your score is based on your credit history, which is based on your open accounts, total amount of debt, and repayment history, among other factors.

Your credit score is a number between 300 and 850, with higher scores likely to lead to more lending options:

  • Excellent credit: 800-850
  • Very good credit: 740-799
  • Good credit: 670-739
  • Fair credit: 580-669
  • Poor credit: 300-579

While people talk about one credit score, there are multiple scores available based on individual credit reports created by different credit bureaus. The most popular credit score model was created by the Fair Isaac Corporation (FICO), which compiles data from multiple sources. FICO has a competitor in VantageScore, which uses data from three major credit reporting agencies: Experian, Equifax, and Transunion.

Why your credit history matters

When banks and other lenders decide whether to lend you money, your credit score is very influential in their decision. While they will also look at many other factors, including your income, debt levels, and deposit, they are primarily interested in your ability to pay back the loan in the designated time period. In the modern financial world where personal relationships don’t mean much, your credit history is a measure of how much you can be trusted with money lent to you.

How to check your credit score

Credit scores are developed slowly over time, which gives lenders a reasonably accurate overview of your long-term financial situation. When it comes to borrowing money, lenders don’t want to make decisions based on your current circumstances alone – they also want to review your history as a borrower. If you don’t know what your score is, you can check your credit report at AnnualCreditReport.com. Additionally, separate scores are available from each of the three reporting agencies.

No credit vs. bad credit

Having no credit is very different from having bad credit. If you’re just starting your financial life for any reason, you are said to have a “thin credit file.” Instead of a compromised score, this simply means that lenders don’t know how much money you can be trusted with. In contrast, a bad credit score means you have a history of borrowing and have faced difficulties along the way.

People have no credit history for multiple reasons, which is one of the challenges you will need to overcome. You might be young and just starting out in life. Perhaps you’re a recent immigrant to the United States or a newly independent person separated from a partnership. If you don’t have a credit card or haven’t ever borrowed money from a bank or mainstream financial institution, you may have absolutely no credit history.

According to Consumer Financial Protection Bureau (CFPB) research, 45 million Americans are known to be “credit invisible.” This describes people with shallow financial records or no credit records whatsoever. Credit invisible people don’t have a credit score with FICO or any of the three major credit bureaus. According to this worrying study, there are “credit deserts” all over the country, with this term used to describe neighborhoods where people lack access to mainstream borrowing opportunities.

Options for people with no credit history

If you have no credit history whatsoever, you may face difficulties accessing credit. However, while buying a home can prove extremely challenging, less expensive items like cars are very much possible. While you might have to think outside the box, there are loans out there and lenders willing to help.

From negotiations and cash sales to cosigners and community lenders, let’s look at the options available to people with no credit history:

Negotiate a better deal

It’s important to remember this – your ability to access credit is always based on the value of the loan. While this might seem obvious, one of the best ways to get the car of your dreams is to negotiate a better deal. Whether you’re making a private deal or buying from a commercial car yard, the art of negotiation is alive and well when buying and selling automobiles. Both the sticker price and the trade-in value may be up for negotiation, with a lower overall price making it much easier for you to access credit.

Improve your down payment

Along with lowering the price of the car, you can improve your chances of getting a loan by increasing the amount of your down payment. While this is not always possible, making a large down payment shows that you are serious about the deal. If you have a compromised credit history or no history whatsoever, remaining patient and saving for longer often makes sense. From a lender’s perspective, it’s simple – a significant down payment shows that you’re a safer bet to repay the loan.

Pay cash for the car

If you’re in a position to pay cash for a new car, you can avoid borrowing any money at all. Once again, this is not always possible, but it’s a great option to have. If you don’t think you fit into this category, you may be wrong. Perhaps you can purchase a cheaper car in order to make a cash sale possible. Maybe you can borrow money from friends or family members to get on the open road sooner. Paying cash is not just a good way to avoid the impacts of a non-existent credit score – it’s also a great way to save money on interest over the term of the loan.

Get a cosigner

If friends and family are unable to lend you cash, or you don’t want to ask, they can still play a role in you getting a car loan. Having a cosigner is a great way to reassure lenders. In fact, this is the ideal way to circumvent the entire credit history checking process because another person takes responsibility for your loan. While you are still required to make loan payments, the cosigner is on the hook if the payments stop coming through. Depending on the loan, the cosigner may also be responsible for late fees and collection costs, along with surrounding legal obligations.

While a cosigned loan will affect both of your credit reports and can help you to build credit history over time, the other person’s credit score takes precedence when it comes to approving the loan. The other person’s score is not the only factor analyzed by lenders, however, with their job and debt to income (DTI) ratio likely to be checked before an application is approved. Before going down this path, it’s important to consider the long-term implications of a cosigner arrangement, including potential financial and relationship challenges.

Take advantage of alternative credit data

As mentioned above, there are multiple credit records available in the United States. If your standard FICO score is non-existent or compromised in any way, you may be able to use alternative records to get accepted for a car loan. When traditional proof is unavailable, some lenders are willing to look at non-traditional sources. While similar credit scoring formulas are still used, there are multiple options on the table.

In an effort to improve credit options for low-income people, FICO recently introduced the UltraFICO score, which is based primarily on your banking activity. Experion created another alternative with Experian Boost, which takes things like your cellphone and utility payments into consideration. While not all lenders are willing to use these records, community-based credit unions and other non-bank institutions are often more flexible in their approach.

Find the right lender for your situation

When you’re trying to buy a car with no credit history, it’s important to find the right lender for your unique financial situation. There are lots of options out there, from commercial car vendors to mainstream banks and credit unions, and community-based financial cooperatives:

  • Commercial car vendors – Commercial car yards often have finance options, but they are limited and can be extremely expensive and risky. Sometimes known as “buy here, pay here” deals, these loans are generally aimed at people with bad credit or no credit history. While these in-house loans may seem enticing, sky-high interest rates and significant ongoing fees are very common.
  • Mainstream banks and credit unions – Traditional banks and credit unions can be great places to obtain finance, but they’re often compromised when it comes to flexibility. If you have no credit history, you may be unlikely to meet their strict requirements. While a cosigner can be used in many situations, as mentioned, there are drawbacks associated with this path.
  • Community-based financial cooperatives – Small credit unions and community banks are more flexible and often more lenient when it comes to loan approval. Some lenders even have specific programs for people with no credit history, and others are much more willing to look past your credit score. While they still need to check you out, things like employment history, banking records, and utility payments can be used to check your creditworthiness.

Practical steps involved with getting a new car

Once you have a solid grasp of credit scores and how they affect your lending options, it’s important to take some practical steps toward car ownership. The following checklist is a great place to start:

  • Determine how much you can afford.
  • Check your credit history.
  • Save for a 20% deposit or more.
  • Consider family and friends as a cosigner.
  • Compare potential lenders.
  • Gain pre-approval before you shop.
  • Shop around for the best deal.
  • Apply for a car loan.

The DCCU difference

If you’re looking to get a car loan but don’t have any credit history, DCCU is here to help. We offer fair car loan arrangements that are highly competitive with the major banks. Unlike unscrupulous car vendors, our entire service is based around your needs. As a community-based institution, we are 100% committed to the economic and social well-being of our members. Our service is based on honest advice, low fees, and great rates.

We help people from a range of socioeconomic backgrounds to access car loans and other lending products. DCCU is owned by our members, and our financial cooperative is dedicated to “building lifetime relationships through personalized financial service.” Along with easy loan access and great deals, we provide a number of extras for car loans, including extended warranty protections and simple loan pre-approval. This can be a great negotiating tool, with price certainty leading to more confidence, better decision-making, and more competitive deals.

At DCCU, our values are strong and our message is clear: We are “a local neighborhood Madison credit union that stands for you.” Along with car loans, we offer a number of other lending services across Madison and surrounding counties. If you have no credit history and would like to get a car loan, please contact DCCU today to learn more about our services.

 

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What Is a Good APR on a Personal Loan?

What Is a Good APR on a Personal Loan

The process of taking out a personal loan can be overwhelming for many people. From worrying about whether your loan application will be approved to combing through the fine print and understanding loan terminology, the experience can be a daunting one.

Personal loans can be attached to some exciting and joyous periods in our lives (when we are seeking a loan for a wedding or a car loan for a new ride), or they can be linked to incredibly difficult times (when we need a cash advance to help with sudden and unexpected medical expenses, for example).

Whatever the reason that prompts you to apply for a loan, a basic understanding of how personal loans work can ease your mind in the process and help prepare you to choose the best possible loan for your circumstances.

That choice could be dictated by the loan with the best APR, which leads us to the question: “What is a good APR on a personal loan?” In order to answer that, we will start with a basic understanding of how APR works.

APR: What Is It and How Does it Work?

APR stands for “annual percentage rate,” referring to the interest rate and fees charged in conjunction with a loan, whether it is a cash loan or a loan of goods or assets (like an automobile). Most consumer loans use an APR rate, which does not compound interest.

Lenders are required to disclose APR to borrowers. This was a significant 20th-century initiative with the Truth in Lending Act in 1968, which was created to protect consumers.

Today’s loans are much more transparent than in the past; however, this does not mean some consumers are still unclear on how APR works or sign on to loans without researching all of the possibilities for securing a good interest rate.

APR can be calculated with these steps:

  • Add the total interest paid over the life of the loan with any loan fees
  • Divide that number by the amount of the loan
  • Then divide that number by the term of the loan expressed in the number of days
  • Multiply that number by 365 to generate an annual rate
  • Finally, multiply that number by 100 to turn it into a percentage

What is the Average APR on Personal Loans?

The major credit bureaus report 9.41% as the average interest rate on an APR loan rate on personal loans, with your credit score being the main driver in terms of how the lender calculates your percentage.

Consumers with a solid credit history can expect an APR of 15% or less, but those with a poor or nonexistent credit history could be faced with an APR as high as 60% or more.

Basically, the higher the risk you are as a borrower, the higher your APR will be on a personal loan. To ensure you are getting good credit card apr, be sure to keep the average credit card apr in mind and compare rates among lenders.

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Factors That Affect Your APR

There are many factors that lenders place a heavy focus on when determining your APR. Your credit history, for example, is of great importance.

All lenders will look at your credit report to determine if you have good credit or bad credit. You may want to look into this yourself before looking to secure a loan, in case you need to take steps to improve your score.

There are also several other important factors you should be aware of before submitting a loan application.

Annual Income

Before a lender will agree to offer you a loan or establish the APR, they will want to review your income. In addition to assessing you by your credit score, the lender will consider whether your income will enable you to pay back the loan. You will need to provide proof of income with pay stubs or other documentation required by the lender.

Debt to Income Ratio

Even if your income is relatively high, it may be offset negatively in the lender’s assessment by a high amount of debt. Your debt-to-income ratio (DTI) is another way to predict your ability to repay a loan.

This figure is calculated by taking all of the debt payments you make each month (such as your mortgage loan, credit card debt, student loan, and auto loan payments) and then dividing the total of those bills by your gross monthly income.

A higher DTI will be a red flag for a lender—indicating you are already close to maxed out on debt and it is likely you would struggle to make the payments every billing cycle. A lower DTI is a promising sign for a lender, and in turn, it would help you secure a lower interest rate.

Loan Cosigner

If your credit and income history do not make you the best candidate for a personal loan, you may be able to improve your odds by adding a cosigner.

This may be a family member with better credit who is willing to sign on to the loan with you, and their willingness to assume responsibility for the debt could result in a lender lowering APR.

Person with Cash and Calculator App

How To Compare Personal Loans: Good APR and More

Before you sign on the dotted line, you should be sure you have compared loan options to find the one that works best for you.

The best APR you can get is indeed a priority, but there are also other factors you should compare. Use this checklist when assessing the personal loans before making your final decision:

APR: If your credit history is good, then a good APR will be under 20%, and excellent credit will be under 10%.

Loan Term: Go for the shortest term you can afford, which will lower your APR.

Monthly Payments: Be sure the monthly payment is an amount you can afford while keeping up with all of your other financial obligations.

Fees: This is where the fine print is incredibly important. Be sure you understand every fee that is attached to the loan, including things like penalties for an early payoff, any interest charge, or an annual fee. Ask the lender to review every fee in detail before you agree.

Discounts: Wherever possible, try to take advantage of discounts that could be available from lenders. For example, you might be eligible for better rates by using a bank or credit union where you already have a checking or savings account.

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7 Car Loan Stages and 7 Reasons Why Dane County Credit Union Is the Perfect Auto Loan Partner

A reliable car is an important part of modern life. From work and school to medical appointments and shopping, a car offers a greater quality of life and freedom of movement. Purchasing a car can be expensive, however, with most people taking out loans from financial institutions. At Dane County Credit Union (DCCU), we offer competitive car loans to the residents of Madison, WI, and surrounding counties. Whether you want a brand-new car loan or a refinanced loan agreement, we are here to help.

If you’re thinking about taking out a car loan, it’s important to consider your options. Most car loans take a few years to pay back, so it’s important to get clear advice and make smart decisions from the outset. While repayments and interest charges are an unavoidable part of life, lending agreements can differ widely between providers. From interest rates and deposits to loan terms and conditions, DCCU offers accessible and affordable car loans to people from all walks of life.

7 stages to getting a new car loan

Before you get a car loan, it’s important to understand the steps involved. This process doesn’t have to be difficult, but there are some essential steps that need to be taken. Let’s review these steps in detail and show you why DCCU is the perfect partner for your next car loan.

1. Review vehicles and finances

Before you get a new car loan, it’s essential to review your financial situation. While you don’t need all the details during this early stage, you should have a basic idea of how much you can afford. Whether you’re buying your first car, upgrading a family car, or buying your dream car, the overall cost of the vehicle needs to align with your income and liability limits. Everyone has different financial resources and obligations, and a detailed review is needed for each person based on their stage of life.

When reviewing your finances, it’s important to consider your existing income and debts in relation to the cost of potential vehicles. What kind of car do you want? What kind of car can you afford? What is the difference, and how are you prepared to compromise? While this fact often gets ignored, it’s also important to think about the desired length of your loan. While everyone wants to buy the car of their dreams, you should be aiming to purchase a good car that you can afford for the entire term of the loan.

2. Check your credit score

Wherever you live in the United States, your ability to borrow money is based on your credit score. This number is reviewed by lenders during the loan application to check whether or not you’re a good candidate. There are three consumer credit reporting bureaus operating in America, with each one providing information used in the generation of your score. Equifax, Experian, and TransUnion provide the data. Another organization, Fair Isaac Corporation (FICO), has developed a proprietary algorithm that measures this data and scores borrowers numerically from 300 to 850.

Credit scores include the following categories:

  • 781-850: Super prime
  • 661-780: Prime
  • 601-660: Near prime
  • 500-600: Subprime
  • 300-499: Deep subprime

 

Credit scores are pretty easy to understand. The higher your score, the more likely you are to be approved for a car loan. It’s not just approval, however, with higher scores sometimes leading to lower interest rates and better lending conditions. When analyzing your credit score, the credit bureaus look at your outstanding debt, payment history, length of credit history, account age, and types of credit used. DCCU proudly works with the entire community, with our car loans available to people with healthy credit or compromised credit scores.

3. Estimate your repayments

Once you have a basic idea of what you want and what lenders are looking for, it’s important to dig down into the details. In order to estimate your ongoing costs, you need to have the purchase price, the intended loan term, and the interest rate available to you, among other variables. Loan repayments and potential savings can be calculated fairly easily with the following information:

  • Vehicle purchase price
  • Car loan amount
  • Initial deposit or trade-in amount
  • Loan term
  • Interest rate
  • Balloon repayment
  • Repayment frequency

All lenders use this data to identify good opportunities, and you can use it also to estimate your costs. There are many car loan calculators available on the internet, but the best advice is to speak directly with lenders. While the value of the car, the amount of the deposit, and the intended loan term may stay constant between providers, interest rates and loan conditions can vary widely.

4. Compare potential lenders

Once you have calculated monthly repayments, it’s fairly easy to compare loans based on costs alone. Comparing repayment amounts is not enough in isolation, however, with other factors also relevant to your decision. For example, some lenders have more stringent lending criteria, and they may not be open to people with low credit scores. Other lenders may have lots of additional costs, hidden fees and charges, or fixed loan terms that lack flexibility over time.

It’s also important to note the difference between loans and lenders. Comparing dry data and isolated car loans is not the same as comparing financial institutions, with some lenders offering a very different quality of service. At DCCU, we operate an inclusive lending service that caters to a diverse range of people from broad socioeconomic backgrounds. We offer competitive interest rates, flexible lending conditions, simple refinance loans, and friendly customer service from a team that really cares.

5. Obtain pre-qualification

Before you start shopping for a new car or applying for a loan, pre-qualification is advised. This process offers theoretical loan approval and a working loan sum limit. In order to become pre-qualified, the lender will look at your credit score, your financial information, and the type and cost of the vehicle. While pre-qualification is not a guarantee of approval, it provides you with a rough idea of what you can achieve.

 

With car loan pre-approval from DCCU, you’ll know exactly how much you have to spend before you go car shopping. Not only will this help you to avoid making poor decisions, but it can also be a great bargaining tool at the dealership. There is little downside to pre-approval, with this process treated as a soft inquiry that does not impact your credit score. While pre-approval does not require comprehensive paperwork, it is a good excuse to get your documents in order early in the process.

6. Balance short-term and long-term gains

Before you make a final decision about your car loan, it’s important to think long and hard about all the financial implications. As one of your biggest assets and most significant ongoing expenses, your car loan is likely to represent a major factor in your monthly budget. The key to making good borrowing decisions is to be aware of the trade-off between short-term gains with long-term financial health.

The following factors need to be considered with every loan:

  • Interest rates: This is the cost of borrowing money, with lower rates associated with lower interest payments over time. There are two basic rate structures: fixed interest rates and variable interest rates. Most car loans are fixed, which means the rate amount is locked in for the term of the loan.
  • Loan term: This is the agreed time period needed to pay back the loan. The loan term is dependent on the purchase price of the car, the deposit amount, the interest rate, and the repayment amount. The shorter the term of the loan, the less money is paid back in interest. The longer the term of the loan, the smaller your repayments will be.
  • Loan fees: Additional costs may include repayment penalties, late payment penalties, application fees, and annual fees. If you are refinancing an existing loan, there may also be a designated refinance fee. Some car loan fees are hidden in the fine print, so you should always do your homework.
  • Loan conditions: Along with interest rates, the loan term, and the lending fees and costs, there may be other conditions associated with a car loan. Examples vary widely between loans, and they may include things like balloon payments, personal guarantees, and co-signer agreements.

Once you understand the basic components of a car loan, you can find a loan that meets your immediate and long-term needs. As mentioned, there is often a pay-off between short-term gains and long-term pain. For example, if you want to improve your weekly cash flow by lowering your monthly repayments, you will lengthen your loan term and end up paying more in interest payments over time. The opposite situation also exists, with shorter loan spans leading to more expensive monthly repayments.

7. Apply for a new car loan

When you’re ready to apply for a car loan, it’s best to be prepared. You will need documents to prove your identification, social security number, personal address, proof of income, and auto insurance. In addition, tax documents, payslips, income statements, and bank transaction details can also play a role. If you are applying for a refinanced loan, detailed information on the car and current loan agreement will also be required, including the vehicle identification number and current loan balance.

7 Reasons Why DCCU Is the Perfect Car Loan Partner

At DCCU, we make it easy to apply for a new car loan. We offer friendly, honest advice during the application process and reliable customer support throughout the loan period. A credit union car loan offers numerous advantages over a bank loan, including better rates, improved conditions, and community-based support. If you’re looking for the best place to get a car loan, you’ve come to the right place.

Here are seven reasons why Dane County Credit Union is the perfect car loan partner:

  1. Friendly, honest advice: We love helping local people find valuable financial solutions. We offer car loans at great rates, including low credit score options and competitive refinancing opportunities.
  2. Save money every month: Credit union car loan rates are highly competitive, especially for people with a low deposit or compromised credit score. When you pay less in interest, you save lots of money over the term of your loan.

  1. Tailored and flexible loan terms: Rather than a one-size-fits-all approach, we offer tailored loan terms based on your financial situation. You can change your term over time as your financial situation changes.
  2. Extended warranty protection: Our lending process helps you secure your vehicle with an extended warranty. If you want extra protection and reliable customer support, DCCU is a good place to get a car loan.
  3. Up to 100% finance: We try to make the car loan process as simple as possible. You don’t even need to save for a deposit, with our car loans providing up to 100% finance in many situations.
  4. Vehicle refinance loans: If you have an existing car loan and want to make changes, we are here to help. Car loan refinancing can be a great way to access better interest rates and improved loan conditions.
  5. Owned and operated by the community: As a member-owned financial institution, we are not driven by greed or profit. At DCCU, our services are based around your needs.

About DCCU

At DCCU, we offer car loans and other financial services to the residents of Madison, WI and surrounding counties. We are committed to improving the economic and social well-being of our members, and we are happy to help people from a range of socioeconomic backgrounds. We are proud to provide low and moderate-income members with car loan opportunities. Having a reliable car is an essential aspect of modern life, with our financial products helping people just like you to access a better quality of life.

At DCCU, our member-owned financial cooperative helps “build lifetime relationships through personalized financial service.” As a not-for-profit credit union owned and operated by its members, we are here for you. If you would like to refinance your car loan or learn more about our services, please contact DCCU today.

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How Do Car Loans Work? Four Things You Need to Know

Man Driving Car

If you are in the fortunate position of having enough cash on hand to pay for a car outright, this is not the “how-to” guide you need. However, that would also mean your financial good fortune places you in a relatively small group, as approximately 85% of new passenger vehicles are financed.

Car loans are a reality for most Americans at some point in their lives, and have quickly become as common as a student loan or personal loan. Whether it means the purchase of a first car, an upgrade to a larger vehicle when starting a family, or even buying a car for a teenage driver, auto financing has become a part of everyday life.

Because car loans are as likely for most of us as paying rent or a mortgage, filing a tax return, and buying groceries to feed our families, we should all know the basics before entering into such a loan.

A little bit of car loan education goes a long way, preparing us for what lies ahead when we set out on four wheels of our own.

Black Super Car

The Four Things You Need to Know About Car Loans

Understanding how auto loans work means understanding these four components and how they work:

  • Down payments
  • Interest Rates
  • Loan Terms
  • Titles

We will familiarize you with these terms so you know the lingo well before you walk through the dealership doors and also so you can prepare yourself to make the best decision about a car loan.

Car Loan Down Payments

A car loan is an agreement between you (the borrower) and a lending institution/financial institution (the lender) to give you the funds needed to purchase a new auto.

Once you find a financing option that works for you, you’ll settle upon an agreement you will pay the loan back in monthly installments, by a specific date, with interest added.

An influencing factor from the lender’s perspective in the amount of the loan and the required payments and interest rates is how much you may be able to offer in a down payment. In other words, if you have only $500 as a down payment, your loan will be less attractive than if you had $5,000 to put down.

Many people rush into car financing and go in with very little for a down payment. If you are in a position to wait and save more money, that down payment can really help you in the long run, allowing you to pay more upfront and rack up less interest on your auto loan and a smaller car payment over time.

For a long time, the number most associated with down payments was 20%, meaning consumers were advised to put down 20% of the car’s overall price as a down payment.

However, as auto prices have increased, this number has become an impossibility for many. Still, putting down 10 or 15% if possible will help you reduce the monthly payments and secure a better interest rate.

Dollars

Car Loan Interest Rates

If you have ever heard anyone say in a warmer climate “it’s not the heat that will get you, it’s the humidity,” the same concept could be applied to car loan interest rates.

It’s not the sale price of the car that will get you, it’s the interest rate.

To be fair, if the sale price of the car is six figures and you are a college student with a part-time job at a frozen yogurt café, then the sale price will get you, too!

However, the main point here is that a high interest loan over time can really hurt you financially, especially if unexpected circumstances make it difficult for you to make your monthly payments.

Walking into a car dealership as a car buyer means you need to be aware of what you’re getting into when it comes to dealer financing.

Interest rates are how lenders make money, and it is down to the consumer to understand what factors go into determining this rate so that the lenders are not making windfall profits off of your inexperience.

The interest rate on your car loan will be set by the lender after reviewing

  •  Your credit score and history
  • The term of your loan
  • Your down payment
  • The value of vehicle you are purchasing

If you know going into a car loan that at least one of these areas will reflect poorly on you, it helps to bump up your efforts in another. For example, if your credit score was dinged by some financial hardships, you should consider how this will affect your rate.

Bad credit sometimes can’t be helped- it’s best to get a credit report to look at your credit history to get an idea of where you stand. With a lack of excellent credit, perhaps try to save until you can make a down payment of more than 20%.

Car Loan Terms

The loan term of the loan refers to an agreed period of time for you to make your loan payment each month to repay the debt in full. In the case of car loans, the term is usually between 36 and 72 months to pay off your principal balance.

Simple math will tell you the shorter the team, the higher the monthly payment, and vice versa. One thing to bear in mind is while a lower monthly payment probably seems tempting, a longer-term also means you are paying more in interest.

When entering a loan application, car buyers should choose the shortest possible term they can afford in order to avoid overpaying with a higher interest rate.

Women Relaxing in Car

Car Loans and Titles

A final piece of the car loan puzzle borrowers should consider is how the auto title works in conjunction with the money you borrowed. Even though you are the “owner” (as in primary driver) of the vehicle, the lender retains the title until your debt is paid in full. This means the lender can take the car back if you default on the loan.

Once a car loan is paid in full, the title will be transferred to you.

Final Thoughts on Car Loans

By going into the car buying process with a clear idea of the down payment you can afford as well as understanding the terms and interest rates offered, you will be in a better position to negotiate a fair and favorable loan.

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How to Get a Car Loan with No Credit History – All the Information You Need

Get a Car Loan

Job seekers, who face one rejection after another because they lack experience are often left to wonder in frustration, “How can I gain any experience if no one gives me a shot?”

There is a similar frustration for young adults when it comes to credit. How can one establish a credit history, proving they will pay back their debts, if no one will give them a loan in the first place?

Many people stress over whether they have good credit or bad credit, but it becomes even more stressful when you don’t have credit at all. When it comes to lenders, a nonexistent credit history lumps a borrower in a similar category as those with bad credit, which seems unfair but it is a reality. If lenders cannot see evidence that you have a track record of paying your debts, they see you as a risk.

For young adults who need to purchase a car, either to commute to college or work or both, this can be particularly frustrating. A car loan may seem impossible to secure without an established credit history.

While it is difficult it is not entirely possible, and we will walk you through what you need to know about getting a car loan with no credit.

Option 1: Finance through Your Bank or Credit Union

Since most young adults have a checking and/or savings account, even if they have not yet opened lines of credit, you can go to your bank and ask if you can prequalify for a car loan, which in turn will dictate your budget when you go car shopping.

Credit unions often offer financing options with lower interest rates, so if you can qualify for membership in one, this can be a great place to start. In addition to banks and credit unions, you can also investigate online lenders.

A word of caution when it comes to any online lender is to research thoroughly and look at customer reviews. Beware of giving out your personal and financial details too quickly, before verifying the lender is credible and reliable as you pursue auto financing options.

Spilled Coins from the Jar

Option 2: Finance through the Dealership

In some cases, buyers will finance a car loan directly through the dealership. This may seem like the easiest car financing option to buy a car, by choosing your vehicle and working out a financial arrangement all in one place, but it does not come without a cost.

The dealer is essentially the “middleman” between you and a lender. Even though fast loan approval feels nice, they will often give you a higher interest rate on top of what would already be attached to the loan. A lower interest rate is what you should be looking for, so pay close attention to financing terms when going through a dealership!

Option 3: Attach a Co-Signer to Option 1 or 2

Whether you finance through a bank, credit union, or auto dealer, you may be able to secure a much better interest rate if you bring on a cosigner.

This would be someone else with an established and perfect credit history (or at least, a good credit score) who would also be responsible if the debt was not repaid.

The lender would be more likely to extend the loan in this case, since someone with a positive credit rating is now invested in the ultimate repayment of the loan.

These three options may help you secure a car loan with no credit if you absolutely need to move forward with one before establishing credit. A fourth option we want to point out is that you could simply wait.

Should I Wait?

Waiting may not be the answer for everyone, but it is worth considering. If there is any way to utilize public transportation, carpools, etc. to get to your work and school, it may serve you well to try and establish credit before seeking a car loan. Here are some ideas for what you can do to be proactive during this waiting period:

Save Every Extra Penny

If you can put aside some money long enough to save up a substantial down payment, this could have a huge benefit when it comes to purchasing your car. You may be able to negotiate a much better deal overall, and you would not need to take as long to pay off your loan.

Apply for a Secured Credit Card.

You can start to build a credit history with a secured card (one that you pay a deposit to open).

Hone Your Negotiation Skills

While your limited credit history may mean you are stuck with higher interest rates on auto loans, you could at least find ways to lower the overall purchase price. Negotiating for a lower purchase price should always be a priority among new (and used) car buyers.

The Six-Month Mark and Credit Scores

Once you have opened a line of credit, such as a secured credit card, it will take approximately six months to establish a credit history. This is when you should start to check your credit score, and you should continue to monitor it as you prepare to try for an auto loan.

FICO scores are broken out into five categories, outlined below. You will not jump right to the excellent tier after six months, but over time you can get yourself into the top two tiers with on-time payments and a good mix of credit accounts.

Car Loans with No Credit History

300-579: Very Poor

Borrowers in this range have a bad credit score and are typically rejected by lenders. If they are approved, they will likely be required to pay some type of initial fee or upfront deposit to secure a loan.

580-669: Fair

Borrowers who fall into this category may also be referred to as “subprime borrowers.”

670-739: Good

In this range, borrowers are more likely to be approved for loans, but not always at the best rates.

740-799: Very Good

This category finds borrowers receiving much better interest rates on loans.

800-850: Exceptional

This is the ideal scenario for a borrower, and a lender, too, who has great assurance the money will be paid back.

Car Loans with No Credit History: Final Thoughts

It will not be easy to get a car loan with no credit history, so wait and establish a credit history first if you can.

If this is out of the question, be sure you fully understand the terms of the loan before you sign, knowing that interest rates and other penalties will be high. You must have a solid plan in place to repay that car loan so it does not damage your credit history as soon as it starts.

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DCCU Car Loan Refinance Calculator: See What You Can Save

Your car plays a huge role in your survival. It gets you to work, takes you to the doctor, and influences the quality of your daily life. Cars are expensive assets, with most private vehicles purchased with loan agreements from banks and other financial institutions. While paying off your car loan is an unavoidable part of life, interest rates, loan terms, and loan conditions can often be altered in your favor by refinancing your car loan.

If your financial situation has changed for any reason or you want to put more money in your pocket, you may wish to take out a new car loan. As one of your most persistent financial obligations, you can save lots of money by changing lenders or adjusting the details of your loan agreement. When you act smart, a car is more than a form of transportation – it is a significant and reliable asset that can be leveraged to your advantage.

There are many good reasons to refinance your car loan, with each person needing to review their own finances and lifestyle options. Perhaps your income has grown? Maybe your credit has improved over time? Perhaps the economy has shifted and you’re paying more than you need to? Regardless of the reasons, car loan refinancing is about accessing better terms and saving money for your future.

Let’s take a detailed look at auto loan refinancing so you can calculate a better deal for you and your family.

What is car loan refinancing?

Changing your car loan may seem complicated, but it’s really quite simple. When you refinance an existing car loan, you are exiting your current loan and taking on a new loan under changed conditions. The outstanding loan amount is carried over to the new loan, but the repayment terms, loan conditions, and interest rate may be entirely different.

There are two basic ways to refinance a car loan, either with your existing lender or through a new provider:

  • If you have a good repayment history, more savings, or an improved credit score, you may be able to negotiate a lower interest rate on your car loan with your existing lender.
  • If your current lender is not meeting your needs, you can research new lenders and compare your options. Perhaps you can find a better interest rate or improved loan conditions with another lender.

Why should I refinance my auto loan?

Most people who refinance a car loan do it to save money. Potential savings are not always clear cut, however, with savings always based on a specific time period. For example, you may wish to save money on your monthly repayments, which could end up costing you more in the long run. The opposite situation also exists, with shorter loan terms and reduced long-term interest often leading to more expensive monthly repayments.

While there are countless reasons to refinance a car loan, the vast majority of cases fit into one of the following two categories:

1. Your finances have improved

If your financial situation has improved, you may want to refinance your car loan. Examples include a better credit score, new employment, or more savings. In this situation, refinancing your car loan can help you to get a better interest rate, an improved loan term, or more favorable lending conditions. For example, you may be able to remove the original co-signer from your existing loan.

2. Your finances are challenging

If you’re struggling to pay your living expenses or monthly bills due to high loan repayments, it may be time to make a change. In this situation, refinancing your car loan can give you access to lower monthly repayments. While you will end up paying more over time, sometimes you need to focus on the present. In this situation, refinancing can be a good way to consolidate your debt or improve your cash flow.

The pros and cons of car loan refinancing

There are a number of potential pros and cons associated with car loan refinancing. These factors are not set in stone, however, with each person needing to analyze their own financial resources and lifestyle situation in order to make the right moves.

Let’s look at the positive reasons for car loan refinancing, along with the reasons why you should hold off and think again:

When should you refinance your car?

There are many great reasons for refinancing your car loan, but it’s important to be careful. Generally speaking, refinancing is a good move if your financial situation has improved and you’re looking for better lending conditions.

Potential pros of refinancing a car loan:

  • You may be able to negotiate a lower interest rate.
  • You may need to secure lower monthly repayments.
  • You may be able to reduce costs and fees.
  • You may want to remove a co-signer from the loan.

When should you hold off on refinancing?

While refinancing your car loan can help to lessen your financial burden, it’s not always advisable when analyzed on a long-term basis. Generally speaking, refinancing is a bad move if your financial situation is challenging and there are other options available to you.

Potential cons of refinancing a car loan:

  • You may end up paying more interest over time.
  • You may end up extending the term of your loan.
  • You may need to pay an exit fee or other costs.
  • You may get a better interest rate but less flexible conditions.

How to calculate your car loan options

Before you can calculate your savings through refinancing, it’s important to understand exactly what’s on the table. While borrowing arrangements can seem complex, all loans function in much the same way regardless of what they’re for.

The following factors are central to every lending agreement:

Interest rates

Every commercial loan has an associated interest rate. This is the cost of borrowing money, and it has a huge influence on the amount of money you end up paying for your car. Your annual percentage rate (APR) is the total cost of repaying the loan over the course of a year. Along with the interest rate amount, it’s important to have a basic understanding of interest rate structures.

There are two basic rate structures: fixed interest rates and variable interest rates. Most car loans are fixed, which means the rate amount is locked in for the term of the loan. In contrast, variable rates go up and down depending on the lender, the loan arrangement, and the wider economic conditions. This can be good or bad, but it is always inconsistent.

Loan term

In the most basic sense, the term of a loan is the agreed time period taken to repay the loan amount. For car loans, this is widely dependent on the original value of the car, the amount of the initial deposit, the interest rate, and the repayment amount. The loan term is directly related to both the interest payments and the repayment amount. The shorter the term of the loan, the less money is paid in interest.

Loan repayment periods can be broken down into an amortization schedule. Understanding this schedule is a great way to analyze your loan and work out how much interest you will end up paying. If you want to improve your cash flow by lowering your monthly repayments, you will lengthen your loan term and end up paying more in interest payments over time.

Loan fees

Car loans can differ widely when it comes to lending costs and fees. There are lots of things to look out for, including origination fees, repayment penalties, late payment penalties, application fees, and annual fees. Many car loans will also have a designated refinance fee, which is the price you pay for setting up a new lending agreement.

On the other side of the coin, some financial institutions offer a cashback scheme for people who refinance from another lender. While this can seem enticing, it should never be the only reason that you change lenders. Each of these fees will be included in your loan agreement, but sometimes they are hidden in the fine print.

Loan conditions

Along with the interest rate amount, the interest rate structure, the loan term, and the lending fees and costs, there may be other conditions associated with a car loan. These conditions can vary widely between products and lenders, so it’s important to do your homework.

One example of a potential loan condition is known as a balloon payment. This is a one-off payment that is due at the end of the loan period. Other examples include the provision of a personal guarantee and the inclusion of a co-signer. Along with saving money, removing the original co-signer is a popular reason for car loan refinancing.

How to calculate potential savings

Once you have a sound understanding of the basic factors that influence car loans, it’s fairly easy to calculate loan repayments and potential savings. While it might seem complex, all lenders use the same basic financial information to identify good opportunities. There are many car loan calculators available on the internet, all of which require the following information to estimate monthly repayments.

  • Vehicle purchase price
  • Car loan amount
  • Initial deposit or trade-in amount
  • Loan term
  • Interest rate
  • Balloon repayment
  • Repayment frequency

If you have this information at hand, it’s easy to estimate repayment amounts and compare car loans. While the value of the car, deposit amount, and intended loan term are likely to stay constant between providers, the available interest rate can vary widely.

Steps to refinance

Once you have analyzed the pros and cons and calculated your potential savings, you can move ahead with the next stage of car loan refinancing. Online calculators are useful during the research and comparison phase. However, it’s important to contact lenders directly to review potential savings and lock in favorable terms.

The following steps should be taken in the lead-up to every refinancing deal:

  1. Get current on your existing car loan.
  2. Review your outstanding debt amount.
  3. Compare potential lenders.
  4. Obtain pre-approval before car shopping.
  5. Balance short-term and long-term gains.
  6. Apply for a new car loan.

Why DCCU?

If you’re looking for an easy way to refinance your car loan, DCCU is here to help. We offer fair and competitive lending alternatives to the major banks. We are 100% committed to improving the economic and social well-being of our members, so you can rely on honest advice and transparent costs with every single loan. We are proud to help people from a range of socioeconomic backgrounds, including low and moderate-income members.

DCCU is owned by our members, with our financial cooperative dedicated to “building lifetime relationships through personalized financial service.” When you choose DCCU, you will benefit from flexible loan terms, low interest rates, and accessible financing up to 100% of the car’s value. Our values are strong, and our message is clear: We are “a local neighborhood Madison credit union that stands for you.”

Along with great deals, we believe in reliable extras and friendly customer support. We offer a number of easy add-ons for car loans, including extended warranty protection and loan pre-approval. When you’ve been approved for a specific amount, you can go car shopping with confidence knowing how much you can borrow. Pre-approval can be a great bargaining tool at the dealership, with price certainty leading to better decision-making and more competitive deals.

If you’re looking to refinance an existing loan from another provider, please give us a call to find out more. If you’ve already refinanced your vehicle somewhere else, it’s not too late to save money by switching to DCCU. We may be able to lower your monthly repayment, reduce your interest rate, or alter the length of your loan based on your personal requirements.

At DCCU, we proudly offer a range of lending services across Madison and surrounding counties. As a not-for-profit credit union owned and operated by our members, we are always willing to lend a helping hand. If you would like to refinance your car loan or learn more about our services, please contact DCCU today.

 

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Car Loans for College Students: Can You Get One?

Students Studying in Group

While college can be the best four years of your life (or five…or six…or more), it can also be a stressful time for many students as far as the financial implications go.

College students often have to take out a significant student loan to cover tuition, room, and board. And that doesn’t even include other expenses, like transportation needs.

While it is common for students to work, holding down part-time and sometimes even full-time jobs during college, it can be difficult to manage expenses on top of the stress of studying and attending classes.

If a student needs a car to get to and from work and classes, they may need a car loan to make this possible. While it may not be easy to acquire an auto loan as a student, the good news is that it is indeed possible.

Read on to learn more about how you can get approved for a car loan while in college. Continue reading Car Loans for College Students: Can You Get One?

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How to refinance your car loan and put cash back in your pocket

Financial situations change all the time, so it’s important to be flexible and ready to act. Along with sound budgeting and long-term financial management, refinancing your car loan can be a good way to put extra money in your pocket. While it pays to be careful in order to avoid future financial stress, there are many great reasons to refinance your car loan. Continue reading How to refinance your car loan and put cash back in your pocket

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What Are Fast Auto Loans and How They Work

What Are Fast Auto Loans

If you landed here in search of a loan to buy a “fast car,” we are sorry to disappoint you: that is not what a “fast auto loan” is all about.

Instead, we will instead walk you through how these quick loans can help out when you are in pinch, faced with an unexpected debt you cannot cover with savings. Continue reading What Are Fast Auto Loans and How They Work

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