10 Things You Should Know Before You Get an Auto Loan

(This is a guest article by Karen Schweitzer*)

Car dealers are working very hard to make sure that auto sales rebound over the winter season. And while it may seem like the ideal time to buy a new car, there are a few things you should know before you get an auto loan:

1. You Will be Subjected to a Credit Check

Although there are some car dealers who are willing to finance buyers without a credit check, most will not. If you get a loan through the dealer or through a bank, you will be subjected to a credit check. Lenders will evaluate your debt-to-income ratio as well as your credit score before deciding whether or not to give you a loan.


2. You May Need a Co-Signer

If you have bad credit or worse (at least in a lender's eyes) no credit, you may need someone to co-sign for your loan. Your co-signer doesn't have to be married to you or related to you, but the chosen individual will need decent credit. If you do decide to go this route choose carefully. The co-signer's credit score will impact the interest rate on the loan. The co-signer will also be responsible for the loan, late charges, penalties, and late fees if you default on the loan.


3. Loan Rates Will Vary

Like other loan rates, auto loan rates will vary from lender to lender. If one lender quotes you an interest rate of 5.25%, it may not be the lowest rate you are eligible for. Be sure to check with at least three different lenders before signing on the dotted line.


4. Loan Terms Affect Monthly Payments and Overall Costs

The average auto loan term ranges somewhere between 36 and 72 months. The longer the term is, the lower your monthly payments will be. A longer term may seem attractive initially, but it is important to remember that if you go this route you are likely to pay more in interest than you would with a shorter term. In other words, the longer your loan term is, the more the loan will cost you in the long run.


5. Zero-Percent Financing Isn't Always Available

A lot of auto dealers and manufacturers advertise zero-percent financing on new cars and trucks. They do this to get buyers in the door. It isn't necessarily a gimmick, because some people do qualify for this sort of financing. However, most people will not. Buyers need exceptionally good credit--a score of 700 or more--to be eligible for incentives like this.


6. Gap Insurance May Be Necessary

The average car is a depreciating asset. This means that the car will decrease in value as soon as you buy it and will continue to do so as long as you own it. If you pay too much for the car, don't make a down payment, or get saddled with a bad interest rate, you could end up owing more on the car than it is worth. This could leave you in serious trouble if you wreck the vehicle or need to sell it quickly. If you are worried about this happening, you can purchase gap insurance, which covers the difference between what you owe on the car and what it is worth.


7. Extended Warranties Can Be Financed

Nearly every auto dealer will try to sell you an extended warranty when you buy a new vehicle. The decision to purchase a warranty is a personal one and should be considered carefully. Before you make a choice, you should know that extended warranties can be financed. You should also know that financing an extended warranty will up your monthly payments as well as the total amount you pay over the life of the loan.


8. Some Lenders Charge Prepayment Penalties

A lot of people like to apply extra money to their auto loan each month to reduce the interest paid throughout the term of the loan. If you are one of those people, you will want to make sure you're lender does not charge any sort of prepayment penalty.


9. An Auto Loan Can Improve or Demolish Your Credit

An auto loan can be very beneficial for people who have bad credit or a limited credit history--if payments are made on time. Late payments or defaults will have the opposite effect and can leave your credit score in ruins.


10. You Can Refinance Later On

If you do end up with a higher interest rate than you'd like or loan terms that are not favorable, you can always refinance your loan later on. You may have to pay an application fee or another small lender fee, but the cost of refinancing will be minimal.

*About the author: This is a guest post from education writer Karen Schweitzer. Karen is the About.com Guide to Business School. She also writes about online degree programs for OnlineDegreePrograms.org

*Image Credit: Photograph by rev [via Flickr Creative Commons]

10 Simple Steps to Improving Your Credit Score

(This is a guest article by Mike Acheson*)

Most financial institutions use credit scores to help decide whether to lend you money or not. It is very important to have a good credit score if you are looking to apply for a personal loan, credit card, or a mortgage. It can be the single determining factor for many banks and credit card companies.

In the US, the average credit score is somewhere around 650-675 but most banks consider anything above 700 to be a good score. Luckily, there are a few simple steps you can take to improve your credit score.

The first step is to search the Internet to find a free credit report - there are a number of websites that offer this service such as Equifax and Experian.

After you have your report, follow these 10 easy steps to improve your credit score:

1. Learn how to read your report – It’s important to know how to read the report and to ensure you have accurate information about your starting score. After you have a clear idea of where you’re starting from, you can improve your score from there. Some people already have a good score and don’t need to make any improvements.



2. Find errors – While reviewing your report, make sure to take note of all your applications for credit and to ensure they are accurate. If there is information that doesn’t belong to you or if there are any other errors make note of this.



3. Addressing the errors – Once you identify a problem you will want to notify the major credit report companies immediately to get them to amend your report. By law, they are required to look into your claims within a month. If the information you provided is correct they will change your report to address any concerns you had.



4. Pay any overdue bills – It is important to pay all your missed loan repayments or any bills you may have from an overdrawn credit card. This is crucial. After these bills have been paid, not only will your credit report improve but also you will have the satisfaction of having paid these outstanding bills.



5. Communicate with your creditors – Contact your creditors after sending your payments so that they can update your information immediately – otherwise it can take a few weeks.



6. Stop relying on credit – Taking on credit is a dangerous path for most people – your debts can spiral out of control quite easily. If you’re trying to improve your credit score then don’t take out any more credit. It’s as simple as that. Credit cards and loans will only make the problem worse.



7. Ask about payment plans – Many creditors accept payment plans with their debtors. The main purpose is to allow you to catch up on your remaining bills but it also helps you gain control of your finances and to create good spending practices. Living within a budget can be a rewarding challenge.



8. Adjusting the frequency of your payments – When paying back debts, divide your monthly payments into weekly or twice-weekly payments. This will make your bank records show that you have made extra voluntary payments. The computers will register extra payments, which can increase your credit score significantly. This method of repayment also helps you not fall behind on your payments in the future. If you pay off all your debt then you wont have to worry about any of this.



9. Self-Debt Management – It’s likely that a debt management company will take a lot of your money but you can often set up your own plan to help pay back your debt. Search the Internet for do-it-yourself debt management strategies and start budgeting. With a little hard work you can pay off your debt in no time and have a sparkling credit report. It’s not easy but it can be done.



10. Don’t be tricked – A lot of companies and websites promise instant credit repairs and improvements but they are often trying to take advantage of you.

The best thing you can do is work on your credit score at a pace that works for you. You might not be able to make all your payments right away but chip away at your payments and you will see your credit score improve – all it takes is hard work and a little foresight. Good luck.

*About the author: This post was written by Mike Acheson, who writes about debt and life cover in Canada.

*Image Credit: Photograph by kevinzhengli [via Flickr Creative Commons]

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5 Ways to Lower Your Auto Insurance Premiums

(This is a guest article*)
With auto insurance being mandatory for all drivers, simply canceling coverage is out of the question. But paying for premiums that could be lower when you’re just starting to make some dough isn’t smart either, especially since student loans and other expenses loom. Auto insurance premiums can be especially daunting if your parents were taking care of them while you were in school. Fortunately, there is hope for the struggling grad and you may be able to hold on to more of your hard-earned cash.

1. Do smart comparison shopping

Before you decide to stick with your current insurer, do some comparison shopping with at least three other companies. Considering how easy it is to get quotes and access policies on the internet, you can’t really afford not to spend some extra time and effort. In your search, not only does price matter but quality of service is important also, since there is no use in paying premiums every month to a company who won’t provide you with decent service. Check to make sure that the company is financially stable, so that when you need them the most, you’ll know they have the resources and financial power to do so. Check the financial health of companies with Standard and Poors and other consumer organizations. Also check with your state department of insurance and other consumer sites for complaints about insurers in your state. Ask trusted family members and friends who they have policies with and what their experiences have been like. Another resource is your friendly mechanic, who deals with insurance companies all the time, and can give you some insight on which companies handle claims the best.


2. Look for multi-policy, and other discounts

Some companies will offer account holders a discount if they have more than one policy with them. If you have renters insurance with the same company, it doesn’t hurt to ask if they offer a discount if you have auto and renter’s insurance with them. There are a multitude of other discounts that may apply to you also. Some of them may apply if you have been a long-time customer, or have had no accidents or violations in three years. If you don’t do a lot of driving, you may be eligible for low annual mileage discount. It doesn’t hurt to ask about these discounts you may not know about.


3. Limit coverage on older cars

If your lugging a car that is very old or isn’t worth much, you may not even need collision or comprehensive coverage and assume the losses yourself. Collision coverage takes care of damages of your vehicle in a collision and comprehensive coverage covers damages from events not related to collision such as natural disasters, theft, and other events that you couldn’t be responsible for. Know the replacement value of your car by checking with dealers or with Kelley Blue Book and if paying premiums for the value of your isn’t worth it, then consider axing the coverage all together and just paying for the mandatory liability insurance. Be sure to have enough money set aside in case of an accident, theft or other damages.


4. Raise your deductible

Doubling your deductible can lower your premiums significantly. For instance, raising a $500 deductible to a $1000 one may be able to save you 20 to 40 percent. It means more out of pocket money for you in case of an accident, so be sure to have the deductible amount in a savings account and don’t touch the money otherwise.


5. Maintain a clean driving record

Avoiding reckless driving is the foundation to keeping your premiums low. Keep that in mind when you find yourself distracted on the road, and fix your behavior immediately.

Plus if you are driving safe and are attentive on the road, you more likely to stay out of accidents and avoid paying those deductibles in the first place. Taking defensive driving classes may also qualify you for discounts so check with your insurer to see which classes apply. Also, consider safety first if you will be purchasing a new car, since cars with certain safety features such as anti-lock brakes, airbags, and anti-theft devices get lower rates.

*About the author: This article was written by NetQuote. NetQuote provides low-cost leads from most of the major insurance providers in the auto insurance industry.

*Image Credit: Photograph by net_efekt [via Flickr Creative Commons]