How to buy your next car in today’s prime lending environment

How to buy your next car in today’s prime lending environment

This time of year, holiday car sale “events” are as abundant as Salvation Army bell ringers. There’s even one in the hilarious Audi holiday car commercial. And, who doesn’t daydream about that new car smell when you see the annual Lexus December to Remember or Happy Honda Days commercials?

If you’re looking to buy a new – or used – car this holiday season, your finances better be in prime condition. The days of zero down payments, getting a loan with a low credit score, and low monthly payments for new cars are gone, according to the most recent data for car financing.

 

The auto loan market is shifting toward less risky consumers.

Auto loan originations are on the decline, a trend that TransUnion® attributes to the tightening of underwriting requirements. The consumer credit reporting agency says subprime, near-prime, and prime loan originations are down nearly 6 percent while the less risky prime-plus and super-prime loans are up just over 3 percent for the same period.

Stringent credit scores are also increasing for all loan transaction types, another sign that the market is shifting toward car buyers with prime credit. Yet another trend that is keeping many car buyers out of the market is affordability. Higher-priced vehicles mean higher-priced loans, forcing some customers out of the market while others opt for longer loan terms.

 

New Car FAQs

  • The average credit score for new-vehicle financing increased in the second quarter of 2017 to 711.
  • The average monthly payment rose to a second-quarter record of $504.
  • The average amount financed for a new vehicle grew to $30,324.

 

Used Car FAQs

  • The average credit score for used car financing rose in the second quarter of 2017 to 652.
  • The average monthly payment increased to $365.
  • The average amount financed climbed to $19,189.

 

Improving your credit score

If your New Year’s resolutions include buying a new (or used) car in 2018, knowing and improving your personal credit score is an important first step. Your 3-digit FICO Score is a number that lenders use to determine your credit risk and make decisions such as the interest rate you get when you apply for a loan. The higher your credit score, the less risk you are to the lenders.

You can find out your credit score for free once a year from one of three national credit bureaus: TransUnion, Equifax  and Experian. If you have a low credit score, the process of repairing it can seem overwhelming. However, a few simple tips and a little time can put you on the road to recovery. Here are eight ways to improve your FICO credit score.

 

Car Affordability

Many car buyers today are stretching out their loan terms to lock in a monthly payment they can afford. This is a risky decision however, with borrowers finding themselves upside-down on their loans pretty quickly.

If you choose this option, there is a financing strategy that can help.

 

Biweekly loan payments

Biweekly loan payments can shorten the term of your auto loan while reducing interest charges and accelerating equity.  How does it work?

Standard car loans require one payment every month. Biweekly loan payments divide this payment amount in half and pay it every two weeks.

Because there are 52 weeks in a year, you’re making 13 payments over the course of a year (instead of 12) with the extra payment applied to the principal. On a monthly basis, the payment amount is the same. However, the one extra payment a year can save hundreds to thousands of dollars in interest over the life of a loan. As an added benefit, timing your biweekly payments to coincide with when you get paid is easier to plan for and makes sure you maintain timely payments.

 

The benefits of a value-added loan payment service

Making biweekly loan payments is a lot like making New Year’s resolutions. You’re dedicated and focused in the beginning, but several months down the road life gets busy and you become distracted. This is where a qualified biweekly loan payment service can help.

For borrowers who think they can do it themselves, human nature proves otherwise. It can be difficult to navigate an early loan payoff strategy on your own. Very few lenders accept partial payments. Plus, it takes discipline to make the extra payment each month, and time and energy to ensure that the additional payments go toward the principal.

Third-party loan processors, such as AutoPayPlus, will debit the half payment from your bank account biweekly and apply it to your auto loan once a month, offering the convenience and confidence that your payments are made on-time and applied correctly. The company even provides a free online calculator that shows  how to pay off car loans faster and lets you enroll other debts such as student loans and mortgages to realize even greater savings.

Another benefit of AutoPayPlus is the company’s free financial planning tool kit that makes it easier for customers to organize paying bills, monitor their credit, and create a budget and savings plan for the future – all in one place.

 

Best wishes that 2018 brings you the new car you’re hoping for and a plan to take greater control of your financial future!

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