How to Get Approved for Credit in a Financial Downturn

In a recession it’s common for many people to rely on credit cards and loans to balance their finances. It’s the ultimate catch-22 since, during a recession, these financial products can be even harder to qualify for.

This holds true, according to historical data from the Federal Reserve Bank of St. Louis. It found that during the 2007 recession, loan growth at traditional banks decreased and remained deflated over the next four years. 

Credit can be a powerful tool to help you make ends meet and keep moving forward financially. Here’s what you can do if you’re struggling to access credit during a weak economy.

Lending becomes riskier in a weak economy. Does this mean you’re completely out of luck if you have bad credit? Not necessarily, but you might need to take the time to understand all of your alternatives.

How Does a Financial Downturn Affect Lending?

Giving someone a loan or approving them for a credit card carries a certain amount of risk for a lender. After all, there’s a chance you could stop making payments and the lender could lose all the funds you borrowed, especially with unsecured loans. 

For lenders, this concept is called, “delinquency”. They’re constantly trying to get their delinquency rate lower; in a booming economy, the delinquency rate at commercial banks is usually under 2%. 

Lending becomes riskier in a weak economy. There are all sorts of reasons a person might stop paying their loan or credit card bills. You might lose your job, or unexpected medical bills might demand more of your budget. Because lenders know the chances of anyone becoming delinquent are much higher in a weak economy, they tend to restrict their lending criteria so they’re only serving the lowest-risk borrowers. That can leave people with poor credit in a tough financial position.

Before approving you for a loan, lenders typically look at criteria such as:

  • Income stability 
  • Debt-to-income ratio
  • Credit score
  • Co-signers, if applicable
  • Down payment size (for loans, like a mortgage)

Does this mean you’re completely out of luck if you have bad credit? Not necessarily, but you might need to take the time to understand all of your alternatives.

5 Ways to Help Get Your Credit Application Approved 

Although every lender has different approval criteria, these strategies speak to typical commonalities across most lenders.

1. Pay Off Debt 

Paying off some of your debt might feel bold, but it can be helpful when it comes to an application for credit. Repaying your debt reduces your debt-to-income ratio, typically an important metric lenders look at for loans such as a mortgage. Also, paying off debt could help improve your credit utilization ratio, which is a measure of how much available credit you’re currently using right now. If you’re using most of the credit that’s available to you, that could indicate you don’t have enough cash on hand. 

Not sure what debt-to-income ratio to aim for? The Consumer Financial Protection Bureau suggests keeping yours no higher than 43%. 

2. Find a Cosigner

For those with poor credit, a trusted cosigner can make the difference between getting approved for credit or starting back at square one. 

When someone cosigns for your loan they’ll need to provide information on their income, employment and credit score — as if they were applying for the loan on their own. Ideally, their credit score and income should be higher than yours. This gives your lender enough confidence to write the loan knowing that, if you can’t make your payments, your cosigner is liable for the bill. 

Since your cosigner is legally responsible for your debt, their credit is negatively impacted if you stop making payments. For this reason, many people are wary of cosigning.

In a recession, it might be difficult to find someone with enough financial stability to cosign for you. If you go this route, have a candid conversation with your prospective cosigner in advance about expectations in the worst-case scenario. 

3. Raise Your Credit Score 

If your credit score just isn’t high enough to qualify for conventional credit you could take some time to focus on improving it. Raising your credit score might sound daunting, but it’s definitely possible. 

Here are some strategies you can pursue:

  • Report your rent payments. Rent payments aren’t typically included as part of the equation when calculating your credit score, but they can be. Some companies, like Rental Kharma, will report your timely rent payments to credit reporting agencies. Showing a history of positive payment can help improve your credit score. 
  • Make sure your credit report is updated. It’s not uncommon for your credit report to have mistakes in it that can artificially deflate your credit score. Request a free copy of your credit report every year, which you can do online through Experian Free Credit Report. If you find inaccuracies, disputing them could help improve your credit score. 
  • Bring all of your payments current. If you’ve fallen behind on any payments, bringing everything current is an important part of improving your credit score. If your lender or credit card company is reporting late payments a long history of this can damage your credit score. When possible speak to your creditor to work out a solution, before you anticipate being late on a payment.
  • Use a credit repair agency. If tackling your credit score is overwhelming you could opt to work with a reputable credit repair agency to help you get back on track. Be sure to compare credit repair agencies before moving forward with one. Companies that offer a free consultation and have a strong track record are ideal to work with.

Raising your credit isn’t an immediate solution — it’s not going to help you get a loan or qualify for a credit card tomorrow. However, making these changes now can start to add up over time. 

4. Find an Online Lender or Credit Union

Although traditional banks can be strict with their lending policies, some smaller lenders or credit unions offer some flexibility. For example, credit unions are authorized to provide Payday Loan Alternatives (PALs). These are small-dollar, short-term loans available to borrowers who’ve been a member of qualifying credit unions for at least a month.

Some online lenders might also have more relaxed criteria for writing loans in a weak economy. However, you should remember that if you have bad credit you’re likely considered a riskier applicant, which means a higher interest rate. Before signing for a line of credit, compare several lenders on the basis of your quoted APR — which includes any fees like an origination fee, your loan’s term, and any additional fees, such as late fees. 

5. Increase Your Down Payment

If you’re trying to apply for a mortgage or auto loan, increasing your down payment could help if you’re having a tough time getting approved. 

When you increase your down payment, you essentially decrease the size of your loan, and lower the lender’s risk. If you don’t have enough cash on hand to increase your down payment, this might mean opting for a less expensive car or home so that the lump sum down payment that you have covers a greater proportion of the purchase cost. 

Loans vs. Credit Cards: Differences in Credit Approval

Not all types of credit are created equal. Personal loans are considered installment credit and are repaid in fixed payments over a set period of time. Credit cards are considered revolving credit, you can keep borrowing to your approved limit as long as you make your minimum payments. 

When it comes to credit approvals, one benefit loans have over credit cards is that you might be able to get a secured loan. A secured loan means the lender has some piece of collateral they can recover from you should you stop making payments. 

The collateral could be your home, car or other valuable asset, like jewelry or equipment. Having that security might give the lender more flexibility in some situations because they know that, in the worst case scenario, they could sell the collateral item to recover their loss. 

The Bottom Line

Borrowing during a financial downturn can be difficult and it might not always be the answer to your situation. Adding to your debt load in a weak economy is a risk. For example, you could unexpectedly lose your job and not be able to pay your bills. Having an added monthly debt payment in your budget can add another challenge to your financial situation.

However, if you can afford to borrow funds during an economic recession, reduced interest rates in these situations can lessen the overall cost of borrowing.

These tips can help tidy your finances so you’re a more attractive borrower to lenders. There’s no guarantee your application will be accepted, but improving your finances now gives you a greater borrowing advantage in the future.

The post How to Get Approved for Credit in a Financial Downturn appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

The Half Payment Budget Method Explained

The post The Half Payment Budget Method Explained appeared first on Penny Pinchin' Mom.

The half payment budget method might be what you need.  If traditional budgets do not work, you really might want to consider this method instead.

 

half payment budget method

 

If you do any research, you will find many ways to budget.  However, many times, the options you find do not work for you.  That is why it is important to find the right budget for your needs.  A new one you may not have tried is the the half-payment budget method.

This system helps many people stop living paycheck to paycheck.  Simply explained, it is where you take your regular, recurring payments and divide them in half.  Each payday, you set aside the necessary money out of each check so that you have the full payment available when it is due.  The half payment is not paid at that time, but rather you hang onto it and pay it on the due date.

If you are just learning about budgeting, you will want to check out our page — How to Budget. There, you will learn everything you want to know about budgets and budgeting.

HOW TO USE THE HALF-PAYMENT BUDGET METHOD

In order to explain this in a simple manner, here is how this system might look for you:

Monthly income: $2,500 (paid $1,250 every other week)

Recurring monthly payments (other than utilities):

Mortgage/Rent: $900
Vehicle Payments: $450
Auto insurance: $100

When you apply the half-payment method, your weekly budget would look something like this:

Paycheck #1 – $1,250

Set aside $450 for rent/mortgage
Set aside $225 for vehicle payments
Set aside $50 for insurance

Leaves $525 out of your paycheck for other expenses

Paycheck #2 – $1,250

Take $450 from previous paycheck and add $450 and pay $900
Take $225 from previous paycheck and add $225 and make full $450 payment
Take $50 from previous paycheck and add $50 to make $100 payment

Leaves $525 out of your paycheck for other expenses from each check

 

Now, let’s compare this to the method that many use – to just pay when the bill is due:

Paycheck #1 – $1,250  

Rent – $900

Leaves $350 for all expenses

Paycheck #2 – $1,250

Vehicle payments – $450
Insurance – $100

Leaves $700 for additional expenses

If you do the math, you will notice that you still have the same to spend over the course of a month, however, you will see a difference in the amount from each paycheck.  You might show that you have more money left after your 2nd paycheck of the month, but will you really save that?  Most people do not. If they have extra month to spend, they just spend it.

 

How to Start

I would not recommend that you jump in and change all of your bills so that they are paid using this method.  That may be too much and you might quit before you even really get started!  Instead, select one bill, such as a car payment, and try using the half payment method for a few months.  Once you see it works, you can transition other bills into this same payment method.

 

Why it Works

So, why would you use the half payment method?  For many it works better because you have around the same income to spend out of every check, rather than cutting your spending in half like you see in the second example.  For many, there is always that paycheck that makes spending tough.  When you have to pay a few larger bills all out of one check, it often leaves little to no money left for other purchases.

By changing to the half method, you are still paying your bills, but you are just earmarking money to pay a bill due later in the month.  You still have the same income.  You still pay your bills on time. However, you have more disposable income every two weeks by doing it in this way.

What is great about this method is that it works no matter how you are paid.  If you are paid monthly or weekly you might try using a quarter payment method every week (breaking out your check to leave spending weekly).

 

If you want to learn more about understanding your money attitude, change your spending habits and get out of debt once and for all, check out the Financial Rebook eBook.

The post The Half Payment Budget Method Explained appeared first on Penny Pinchin' Mom.

Source: pennypinchinmom.com

Secured vs. Unsecured Loans: Here’s the Difference

Whether you’re trying to buy a home or looking to get a college degree, you may need to take out a loan to finance your goals. If you’re seeking out your first loan, know that borrowing money is a common practice and you don’t need a degree in economics to understand it! Learning more about loans and the different types can help you make informed decisions and take control of your finances.

Loans take many forms but they all fall within two common categories: secured vs. unsecured loans. Whether you’re approved for either type of loan depends on your creditworthiness. Creditworthiness refers to how responsible you are at repaying debt and if it’s worthwhile or risky to grant you new credit. It’s helpful to be aware of your credit prior to seeking out a loan so you know where you stand.

Now that you’re familiar with the role creditworthiness plays in getting a loan, let’s discuss the differences between secured and unsecured loans, the advantages and disadvantages of each, and which one may be right for you.

What’s the Difference Between Secured vs. Unsecured Loans?

What’s the Difference Between Secured vs. Unsecured Loans?

The main difference between secured and unsecured loans is how they use collateral. Collateral is when something of economic value is used as security for a debt, in the event that the debt is not repaid. Usually collateral comes in the form of material property, such as a car, house, or other real estate. If the debt is not repaid, the collateral is seized and sold to repay all or a portion of the debt.

Key Difference: A secured loan requires collateral, while an unsecured loan doesn’t require collateral.

What Is a Secured Loan?

A secured loan requires collateral as security in case you fail to repay your debt. If secured debt is not repaid, the collateral is taken. In addition to seizing collateral, lenders can start debt collection, file negative credit information on your report, and sue you for outstanding debt. This generally makes secured loans more risky for the borrower.

Conversely, collateral decreases the risk for lenders, especially when loaning money to those with little to no credit history or low creditworthiness. Less risk means that lenders may offer some leeway regarding interest rates and borrowing limits. See the list below to review other typical secured loan characteristics.

Characteristics of a Secured Loan:

For borrowers:

  • Presence of collateral
  • Typically more risky
  • May require a down payment
  • May sell property to repay loan
  • Generally lower interest rates
  • Longer repayment period
  • Higher borrowing limits
  • Easier to obtain for those with poor or little credit history

For lenders:

  • Typically less risky
  • Lender can take your collateral
  • Lender can hold the title to your property until loan is repaid

Secured Loan Examples

The most common uses of a secured loan are to finance large purchases such as a mortgage. Usually, these loans can only be used for a specific, intended purchase like a house, car, or boat. A home equity loan is another example of a secure loan. Some loans like business loans or debt consolidation can be secured or unsecured.

Secured Loan Examples

What Is an Unsecured Loan?

An unsecured loan doesn’t require collateral to secure the amount borrowed. This type of loan is granted based on creditworthiness and income. High creditworthiness makes an unsecured loan more accessible.

The absence of collateral makes this type of loan less risky for borrowers and much riskier for lenders. If unsecured debt is not repaid, the lender cannot seize property automatically. They must engage in debt collection, report negative credit information, or sue. As a result of the increased risk, unsecured loans have characteristics that attempt to reduce the risk. These may include higher interest rates or lower borrowing limits, and you can see more in the list below.

Characteristics of an Unsecured Loan:

For borrower:

  • No collateral required
  • Typically less risky
  • Qualify based on credit and income
  • Stricter conditions to qualify
  • Generally higher interest rates
  • Lower borrowing limits

For lender:

  • Typically more risky
  • Lender can’t take property right away if you default

Unsecured Loan Examples

Common unsecured loans include credit cards, personal loans, student loans, and medical debt. Debt consolidation and business loans can also be unsecured. In each of these instances, collateral is not required and you are trusted to repay your unsecured debt.

Unsecured Loan Examples

Advantages and Disadvantages to Consider

When it comes to deciding on the type of loan you need, it’s important to consider the advantages and disadvantages of each.

Secured Loans

Secured loans present advantages for repayment, interest, and borrowing amount, but have disadvantages regarding a borrower’s risk and limitations of use.

Advantages

  1. Bigger borrowing limits
  2. Less risk for lenders usually means lower interest rates for borrowers
  3. Longer repayment period
  4. Available tax deductions for interest paid on certain loans (e.g., a mortgage)

Disadvantages

  1. Risky for borrower (potential for loss of collateral like home, car, stocks, or bonds)
  2. Specifically for intended purpose (e.g., a home, but home equity loans are an exception)

Unsecured Loans

Unsecured loans can be advantageous for borrowers regarding risk and time, but they pose a disadvantage when it comes to interest rates and stricter qualifications.

Advantages

  1. Less risky for borrower
  2. Useful loan if you don’t own property to use as collateral
  3. Quicker application process than for a secured loan (e.g., a credit card)

Disadvantages

  1. More risky for lenders usually means higher interest rates for borrowers
  2. Hard to qualify for if you have low creditworthiness or inconsistent income (can qualify with a cosigner)

Take a look at the chart below to compare the key advantages and disadvantages between secured and unsecured loans.

Secured Loans

Unsecured Loans

Advantages

• Lower interest rates
• Higher borrowing limits
• Easier to qualify
• No risk of losing collateral
• Less risky for borrower

Disadvantages

• Risk losing collateral
• More risky for borrower
• Higher interest rates
• Lower borrowing limits
• Harder to qualify

Which Loan Type Is Best for You?

After considering the advantages and disadvantages of both loan types, it’s helpful to know which one is the best for certain circumstances. Here are some common contexts in which one may be better than the other.

  • A secured loan may be best if you’re trying to make a large property purchase or don’t have the best credit. The piece of property that you are purchasing can be used as collateral if you don’t already own other property. Additionally, this loan is more accessible for you if you have low creditworthiness and may be more advantageous with lower interest rates.
  • An unsecured loan may be best if you have high creditworthiness and a steady income. High creditworthiness helps you meet strict qualification criteria and can also help you obtain better interest rates (given that this type is characterized by higher interest).

Overall, secured and unsecured loans are each useful in different situations. Remember that the key difference is that unsecured loans don’t need collateral, while secured loans do. Secured loans are less risky for the lender and may allow for some advantageous repayment conditions. On the other hand, unsecured loans are risky for the lender, and they often come with stricter conditions that try to lessen that risk.

It is important to make smart financial decisions such as repaying debt on time and maintaining a good credit history. High creditworthiness is the key to getting the best conditions on any loan. No matter your circumstances, identifying which loan type is best for you depends on your specific credit and goals. Visit our loan center for help in deciding which loan is right for you.

Sources: Consumer Financial Protection Bureau

 

The post Secured vs. Unsecured Loans: Here’s the Difference appeared first on MintLife Blog.

Source: mint.intuit.com

How to Buy a Used Car, Step By Step

You’ll have to purchase the report if you’re buying from a private seller, so wait until you’re seriously interested in a particular vehicle. If you’re buying from a dealership, the salesperson should provide a copy of the vehicle history report for free.
These tips will give you some guidance to make a good choice.
Montoya said plans sold by auto manufacturers or reputable dealerships are better options than those sold by third-party companies. Make sure you understand exactly what your plan covers.

Why Buying a Used Car Is a Smart Money Move

For any dealer you visit, do some due diligence and check customer reviews online. If you know others who’ve recently purchased a car, ask for recommendations.
The end of a model year — around September or October — is another good time to shop, DeLorenzo noted, as salespeople are looking to make deals to clear out their used vehicle stock to make room for new inventory.
Buying an extended warranty or service plan can give you peace of mind that certain repairs or maintenance jobs will be covered.
“Severe accidents and instances where a car has been declared a total loss should signal the buyer to use caution,” he said. “That said, a small fender bender shouldn’t always mean that a buyer should walk away from a great deal.”
But don’t just assume a car’s history. Getting the car’s history report, such as through Carfax, is a crucial step when buying a used car.
Nicole Dow is a senior writer at The Penny Hoarder. Former staff writer Carson Kohler contributed to this post.
Don’t just look at the tires’ tread. Each tire should include a four-digit number marking the month and year it was manufactured. Tires older than six years can be dried out and need replacing.

The Best Time to Buy a Used Car

RobertCorse/Getty Images

If cost is your primary concern, a private seller is likely to offer a lower price. A dealer folds overhead, repairs and marketing into its price.
Of course, when you need a car might not align with a particular sale or time of month. Shopping for a vehicle before you’re in critical need of one will allow you time to search for the best deal rather than having to settle for something quick.
Sharifi said to watch out for discrepancies with the odometer reading and if there’s a branded title, which indicates that the car has been significantly compromised in some way.
Be wary of independent car lots that boast they can make you a deal regardless of your credit or circumstance.
“The end of the month (or the end of a quarter) can also be a good time to strike a deal, since dealerships may need to hit monthly or quarterly sales goals,” he said.
Before you accept a sales price, research the value of the car to make sure you’re not overpaying. Carfax, Kelley Blue Book and Edmunds all have price appraisal tools online.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
DeLorenzo recommends pre-qualifying for a loan at a bank or credit union before visiting a dealership. You can compare the offer with the dealer’s financing terms for better negotiating leverage.
Matt DeLorenzo, senior managing editor for Kelley Blue Book, said when dealerships host big sales events for new models that can also benefit used car shoppers.

FROM THE SAVE MONEY FORUM

Where to Shop for a Used Car — and Where to Avoid

Where you shop for a used car matters so you can avoid purchasing a lemon.
When you’re buying from a private party, you may be able to get more accurate information about how they’ve driven and maintained the vehicle and what particular issues it might have, said Ron Montoya, senior consumer advice editor at Edmunds.
Knowing when and where to buy a used car is just half the battle. Figuring out how to vet a used car can be tough, especially if you have little to no car knowledge.
The older a car is, the cheaper it’ll be — but the more it’s likely to have issues requiring repair. Everyone has a different comfort level when it comes to what they’re willing to handle. A general rule of thumb is that a car is driven about 12,000 miles per year. A higher average could mean the car has more wear and tear.

Pro Tip
“In the first year of ownership, depreciation can continue, and that same car could be worth up to 20% less than its original sale price,” he said.

Montoya said used car buyers must strike a balance between the age of the car, the amount of miles and what price they’re willing to pay.
However, there are certain times when you’re more likely to score a better deal.
“You want to make sure there’s enough room for you,” Montoya said. “Take a look at the cargo area. Take a look at how easy it is to see out of the vehicle. Test out the entertainment system.”
Source: thepennyhoarder.com
However, you also need to be OK with buying the vehicle as-is and securing your own financing. And be sure the owner has clear title to the car — in other words, don’t let anyone sell you a car they don’t legitimately own.

What to Look for When Buying a Used Car

GreenPimp/Getty Images

You can also compare similar vehicles on the market to get an estimate of a car’s value, but keep in mind, no two used vehicles will be the same due to how they were driven and maintained. Use all this information when you sit down to negotiate — and don’t be afraid to walk away if you don’t think you’re getting a fair price.
Knowing the ins and outs of how to buy a used car will make the whole process less stressful and, most importantly, save you money.

1. Find a Vehicle That Fits Your Needs

Sometimes just looking at a car will give you some idea of its history. Rust, worn out pedals and a side panel painted in a different color are red flags.
DeLorenzo recommends shopping at franchised car dealerships that have certified pre-owned cars — used vehicles that have been thoroughly inspected and typically come with some type of warranty coverage. Non-certified cars aren’t bad — and they’ll typically cost less — but they’re more likely to have higher mileage and more maintenance needs.

2. Determine How ‘Used’ You’re Willing to Go

Unlike new car releases, used cars come on the market throughout the year. It all depends on when their previous owners end their leases, put them up for sale or decide to trade in their vehicles.
It’s best to avoid shopping for a car on the weekend when there’s an influx of customers and sales staff is spread thin, Sharifi said. You’ll get more attention from the sales team by visiting on off hours, specifically on weekdays.
Those vehicles often have low mileage and are in great condition, having had only one previous owner. Sometimes they even still retain a hint of that new car smell.

Pro Tip
“Typically they’ll try to get you in with a low price, but you may not be getting the best quality car,” he said. “The other thing is that if you get your financing through those types of dealers, they typically charge you a much higher interest rate.”

3. Make Sure The Price is Right

According to Kelley Blue Book, the average price of a new car in November 2020 was more than ,000. Yowser.
New cars are sleek, shiny, full of impressive tech and smell amazing — mmm, new car smell. But they also come with price tags that can take your breath away — and not in a good way.
So that covers the why. Now let’s get into how to buy a used car.

4. Check the History of the Car

For any used car purchase, but especially if you’re buying from a private seller, have your mechanic inspect the vehicle before committing to buy.
When you’re budgeting for a car purchase, make sure you’re factoring in all the associated costs, like sales tax, insurance and getting the car registered.
Always, always, always take a car for a spin before buying it. If you can bring a mechanic with you, even better.
Think of the big sales that fall around holidays like Memorial Day, Fourth of July and Labor Day.
“[Dealerships] will have more used vehicle inventory as a result of those types of promotions,” he said.

5. Go for a Test Drive

Outside of dealerships, look for cars online at trusted sites like Autotrader, Kelley Blue Book, Carfax or Edmunds — or buy from a private seller.
Just because you’re buying a car at a lower price point doesn’t mean you’ll be stuck with a clunker that was manufactured decades ago. Cars that are just two or three years old often hit dealership lots when their previous owners reach the end of their lease.

Pro Tip
If you’re in the market for a set of wheels that’s more affordable, steer your sights over to the used car lot to save a little money. Or even a lot of money.

Jim Sharifi, formerly a content editor at Carfax, said research shows a new vehicle can lose as much as 10% of its value within the first month.
It’s easy to focus on the numbers — age of the car, mileage and cost — but you also want to make sure you’re buying a car that’ll fit your needs for however long you expect to have it. If you have a growing family, you might want to rethink that two-door coupe or compact vehicle.
“Some general things you can do on your own without being super knowledgeable about cars is [to] turn off the radio [and] listen for any strange noises,” Montoya said. “See if the steering wheel stays straight when you drive down the road. Does it pull to one side? Look at the tires to see how old they are.”
If you’ve ever heard someone refer to a car as a depreciating asset, it’s true. The longer you have a car, the less it’s worth. The first year of owning a new vehicle is when depreciation really packs a punch.
When you buy a used car, the original owner has already taken that initial hit on depreciation and the price you pay accounts for that, so you don’t have to shell out as much cash.

How Much Does a Cosigner Help with Getting Auto Loans or Better Loan Terms?

A woman in a bright yellow dress drives a silver car.

Imagine you’re shopping for a new car and finally find a reasonably priced set of wheels that you like. But when the dealer pulls your credit, that seemingly affordable monthly payment is no longer available to you. Instead, you’re offered a subprime car loan at 10% or even 20% interest because your credit isn’t strong enough to get a better rate.

How much does a cosigner help on auto loans when you’re facing this type of situation? Get more information below to help you decide whether seeking a cosigner is the right option for you.

How Does a Cosigner on a Loan Work?

A cosigner is basically someone who backs the loan. They sign agreeing that if you don’t make the payments as promised, they will step in to pay them.

If you don’t have much of a credit history or your credit is bad or poor, lenders are typically hesitant to give you an auto loan. They perceive you as risky. Will you pay as agreed? There’s not enough data or credit history for them to make that call.

However, a cosigner with a long history of good credit is different. The lender is more likely to believe that this person willpay as agreed. So, if you can get a cosigner to back you, you might have a better chance of getting a loan or getting better terms.

How Much Does a Cosigner Help With an Auto Loan?

How much can you save? Imagine you finance $37,851, the average price for a new light vehicle in the United States as of February 2020.

The average interest rate as of the end of 2019 for new car loans was 5.76%. If you’re able to get that interest rate and a loan term of 72 months—that’s 6 years—you would pay a total of $44,742. That’s $6,891 in interest and a monthly payment of around $621.

If you financed at 10% without a cosigner for the same terms, you’d pay a total of $50,488 for the vehicle. That’s $12,637 in interest and around $701 in monthly payments.

This is obviously just an example, but you can see that a cosigner can save you a lot. In this case, it’s $80 a month and more than $5,700 total.

Cosigner Versus Co-Applicant

It’s important to note that having a cosigner for a car loan is not the same thing as having a co-applicant. A co-applicant buys the vehicle with you. Their credit history and income are used alongside yours to determine if you, together, can afford the vehicle. The co-applicant also has an equal share of ownership in the vehicle purchased with the loan.

A cosigner, on the other hand, doesn’t have an ownership share in the vehicle. Their income may also not be a factor in the approval. Typically, they’re along only to provide a boost in the overall credit outlook.

What Are Some Downsides of Having a Cosigner?

Most of the risks or disadvantages are held by the cosigner. If you don’t pay the loan, they could become responsible for it. They could also suffer from a lower credit score if you’re late with car payments because it might get reported to their credit too.

As a borrower, you might experience a few disadvantages in using a cosigner. First, you have to get someone to agree to this, and you typically want it to be someone with good credit. Trusted family members are the most common cosigners, but that could mean that they might want to have a say in what type of vehicle you get.

And if something happens and you can’t pay the vehicle loan for any reason, you run a personal risk. You could damage your relationship with the cosigner if they do end up having to pay off the loan or face damage to their credit.

So, Should You Get a Cosigner for an Auto Loan?

The decision is personal. Before you do anything, check your credit and understand where you are financially. That helps you know what your chances for getting approved for a loan are on your own and how much loan you might be able to afford.

Then, check out some potential auto loans and consider whether you should apply for them on your own. If you know your credit is too poor or you try to apply for a loan and don’t get favorable terms, talk to a potential cosigner. Be honest about your situation and have a plan to pay the loan on time each month so they feel more confident supporting you as you make this purchase.

The post How Much Does a Cosigner Help with Getting Auto Loans or Better Loan Terms? appeared first on Credit.com.

Source: credit.com

How COVID-19 is Affecting Auto Loans

COVID-19 is having a massive impact on the global economy and very few industries have been untouched by it. If your business relies on employees working in a physical space and profits only when people are willing to shop and spend, there’s no escaping it. 

It’s no surprise, therefore, that the auto industry has been so negatively affected. In a recent guide, we looked at the many auto loan relief options that manufacturers offering in light of the coronavirus. In this guide, we’ll highlight the ways this industry has been stung by the pandemic and look at what it means for the future of the US automobile and car financing sectors.

How is the Coronavirus Affecting Car Sales?

The automobile manufacturing industry experienced a minor surge at the beginning of 2020 but COVID-19 began to impact sales heavily in March. Many companies, Fiat Chrysler and General Motors included, began the year with strong momentum behind them, but March hit them hard and negated all the gains made during the first two months.

Both of these companies recorded losses for the first quarter of 2020, with Fiat Chrysler losing 10% in total.

Toyota, one of America’s biggest manufacturers, also recorded massive losses for March, with daily sales dropping by nearly a third during this month.

All of this is to be expected. The US has yet to announce the sort of national lockdowns we have seen in countries like the United Kingdom, Italy, Spain, and Greece, but many citizens are in self-isolation, countless businesses have shut their doors, and there are fewer cars on the road as a result.

Combine this with the fact that people are losing their jobs and worrying about their futures, and it’s easy to see why car sales have been affected so severely. 

What are Manufacturers Doing About It?

Automobile manufacturers have moved quickly to stem the rising tide of financial devastation caused by COVID-19. Fiat Chrysler, for instance, is offering improved auto loan conditions to convince consumers to make sizeable purchases and keep the wheels turning. It has also made it easier to purchase a car for those in self-isolation or lockdown.

You can now buy a Fiat Chrysler online, with options for trade-ins, auto loans, and pretty much everything else you would get when buying in person.

They’re making it easier for you to buy because they need you to make that commitment. At the same time, the production of many new vehicles has been halted.

While some plants and showrooms are still open in the United States, Europe has experienced an almost continent-wide shutdown, leading to a decreased demand. 

Manufacturers are also anticipating that things will get worse, as many experts predict that the USA will experience a spread similar to that of Spain and Italy.

How Has COVID-19 Hurt the Automobile Industry?

We have already touched upon some of the ways that COVID-19 has impacted the automobile industry, but the problem goes far beyond people not being able to make it to their local showrooms. Furthermore, if events in Europe are anything to go by, the problems will only get worse and it could be several years before the automobile sector recovers.

Here are a few reasons the industry has been hit hard:

Uncertainty

There is a genuine fear that the COVID-19 pandemic will remain for all of 2020 and even beyond that. It seems unlikely that it will last for that long, but if the country doesn’t go into lockdown and a vaccine isn’t produced, it’s possible. 

With this in mind, many consumers are putting off buying new cars out of fear that they simply won’t need them. New cars depreciate rapidly and can lose 20% in the first year. What’s the point of spending $30,000 on a new car if it will be worth $24,000 by the time you actually get behind the wheel?

Struggling Stock Markets

The stock market doesn’t just impact big companies and investors. It also affects average American families who have their money tied into savings accounts, stocks, and pensions. Savers have lost a lot of money and are worried that they’ll lose even more in the near future, making buying a $30,000+ vehicle incredibly reckless. 

Price of Gas

One of the few things that the automobile industry has on its side is the price of fuel, which has plummeted in the past few weeks. The problem is, no one cares about the price of fuel when they’re stuck inside the house worrying about their health and their jobs.

Closed Plants

Automotive plants can’t simply shut down for a few weeks and then start up again when everything has cleared up. Many plants were already struggling to keep things together and once production stops and their profits disappear, they may close down entirely, taking hundreds, if not thousands of jobs with them. 

Bottom Line: Car Sales After COVID-19

It’s highly likely that the hard times will continue for the manufacturing industry. As the coronavirus continues to spread across the country, manufacturing plants will struggle to retain employees, showrooms will shut, and fewer Americans will be willing to pay the $30,000+ required for a new vehicle.

Whether this impacts the future price and availability of automobiles remains to be seen, but it’s highly likely that we’ll see some massive changes in this industry. America’s best-loved manufacturers will lose millions and could be sent to the brink of financial destruction, while many salespersons and mechanics will likely lose their jobs as demand drops and garages/showrooms close down. 

 

How COVID-19 is Affecting Auto Loans is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

What Is Uninsured Motorist Insurance?

What is Uninsured Motorist Insurance?

If you buy or lease a car, you’ll need to arrange for insurance coverage. Not only is it the law in most states, it will also protect your bank account in the event of an accident. However, if you’re involved in an accident and the other driver doesn’t have car insurance, you could run into problems. That’s the thinking behind uninsured motorist insurance. 

Compare checking accounts here. 

Uninsured Motorist Insurance Basics

If two people who both have car insurance get in a car crash, they exchange insurance information. The other driver’s insurance company generally pays your expenses if you’re in a crash. So what happens if the other driver doesn’t have insurance? There’s no one to pay you, cover your car repair or replacement or foot your medical bills if you’re injured. Your own car insurance may cover those costs, but it depends on the plan.

That’s where uninsured motorist insurance comes in. Uninsured motorist insurance policies offer protection against property damage or personal injury resulting from a run-in with an uninsured driver. There are a lot of bad drivers out there, and plenty of people who drive regularly but can’t afford car insurance. Have a run-in with one of them and you could end up covering your own medical and car repair bills.

In 22 states and the District of Columbia, drivers are required to have uninsured motorist insurance, so if you have vehicle insurance you’re covered in the event of a crash with an uninsured driver. But if you live in a state that doesn’t require uninsured motorist coverage, your regular car insurance policy may not protect you from bills if you’re in a crash with a driver who doesn’t have car insurance.

Check out our budget calculator.

Is Uninsured Motorist Insurance Necessary?

What is Uninsured Motorist Insurance?

If you live in a state that requires uninsured motorist coverage as part of the minimum coverage requirement for all auto insurance policies, you have at least some protection from uninsured drivers. You can always call your insurance company to check on the kind of coverage you have and discuss your coverage options.

If you live in a state that doesn’t require uninsured motorist coverage, the question becomes: Should you buy uninsured motorist insurance as an add-on policy to your regular car insurance? Before you decide, it’s worth pricing it out.

First, you can call your car insurance provider and check what level of coverage you already have against uninsured motorists. Your existing plan may provide some level of protection against medical bills and/or car repair bills resulting from a crash with an uninsured motorist.

If you don’t have any coverage or if you think your coverage levels are insufficient, you can ask your insurance provider how much it would cost you to add uninsured motorist insurance to your coverage package. You can also get quotes from other car insurance companies and opt for the policy that provides the best coverage for the lowest price.

Uninsured motorist insurance can give you some extra protections, too, such as coverage in the event that a hit-and-run driver crashes into your car or in the event that you’re struck by a vehicle as a pedestrian. So even those with built-in protection against uninsured motorists through their regular car insurance may be tempted to add extra coverage.

Related Article: All About Car Loan Amortization

Bottom Line

What is Uninsured Motorist Insurance?

Just because you have car insurance that you’re paying for every month doesn’t mean you’re protected in all eventualities. If reading this article has made you nervous that you might not have enough – or any – protection against uninsured motorists, this could be a good time to get your insurance company on the phone, particularly if you live in a state with a high percentage of uninsured drivers.

Photo credit: Â©iStock.com/bowdenimages, Â©iStock.com/bowdenimages, Â©iStock.com/vm

The post What Is Uninsured Motorist Insurance? appeared first on SmartAsset Blog.

Source: smartasset.com