Housing isn't the only market to feel the effects of the current credit crisis -- the auto loan market has been hit too.
As lenders raise their standards for approval, loan seekers are finding it increasingly difficult to secure financing. Those who can obtain loans are settling for lower-priced cars in some cases.
Some of the largest lenders are taking the most extreme measures. JP Morgan Chase now requires larger down payments and is limiting loan length for those with lower credit scores. CitiGroup says it will reduce the number of loans it grants, and has let some 800 workers go in its auto-lending department.
Even higher-credit types are feeling the pinch. "People with decent credit aren't able to get the terms they think they should get," said Michelle Primm, managing partner of the Cascade Auto Group in Cuyahoga Falls.
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Shopping for an auto loan online greatly increases your chances of getting the best rate -- here's how to stack the odds even more in your favor:
STUDY LENDERS, COMPARE QUOTES: Online auto loan brokers -- individuals or companies with access to lenders -- are a great source of information. Be sure to check out their sites before you apply for financing.
NEGOTIATE TERMS BEST FOR YOU: Shorter loans offer lower rates, but in the long run you may pay more. Always go for the deal that best suits your budget.
PUT DOWN AS MUCH AS YOU CAN UPFRONT: A down payment of 20% or more nets you a lower interest rate -- no matter what your credit rating.
GET PRE-APPROVED, GET A BETTER DEAL: Pre-qualifying for financing gives you the leverage to negotiate the best deal possible. That doesn't just mean a lower rate; it can also get you a rebate or even a higher trade-in value for your present car.
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Many new car buyers are tempted to take the first credit-card company loan offer that comes their way -- or even turn to dealers for financing. To financial specialists, both are real no-nos.
According to Terry Jackson of Bankrate.com, a buyer should have financing BEFORE ever setting foot in the showroom. That's because the interest rate most dealers offer simply can't match up to what you can find on your own.
And while a credit-card company may appear to offer a good rate, it's always advisable to shop around for the best APR possible. The first step: looking up one of the many auto loan providers online. Almost all sites allow you to make rate comparisons -- and some will even make you multiple financing offers.
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Americans take almost two years longer to pay off car loans than they did 30 years ago -- a trend that has helped to bury many of us in debt.
Lured in by the prospect of lower monthly payments, many buyers have chosen to extend the length of their loans. This has cost them two ways: first, by encouraging the purchase of more expensive vehicles, and secondly, by increasing the amount of money (through interest) they'll pay long term.
The result is more debt, or in some cases, even owing more on the loan than the car is actually worth -- a condition known as being "upside down."
Instead of looking at lowering your monthly payments through extended
loan length, experts say, pay as much as you can afford to up front.
Also consider buying a more affordable vehicle. You'll be better off
in the long run.
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Car sales have slumped to levels not seen in a decade -- good news for both buyers and borrowers.
Declining sales mean a rising number of bargains for the consumer; for the auto loan applicant, it could mean a lower down payment, and a better rate on down the line. Not to mention a load of discount financing, factory-to-dealer incentives, and rebates right now.
The models with the deepest discounts may surprise you, such as the Mercury Grand Marquis, which comes with a rebate of up to $6,500. Other vehicles which made the list include the Chrysler 300C, the Dodge Ram 1500 and the Ford Explorer. One note: financing and discounts tend to vary by region, so check around for the bargains in your area.
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Thanks to the latest rate cuts by the Federal Reserve, borrowers should see lower costs on more than just mortgages -- it should help make auto loans more attractive, too.
According to a story in the Santa Rosa Press Democrat, rate cuts should help perk up auto loans. "Once there are more funds into the overall banking system, generally you see fixed rates start to come down," said Steve Stapp, chief financial officer for Redwood Credit Union. "There's more willingness by institutions to lend. Car sales have been down, so it's really an effort to stimulate buying by the consumers.
Auto loans are fixed-rate loans and not tied to the prime, but costs for those and other fixed loans should ease with the overall boost to lending, Stapp added.
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Thanks to the Internet, low credit no longer means you're automatically going to get the red light for a new car loan.
In fact, far from shying away from subprime customers, a new breed of auto loan websites are actually catering to the bad-credit crowd. And the terms aren't as bad as you might think: interest rates on these loans can be as low as 12% to 16%, depending upon the type of loan you're seeking.
Not only that, you can usually make alternate payment arrangements if you know you're going to miss a payment -- adding flexibility as well as a manageable APR to the loan. Plus, these bad-credit auto loans are often available in both secured and unsecured forms.
The funds are right at your fingertips -- just do a search for "auto loans" and you'll see what we mean.
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