Do you Have an Upside-Down Car Loan?

Late in the nineties many auto finance companies started to increase the maximum number of months they allowed consumers to finance new vehicles. A few decades ago, the maximum term for most lenders was 66 months. Previous to the recent economic down turn some lenders were even offering loan terms as long as 84 months.

Aside from the competitive nature of auto dealership financing, the primary reason banks continued to stretch out the car loan terms was because many Americans wanted to buy an expensive vehicle while still maintaining an affordable monthly payment. The net effect of lenders stretching out the term, and consumers buying vehicles they previously weren't able to afford became a national epidemic of consumers with negative equity; commonly referred to as being upside down, under water, or buried in your trade.

If you think about it, it makes perfect sense; A 84 month car loan is 7 years. The halfway point of the loan is three and a half years and this is usually the time frame that most of us keep a new car, somewhere between three and four years. At that time most of us prefer to trade out of the used car and into a new one.

He's a specific example of being upside down in your car loan:

Let's say that in 2006 I purchased a brand new loaded up Chevrolet Tahoe Z71 for $39,415. Since I have good credit and qualified for a zero down, sign and drive, purchase with 84 month financing at a 6.5% rate.

After adding 6% sales tax to the purchase price and $150 for state registration fees the amount I financed was $41,929.90.

Over the next four years I drove this vehicle, on average, 15,000 miles per year. In 2010 I decided to trade in my Tahoe with 60,000 miles on it. According to a standard amortization schedule my payoff after 48 months would be $20,314.92.

So how does the payoff compare the used car trade in value of my Tahoe? At the time of this post, the clean Blue Book and the NADA trade value of a 2006 Tahoe with 60,000 miles on it was around $18,250. When appraising used cars most used car managers estimate the costs of any repairs that will be needed to make the vehicle ready for the lot while keeping the total vehicle below the clean trade cost.

In my case the used car manager estimated that it would take $1,250 to bring my trade up to snuff and ready for resale. So I was offered $17,000 as a trade in value.

Since I still owe $20,314.92 on the vehicle, I am upside down in my trade by $3,315.

Although it's not recommended, people with good credit can qualify for an upside down car loan with no money and then roll the negative equity into a new loan. I would expect a higher car loan payment on the new vehicle then on the old one though.

If on the other hand, you have bad credit, you generally have to make up the amount that you're upside down with a cash down payment.

Auto Financing After a Bankruptcy

The new bankruptcy law enacted on October 17, 2005 has made it harder people with bad credit to file bankruptcy. Additionally, many people with bad credit and higher incomes can no longer file for total liquidation through a Chapter 7 bankruptcy, but are forced instead to file a Chapter 13 bankruptcy and repay some of their debt.

The new law however, has had little effect on the ability for people to get a car loan after bankruptcy. Why is it easier to qualify for car loans after bankruptcy when compared to someone with bad credit that hasn't filed for debt relief under the bankruptcy law?

The fact is that most people are considered a low credit risk after the file bankruptcy. Since most or all of the person's debt has been wiped out, people have more disposable income after bankruptcy. Furthermore, most people with bad credit genuinely want to rebuild their credit rating with a car loan after bankruptcy.

The rules are different for people who have filed chapter 7 bankruptcies and people that have filed chapter 13 bankruptcies. Chapter 7 bankruptcies are a total liquidation of your debt whereas chapter 13 bankruptcies require the debtor to repay some of the debt, usually over a three to five year period.

That being said, car loan interest rates are usually lower for people who have completed chapter 13 bankruptcies, but in either case getting car financing after bankruptcy is quite common.

Car Loan Financing Process Overview

The ability to begin the process of obtaining car loans on line has made a noticeable difference in the type of loan options available to today's vehicle buyer. The internet has opened up a large array of financing options for vehicles and almost anything else that is commonly purchased with financing. Vehicle loans are one of the most common financial arrangements in America. They are easy to understand and have very specific rules regarding payment, terms, interest, etc. Loan payments are calculated on the value of the vehicle and the length (usually measured in months) of the financing. Interest and finance charges generally make up the monthly payment. The actual amount of the monthly payment is determined by the number of months that the financing is paid across. Most of the time, loans with a longer loan term will come with a higher interest rate.

When financing a vehicle it is important to consider the value of the car over the length of the loan. If you plan to have the vehicle for a long amount of time you do not have to worry about residual value of the auto after paying it off. However, if you do not expect to keep the vehicle very long you need to consider if you will have to pay additional money when trading in the vehicle due to negative equity (meaning that the vehicle is worth less than you still owe on the loan for it). If the vehicle is worth less than the remaining balance when you go to trade it in, you will be responsible for the difference. People often roll this "leftover" amount into their new loan, essentially making their new car more expensive than it should have been.

Having financing arranged through the dealership is widely considered to be the easiest way to go about getting a new or used car loan. Since it is all handled at the dealer, you will not need to spend time dealing with multiple organizations such as banks or credit unions. After you have been approved and the loan paperwork is finished, your car is right there and you can simply get in it and drive away. Read more about the benefits of dealer financing.

Getting Better Vehicle Loan Interest Rates

Car finance interest percentages are different from lender to lender, and from one situation to the next. You may be able to get the lowest amounts through the lender's financing process. Many new car dealerships work with several lending institutions, and you may be able to get good vehicle interest rates from them.

Lenders or dealerships will sometimes offer promotions that feature lower vehicle loans interest rates. This can be for first time buyers, students, credit union members, etc. Watch for local dealers who promote special vehicle finance interest rates, and check to see if it will work for you and your specific financial/credit situation.

Applying online is often a great way to get good auto finance interest rates. There are many sites that will submit your application to a lender or dealer who can work with you. Examine all of the loan figures, especially if the interest rate seems too good to be true. Look how many months the loan term consists of. See if there is some kind of penalty if you pay your loan off early. Credit unions are often known for having better car loan interest rates.

Lenders such as banks, credit unions, and finance companies all have different rules and formulas that they use to determine interest rates for new and used car dealer financing. For a particular dealership, especially if they have bad credit financing options, a lender will calculate an interest rate based on the buyer's credit score, the vehicle's mileage, the vehicle's age, the vehicle make and model, and possibly several other factors. Because of this, there is no one way to predict or assume what your interest rate will be on a car loan.

Finding a Car Loan For Bad Credit

Are you concerned that you have bad credit but you still need to buy a vehicle or a vehicle so that you can get to work and start rebuilding your credit?

Things that you need to have in hand when aiming to get approved for financing are: A fullt-time job, valid driver's licence, in some cases a list of references (people who are family or non-family that can be contacted to verify that you are who you say you are), a co-applicant if necessary, a bank account, copies of recent utility bill, and a down payment.

Being realistic is important to not being disappointed or wasting your time. Know what you want and know what you are likely to be able to buy based on your income, debt, and down payment. When you go to a dealer with unrealistic expectations and the assumption that you will be approved for any vehicle you want despite bad credit, you are likely to be disappointed and may end up blowing off the entire thing. While you can get approved with any sort of credit situation, your specific vehicle options may be limited. Bad credit lenders have lists of approval guidelines, and will only approve vehicle of certain years, makes, models, and mileages for people who have bad credit.

Search for a dealer who is known to finance vehicles for bad credit. Certain dealers have experience and have relationships with many bad credit lenders and other finance institutions that specialize in bad credit car loans. Additionally, many - if not most - dealers are not equipped to truly help customers with severe credit problems. Despite what their commercials and advertisements might say, a large number of new and used car dealers do not have the proper inventory or lender relationships in place to help most bad credit customers. Trying to get financed at one of these types of dealers will do nothing more than waste a lot of your time and place needless inquiries on your credit report.

Car Dealers and Bad Credit Lending Companies

It's no secret that bad credit has a negative impact on several aspects of your life. Many people from all walks of life can become subject to credit problems, and it can become a headache for years.

Bad credit is more common in recent times than every before, due in large part to the recent economic downturn. While it can make things difficult for some period of time, drivers with recent credit issues can indeed be approved for auto financing, IF they work with a dealer and/or lender who is spefically set up to handle loans for those with challenged credit.

While every car dealer probably says that it can get anyone approved no matter their credit score, most of them are blowing smoke, and they are just trying to get people in the door (even if they can't approve half of them). If you go to a restaurant that boasts the "World's Best Apple Pie," you probably should go ahead and assume that they can't back that claim up.

However, a select number of dealerships across the United States and Canada are fully capable of handling poor credit consumers. This is accomplished by having relationships with particular finance companies who are lending to people with damaged credit. These lenders are choosy about what dealers they work with, and they generally only establish relationships with top-quality car dealers and some in house financing car dealers who have a strong reputation. This relationship between bad credit lenders and the car dealers is beneficial to everyone: The car dealer sells more cars, the finance company closes more loans, and the consumer is able to get a reliable car despite having had credit problems in the past.

Increase Your Vehicle's Fuel Efficiency and Save Money on Gas

The rising prices of gas have become a serious issue that everyone is dealing with. Gasoline is a necessary part of our life, and it has become necessary to understand how to increase our gas mileage so that we can save money on fuel. Here are some well-known (and some not-well-known) ways that you can increase your car's fuel efficiency and save money:

• Drive more slowly: Decreasing your average speed from 70mpg to 60mpg on the highway can save you 2 to 4 miles per gallon on average.
• Accelerate slowly: Don't floor it when the light turns green. Accelerate slowly and burn less gas. Nothing sucks down more gas like frequent quick acceleration.
• Your car only needs a minute to warm up: Even though it might not quite be perfectly comfortable for you yet, only warm up your vehicle a minute before you begin your drive. Idling cars don't use much gas, but letting your car warm up a few minutes every single day will add up. Modern vehicles only need about 30 seconds to warm up before they're ready to go.
• Reduce drag: Certain things on your car can create massive wind resistance, which means your engine has to work harder to make your vehicle move at the same speed as if there was no wind resistance (or drag). An engine that works harder uses more gas. Keeping your windows up while driving minimizes the drag. When the windows are open, wind rushes into your car and slams against every flat surface, causing the vehicle to slow (which usually results in the driver unknowingly using more gas). Also, open pickup truck beds creative major drag. Consider removing your tailgate or installing a flat bed cover, so the wind doesn't get caught on the inside of the tailgate and create drag.
• Maintain your vehicle: It's a pain and it costs money, but keeping your vehicle maintained will constantly pay off via better gas mileage. Keeping your tires inflated to their proper pressure increases gas mileage. Changing your oil, oil filter, and air filter regularly help the engine run more efficiently, which uses less gas. Regular visits to your mechanic or car dealer to keep your vehicle in top shape will benefit you greatly in the end.

Car Financing For Bad Credit

The impact of bad credit on someone's financial future is unquestionably negative. Getting a car loan approval should be a simple enough task these days, however if you have past credit problems, car financing becomes increasingly more tricky. Many companies and car dealers claim to offer "guaranteed auto loan approvals" to everyone, but that simply isn't realistic and none of them actually can deliver on that promise.

One way to buy a vehicle is to look for online lenders. There are companies which are interested in car financing a vehicle for bad credit. If you meet their general guidelines and requirements, you will likely get approved. Approval for dealer financing is not guaranteed with these companies, but will help you to get a car loan more easily.

In the grand scheme of things, few car dealers even offer car financing for problem credit. With many dealers, there is a large down payment required and high interest rate. Additionally, approval is not guaranteed and making promises of that nature are a simply a way of getting customers in the door. If you have defaulted on a dozen loans, or monthly income is just a couple hundred dollars, then it is ridiculous to think that a dealer will approve you with no problem.

However, if you are like millions of Americans who have experienced some credit problems and are now on track to bettering your financial situation, there are a handful of dealers in most major cities in the United States that are in business specifically to help customers like you get approved for a loan. A down payment will probably be required, and your interest rate will likely be higher than someone with perfect credit. But the point is, you can buy a new or used car with dealer financing at these lots with in house finance specialists.

Finding Quality Bad Credit Car Financing

Are you determined to get a car loan regardless of your bad credit? Many people feel helpless and out of options when they know they have problems with thier credit, but there are ways to get a new or used car. Following are some pointers for you if you are seeking a car loan and you have had bad credit.

While a buyer may be subject to higher interest rates than a person with good (prime) credit, a bad credit (subprime) borrower does have some limitations and conditions they must follow in order to satisfy the automotive lending company.

Going directly to a dealership will often get you nowhere. Getting your loan application examined and processed from a specialty subprime company beforehand is a great way to make sure that your loan request gets handled only with a dealer who is seriously experienced and equipped to work with subprime customers.

Also, going to your local bank or credit union in search of a bad credit car loan may be a lost cause. Standard banks and lenders have very strict lending criteria these days, and they are hesitant to lend money directly to a person who has credit issues. That is why approved car dealer financing is the way to go for thousands of special finance customers every month. When your loan is processed and submitted to a local dealer financing specialist, you have the best chances of getting approved because a dealer who is fully capable of working your loan is the only place who will be working your loan (and they are the only place that should be working your loan). Instead of trying every car lot in town, or visiting numerous banks who will each run your credit report, apply online with a free car loan finding service and go to the place that will most likely be able to get you a car.