Used Car Financing

Used Car Financing 

Buying a used car is an experience.  Before you walk into a dealership you'll want to be armed with some basic information about making your purchase.  There are lots of key points to keep in mind, but we've narrowed them down here so you can easily determine how much car you can afford and what factors will affect your monthly car payment amount.

Many people believe that have to have excellent credit and a huge amount of cash lying around to purchase a car.  At one time, that may have been true but it's simply no the case anymore. In fact, in 2018 it's quite possible to finance a car even with bad credit or no credit.  It's also possible to buy a used car with a low down payment or even no down payment. 

Read on to learn more about the factors that affect your monthly car payment amount, how to determine how much you can pay, and where to get your credit score so you can calculate what your rates might be.

Factors Affecting your Monthly Car Payment

Several factors will affect your monthly payment amount.

  • Down Payment
  • Financed Amount
  • Loan Term
  • Interest Rate

While it's not impossible to get auto financing with a lower or non-existent downpayment, you should understand that you'll be making a higher monthly payment and end up with a higher all-in-cost.  This is because the total financed amount will be greater than it would have been if you made a substantial down payment and your interest rate will likely also be higher. 

Your total financed amount will get divided out over the life-span of your loan.  Let's just look at an example using the same interest rate for now:

 Car Price $10,000 $10,000
 Down Payment $1500 $0
 Financed Amount $8,500 $10,000
 Interest Rate 3.11 3.11
 Loan Term 3 years 3 years
 Monthly Payments $248 $291
 All in Costs $8,914 $10,487
 

As you can see in the example above the monthly payment amounts differ by $43 and the all-in-costs differ by a total of $1,573.

Here is a fun and free online calculator you can use to check out how different down payments can affect your monthly payments and the total amount you will pay in the end.

Determining your optimal Monthly Payment amount

Many financial institutions and advisors recommend that your monthly car payment be no more than 15% of your gross monthly income.  If your gross monthly income is $3000 /month, then your monthly car payment should be around $450 or less.  If your gross monthly in come is $2000/ month, then your monthly car payment should be around $300/month or less.  To determine your optimal monthly payment amount, just amultiply your gross monthly income by .15.

Credit Scores and their effect on your loan

Credit scores typically range from about 350-850.  There are three major credit reporting agencies that provide individual scores: Equifax, TransUnion, and Experian

These agencies scales vary, but in general the concept is the same:  the higher your credit score, the better your credit is considered to be and the less risk you supposedly represent to your lender.  Conversely, lower credit scores are considered to represent more risk to a lender.  Each lender determines their own standards for lending, but generally scores of 700 or higher are considered good. Those below 700 are generally viewed in the following way:

Non Prime:  scores between 601 and 700

Sub Prime: scores between 501 and 600

Deep Sub Prime:  scores below 500

Having a good credit score can help you get a lower interest rate on your auto loan.  Interest rates will vary from lender to lender but you can expect something close to the following:

Non Prime: 9.29 %

Sub Prime: 15.72 %

Deep Sub Prime: 21%

(Average rate for buyers based on credit from a report by Experian Automotive)

Let's take a look at the difference in monthly payments and all-in costs using the different credit score categories and corresponding average interest rates.

 Non Prime Sub Prime Deep Sub Prime
 Car Price $16,333 $16,333 $16,333
 Down payment $0 $0 $0
 Financed Amount $16,333 $16,333 $16,333
 Interest Rate 9.29% 15.72% 21%
 Loan Term 3 years 3 years 3 years
 Monthly Payment$521.59  $571.96 $615.35
 All in Costs $18.940.65 $20,754.05 $22,315.82

Clearly, better credit scores cost less in the short and long term. So how do you determine your credit score?

Credit scores are determined by a number of factors. VantageScore, an agency created to help maintain consistency across the three major credit bureaus, lists these factors as the following:

  • Your payment history
  • How long you've had credit
  • The types of credit you have (credit cards, auto loans, student loans, mortgages, etc.)
  • Your credit limits and how much of those limits you're using
  • How much debt you have
  • Hard inquiries on your credit report

It's important to find out what your credit scores are from the major credit reporting agencies.  You can phone them for information:

Another option for monitoring your credit score is Credit Karma.  Credit Karma is a company that helps consumers by providing free information and free accounts to monitor their credit scores.  Scores are provided from Equifax and TransUnion.  With your account you will also get helpful tips for improving your score.

Remember, you aren't stuck with your credit score.  You can always work on it over time and change it for the better.  Doing so will help you get a better rate on your car loan.

Apply for Financing

Highline Automotive is ready to help you through the process of financing your vehicle.  We can help you determine your optimal monthly payment amount as well as find your credit score and see what improvements may be made quickly.  We can help you figure out what optimal price range you can afford to look for cars in so that you can narrow your search down.

If you need a vehicle now and don't have time to save for a down payment, remember, you can purchase a vehicle with little to no down payment.  This may give you a higher monthly payment and all-in-price, but you'll have the transportation you need now.  We work with clients of variety of credit scores and down payment ability.  Let Highline Automotive help you get the financing you need by calling us today or visiting our website to apply for financing now.


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