How-Tos

Finance A Car with a Loan

We all know that if you can’t pay cash for a car, you’ll be using car finance to buy your vehicle. And if you’re using credit, you’ll get the best deals if you have a good credit score. How do you buy a car through a car loan? Driveway has your back

No doubt about it, your credit score is a major factor in getting an auto loan, especially if you’re shopping for the best loan rates. Interestingly, nearly 20% of car loans go to borrowers with credit scores below 600.

Opening any type of loan, including an auto loan, will typically result in a slight dip in your credit score. But know that it’s only temporary and as you make those car payments in a timely manner, your credit score should recover quickly and even get better than it was before you had the loan.

Follow these steps and you’ll get the best interest rates for your car loan:

1. Look at your credit.

As you start looking for your dream car, make sure your credit is in good shape. Get copies of your credit report from all three major U.S. credit bureaus: Equifax, Experian and TransUnion. If you find any mistakes on the report, file a dispute.

2. Consider the financing.

Unless you have excellent credit and qualify for 0% financing through a car dealer, it’s best to explore your various auto loan options. Take a look at banks or credit unions to get financing as well as auto dealers. Driveway can help get you a great deal on a car loan.

3. How much can you afford?

Think about how much of a car payment you can really afford before you apply for an auto loan. Factors like the interest rate you qualify for, the length of the loan and your down payment will all impact your monthly payment.

You have choices when looking for an auto loan. If you already have a good relationship with your bank or credit union, they can sometimes help you secure a better rate. The bank will give you a quote and a letter of commitment, saving time at the dealership when finalizing your contract.

You can also get a loan through the auto dealership where you’re buying the car. That way, you can pick up your new car and your loan at the same time and complete the whole process quickly.

 

Make financing easy.

Ready to find a new car? Driveway.com can help make financing your car a breeze. They’ll help you get personalized financing options with an online credit application and a quick approval process.

Get started on Driveway.com

Finance a Car with a Lease

There are better deals today on car leasing than ever before and a lot of people are looking into it. You may have heard that your monthly payments are lower on a lease than if you purchase a car. But how does leasing a car work? How do you finance a lease car? Can you lease to own a car? We have the answers.

Some people say that leasing a car is sort of like renting a car, but that’s not really accurate. In reality, leasing is just another method of financing a vehicle. Unlike a traditional car loan, leasing is a type of financing where you pay for the use of a vehicle rather than the purchase of it.

When you lease a car you’re paying to use the vehicle for a limited number of months (usually 36 months) as stipulated in your lease agreement. Your monthly lease payment covers the car’s depreciation. That’s its loss of value over the time you are leasing the car.

Just like traditional car financing, you’ll pay a finance charge (interest rate) on the purchase price of the car. The vehicle is purchased by the leasing company before they lease it to you.

When you buy a car and get a car loan, a portion of your monthly payment goes toward paying off the cost of the vehicle (the principal) and another portion pays the finance charge. In a car lease, your payment goes toward the use of the vehicle plus the finance charge. You never pay off the principle and that’s why your monthly lease payments are cheaper than if you buy a car.

One advantage to leasing is that you simply return the car to the leasing company at the end of the contract and walk away. You had the use of the car for three years but the leasing company still owns the car.

Let’s say that your car lease contract is almost up and it is time to turn in your car. But you really like the car and want to own it. Can you buy your lease car? The short answer is, “Yes.” Here’s how that works.

First, locate your lease contract and look up the “residual value” of your car. This is what the lease company predicted your car would be worth at the end of the lease. Check the contract to see if there is an “acquisition fee” and see how much it is. That’s the fee the lease company charges you to buy the car. Add those two fees together and you’ll have a pretty good idea of what you’ll have to pay to buy the car.

Let Driveway help.

Whether you want to buy or lease, or lease to own your next car, Driveway’s got you.

Get started on Driveway.com

Refinancing a Car

There are times when refinancing your car loan makes good sense. If your credit has improved, you might be able to get a new car loan with a better interest rate. You might actually be able to pay off the loan sooner and/or have lower monthly payments.

Before you run out and start shopping to refinance your car loan, check your credit score to see if it has improved since you took out the loan. If your score is the same or worse, chances are you won’t get a better rate on a new loan.

 Make sure your current loan doesn’t have a prepayment penalty. That means they’ll hit you up with a penalty fee for paying off your current loan early.

Check to see the current value of your car to see what it is worth. You don’t want to be upside down on your loan. If your loan balance is higher than what your car is worth, you’ll have a hard time getting a new loan.

Also, lenders have certain restrictions when it comes to refinancing a car. If the car is too many years old or has too many miles on the odometer, you could be out of luck.

If your credit and car are both looking good, shop around with a number of lenders to get the best rate. Make sure you know all the loan terms. Read the fine print before you sign. Make sure you understand the total cost of the loan. Check for discounts on things such as autopay. It can lower your interest rate.

When it comes to picking a new car loan, do your research. Sometimes a tempting lower monthly payment will draw you into a longer loan term. You’ll end up paying more in the long run in interest.

If the conditions are right and you’ve found a loan to refinance your car that offers a better deal than your current loan, get all your paperwork together. You’ll need to provide your social security number to the lender as well as quite a bit of personal information when you apply including proof of income.

Whether you’re interested in buying a car, selling or trading your car, getting a car loan or refinancing your loan, Driveway can help make the process quick, easy and simple. It’s what we do.

Calculate my Payment

If you have an auto loan, you’ll have a monthly payment. But how much will your payments be? What is included in that monthly payment? Let’s find out. After all, being able to calculate your car payment will help you make sure you can afford the loan.

To start, figure out the total cost of the car including registration, taxes, fees and warranties. Take a good look at the loan terms. To figure out your monthly car loan payment, you’ll need to know the length of the loan and the interest rate.

Because the math can sometimes make you dizzy, car loan payment calculators are available to do all the work for you. Just enter all the necessary information and it will crunch the numbers for you. Using a calculator will also let you track different combinations of numbers so you can compare the costs of loans and figure out what is best for you.

 

Be sure to shop around to find the lowest interest rate you can get and try to reduce the length of the loan if possible. While low monthly payments are an attractive lure, the longer you pay for a loan, the more interest you’ll pay and the more the car will cost you in the long run. Extending a loan can even cause you to pay more for the car than it is worth.

When you’re figuring out how much you can afford each month for a car payment, don’t forget that you’ll also be paying for car insurance. Get an insurance quote for the specific make and model car you are buying from your car insurance agent so you know up front what you’ll be paying.

Need to know what your car payment will be? Driveway is here to help. Use our free car loan payment calculator here.

Driveway Calculator

Boost my Credit Score

Your credit score is a major factor in getting an auto loan, especially if you’re shopping for the best loan rates. Interestingly, nearly 20% of car loans go to borrowers with credit scores below 600. How do you boost your credit score? Let’s take a look.

If you want to improve your credit score, start by checking your scores online. You want to check all three major scores from Equifax, Experian and TransUnion. Payment history and credit utilization ratios are among the most important aspects that determine your score. So, focusing on the following will help you improve your credit and get a better rate on a car loan.

1. Keep Credit Card Balances Low

Lenders want to make sure you can handle credit over a period of time and that you’re a good risk for the loan. A low credit utilization ratio tells them that you haven’t maxed out your cards and are responsible for your monthly payments.

2. Don’t Close Unused Credit Cards

Keeping unused credit cards open is a smart move because closing an account may increase your credit utilization ratio. Owing the same amount but having fewer open accounts may actually lower your credit score.

3. Don’t Apply for Too Much New Credit

Opening a new credit card can increase your total credit limit, however, every time you apply for a new card, it creates a hard inquiry on your report. Hard inquiries can stay on your credit report for up to two years.

4. Dispute Inaccuracies

Be sure to check your credit reports at all three credit bureaus every six months for any inaccuracies. Make sure to verify that all the accounts listed on your credit reports are true and correct.

5. Pay Your Bills

The most important thing you can do to improve your credit score is to pay your bills on time. When lenders review your credit, they’re interested in how reliably you pay your bills and past payment performance is a good way to predict how you’ll repay your loan. Late payments will negatively affect your scores.

As mentioned above, the best thing you can do is to pay all your bills. If you have negative information on your credit report, such as late payments, too many hard inquiries, or you’ve gone bankrupt, time will eventually heal all wounds. For instance, delinquencies can remain on your credit report for up to seven years.