The resurgent economy has brought the trend of buying increasingly pricey cars to a progressive turn and the consumer base is prospering despite the stagnant standard of living. Data from Experian says that this will not end well on a long term. Much of the growth may come from practices generally regarded as financially unhealthy.
Auto loans that occurred in Q3 of 2014 are on an all time rise. These long term loans were not a practice in the United States mostly because of the low wages. Companies now see these loan practices as a way to lower monthly payments on vehicles that may not be affordable for consumers on a more traditional 36, 48 or 60 month loan.
There is a constant growth of 23.7 percent of new auto loans. The tricky part is that the return of the loans lasts between 6 and 7 years and used auto loans for the same term are on a all time rise with 18 percent in that same period.
The average amount financed was up nearly 4 percent to $27,799 for a new vehicle, and roughly 3.5 percent for pre-owned vehicles, to $18,656. Leasing is another way for consumers to manage lower payments on a pricier vehicle and this year over year grew for about 7.1 percent, to account for nearly 30 percent of all vehicle financing.
The average aging vehicles are pushing hard 11 years. Many consumers are finally replacing their old car now that the economy appears more stable. While the lower payments may be easier to manage, the downside is that the consumer may very well be underwater on their loan before the vehicle is paid off, and trading it in well only lead to a further debt burden as they must pay off the “negative equity” on their old car, as well as a loan on a new one.
But the unprecedentedly long loan terms point to a subset of buyers who are likely stretching themselves beyond what many would consider financially prudent. How to qualify for a car loan is always a bitter question a lot of people ask themselves when buying a car and yet don’t want to spend all their savings at once.
A car loan is a way for you to purchase a new or used vehicle. You borrow money from a lender and pay them back over an agreed period of time and usually with interest. The amount you borrow is called the loan principal. Vehicle loans almost always include interest, which is how lenders make a profit on the money they lend you.
If you borrow $20,000 for a car at a 5 percent interest rate, you’re going to end up paying the bank $21,000 over the life of the loan — that’s the principal, plus the interest. While you’re paying back the lender, you’re responsible for all taxes, fees and expenses, like gas, auto loan insurance and maintenance, associated with owning the car.
Its also a great asset to know your current credit score before you apply for auto loans and do your best to make sure it’s as high as it can be. So your loan against car spending won’t affect your overall finance condition. Generally speaking, credit scores of 720 and above get the best loan rates. For a small fee, you can get your credit score through FICO, which is the most commonly used credit score among lenders. You can also get credit scores from credit bureaus like Equifax, Experian and TransUnion.
How to apply for a auto loan? First thing’s first, you apply to multiple lenders for a car loan. Contact your bank, local credit unions and other lenders to find out what they’re offering. You’ll have to fill out loan applications, which will ask for your social security number, employment and income information, monthly expenses, like mortgage and rent, and any outstanding debts, like credit cards and student loans. When you fill out auto loan applications through multiple lenders, be sure to do it all at once, or within a close time frame. Credit bureaus will see your multiple applications and realize you’re shopping for auto financing.