A recent report by the New York Times showed that 44 percent of car buyers used finance to purchase their vehicles in 2019. Of that population,The Federal Reserve Bank Of New York estimates 7 million of them are three months behind on their car repayments. This is not surprising since eight in 10 consumers are currently in debt and looking for a way out – or simply a way to keep up. A car has always been a sizeable investment for any consumer; it takes up around 13.5 percent of your gross annual salary. With car loans surpassing $31,000 and rising car finance prices, buying a new car is beginning to seem out of reach for many, especially those that trying to get rid of their debt. Yet you may find yourself in a place where a new car becomes a need. In fact, 85 percent of Americans rely on their cars to get to work. If this happens, it is possible to do both successfully with a little planning and the use of clever tactics to minimize the impact of adding car finance to your debt.
Go Second Hand
One great way to reduce the financing charges of buying a new car is, of course, to reduce the purchase price. Second-hand cars cost a fraction of a new car’s price, and therefore come with lower finance payments if you purchase one on credit. In May 2019, the average cost of a new car rose to $36,718. With average interest rates at 6 percent, consumers end up paying $2,203 in interest annually. However, a used car can cost around $20,000, according to estimates from Kelly Blue Brooke, which halves your interest charges and overall monthly repayments. The reliability of the car model you do choose will play a large part in minimizing the financial impact – less reliable used car models would require more repairs and upkeep. Expert and driver ratings and reviews both have a role to play in informing you about a vehicle, and incorporating these into your decision will help you pinpoint cars with high-reliability ratings and the best resale value.
Maximize Promotional Credit Card Balance Offers
Typically, financing a car purchase using a credit card is not advised since they come with notoriously high-interest rates. However, there are also ample credit card offers out there, including 0 percent APR or on balance transfers. The key to this is being able to calculate and repay the amount before high-interest kicks in. Alternatively, you can use a credit card to pay just a part of the price and enjoy the benefit of credit card protection.
Another nifty financing option is to check out your local credit union or alternative financing institution. A little research and the use of loan comparison websites like BankRate.com and ELoan.com can help you identify interest rates in your local area and great car finance offers, like Bank of America’s interest rate discounts for current customers (2.99 APR for new car purchases or 3.49 percent APR for used car financing). Credit unions like the NASA Federal Credit Union and Connex Credit Union also match these rates with a loan term of up to 84 months.
Splurge on Your Debt Repayment And Capitalize on A Better Auto Loan
When it comes to paying a downpayment on your car or putting it towards paying down your loan, it makes sense from an interest rate point of view to pay down your debt. As you repay your debt, your debt to income ratio and credit score increases, as does your FICO Auto Score – key factors that affect your auto loan interest rate, loan term and acceptance.Building a better credit profile may also increase your chances of securing promotional offers from your dealer, such as 0 percent APR for a limited time. This essentially reduces the financing and overall cost of a new car, making it more tolerable to add to your current debt levels.
Keeping up with your debt repayments can be a precarious process for many. Add in a sizeable new purchase like the cost of a new car, and it can easily go awry. However, you can do both if you need to and still stay on track with your debt. It all comes down to having the right information and making the right financing choices. With this article, you’re halfway there.