More Americans are struggling to make their car payments on time. The numbers, while still low, are definitely on the rise.
60-day loan delinquencies in the second quarter of 2014 increased by 7 percent (from 0.58 to 0.62 percent) from the previous year.
The rate of auto repossessions in the second quarter took a significant jump, up more than 70 percent (to 0.62 percent) from a year earlier.
“The rosy glow of perfect payment performance in the automotive space is beginning to tarnish,” said Melinda Zabritski, senior director of auto finance at Experian Automotive.
The increase in payment problems was expected as the number of loans to subprime borrowers has grown since the Great Recession, Zabritski said.
Get a report from each of the three major credit reporting agencies: Experian, Equifax and TransUnion. Use the website annualcreditreport.com, which was set up by the federal government for this purpose.
Detweiler suggests that you also check your credit score. The interest rates you’ll be offered—if you can get a loan at all—will be based on your score.
You can get your credit score for free from a number of sites, such as Credit.com, CreditKarma and CreditSesame. Some credit card issuers also provide it. This will not be the exact same score the lender uses, but it will give you a good idea of where you stand.
2. Shop around for the best rate.
You shop around to get a good deal on your new vehicle, so why wouldn’t you shop around for the loan to pay for it? Most people don’t. They go to the dealer without doing any homework.
Eight out of 10 car buyers finance at the dealership, according to the nonprofit Center for Responsible Lending. Maybe it’s the convenience or the lure of ads that offer incredibly low-interest rates. Just remember, those super-low rates are only for customers with excellent credit scores.
Credit unions and community banks are the best place to start. They typically offer the best rates on car loans.
3. Choose the shortest loan you can afford.
As cars have become more expensive, car loans have gotten longer. You can now finance that new set of wheels for seven, eight or possibly nine years. The longer term reduces the monthly payment, but it will also drive up your total cost.
Yes, that means a higher monthly payment, but you’ll get out of debt faster.
The Federal Trade Commission has a worksheet that helps you compare financing offers with different terms.
4. Beware of the yo-yo finance scam.
You sign all the paperwork, get the keys to your shiny new car and drive it home, assuming the deal is done. A few days or weeks later, someone from the dealership calls and says they were unable to get the financing approved at the agreed-upon price.
You must return the car to the dealership, they say, or negotiate a new loan at a higher interest rate. If you don’t, you could lose your deposit and trade-in, and you may even be charged a rental fee for the time you had the vehicle. Faced with this situation, most people cave.
“Most dealers don’t consider the sale final until the money is in their account, and that could be anywhere from a few hours to a couple of days,” said Chris Kulka, senior vice president at the Center For Responsible Lending.
Chances are this was disclosed somewhere in all the paperwork you signed in the dealer’s financing office.
“The only way to protect yourself is to either get your financing elsewhere or tell the dealer that you’re not going to take the car until the financing is deemed final,” Kulka said.
5. Don’t get hung-up on the monthly payment.
A lot of people assume that if they can afford the monthly payment, they got a good deal on the car.
Buying a new car typically involves three negotiations. There’s the price of the vehicle, the value of your trade-in and the financing. And they need to be kept separate.
The salesperson will probably ask how much you can afford to pay each month—they’re trained to do that. Gillis says there’s no need to answer.