The Sweet Spot New Car Down Payment is….

Many car buyers make the mistake of making a down payment based upon how much they believe they can afford in monthly payments. This, according to financial gurus, is the wrong approach to take.

Instead, these experts say the basic rule of thumb for a new car down payment should be to put at least 20% down. Since the national average was 11% last year, this is a large increase. However, this 20% is a great figure because it’d keep your car purchase from ever being upside down. This is especially important if you need a bad credit car loan.

Avoiding being upside down is very important, since when you owe more than what the vehicle is worth, you will not be able to sell the car in the case of an emergency. Also, being upright with your loan will protect you in the event that your car is totaled in an accident or stolen. Talking about this, Ronald Montoya, consumer advice editor at Edmunds, said, “By placing a bigger down payment, a new car buyer can offset the vehicle’s initial depreciation and earn equity in the car sooner.”

Simply go here for more smart budgeting tips.

Why You May Need A Car Loan To Fully Repair Your Credit

The easiest way to rebuild your credit is to get a credit card, whether it is secured or not. This will add points to your credit report for on time payments, a low credit utilization ratio, and length of credit history. Despite all of these positives, a credit card may not be enough to pull your credit score very far above 600. You may need to secure an auto loan to do that.

The reasoning is that your credit score rises when you use different types of credit. Credit cards are revolving credit, so you can carry a balance. An auto loan is an installment credit. In addition, many car loans are higher balance loans than credit cards. This experience with higher balances helps you appear more trustworthy to lenders.

Additionally, if you are applying for your first car loan, you may be denied despite a good credit score. Auto lenders will look specifically for installment type loan history. A lack of it may prevent you from getting a traditional car loan with bad credit and no a co-signer.

4 Ways To Avoid A Yo-Yo Scam

Financing a car can be difficult enough without being scammed. It is especially hard for borrowers with subprime credit. Unfortunately, some dealerships do not hesitate to take advantage of their potential customers. The yo-yo scam has become a common way of getting people to agree to higher loan rates. Here are four ways to avoid yo-yoing.

  1. Secure a bad credit car loan before you go to a dealership.
  2. If you can not secure financing prior to shopping, go to several dealerships in order to compare pricing and interest rates.
  3. Read all of the paperwork. You are allowed to take all of the paperwork home with you prior to making your decision.
  4. Never drive away until you are sure the sale and financing are finalized.

Despite these cautions, you may have a dealer try to run a yo-yo scam on you. If you think that you are being scammed, tell the dealer outright. Let them know that you will be contacting the Better Business Bureau and the Consumer Financial Protection Bureau. That should make them wary of scamming you.

Auto Financing Riding Increase in Subprime Lending to New Growth

As the American auto scene continues to recover and grow, the auto finance sector evolves and grows with it. Now, observers of this sector are saying that it is the reemergence of the subprime auto loan market that is driving much of this growth.

Talking about just that, Michael Binz, managing director and business leader of ABS Ratings, said, “An increasing portion of the auto finance market today is coming from the growth and reemergence of the subprime sector. With this growth, new issuers are coming into the markets as well as significant new sources of funding, with the private equity presence growing significantly.”

While Erkan Erturk, senior director of structured finance research at S&P, agrees that the subprime growth has been strong, he feels that pent-up demand will be what drives future auto sales. Speaking about this pent-up demand, double-E said, “We are not at the level where it could be… [More] pent-up demand will be coming our way and we will see the impact on sales in a positive way in the next few years.”

Whatever the cause for this deeply-needed growth in car loans with bad credit, it seems as if it shall continue.

5 Reasons Car Title Loans Should Be Avoided

Car title loans are often marketed as quick and easy solutions to an immediate financial need. The poor or lower middle class are the usual targets for these predatory lenders. Here are five facts that you should have before using a car title loan to solve your financial crisis.

  1. On average a person who borrows $500 from one of these companies will pay an additional $500 in interest in just six months.
  2. The average car title loan company will only allow you to borrow up to 25% of the value of your car.
  3. The average borrower must take out eight title loans in order to be free of the lender.
  4. Interest rates are typically 20-30 times more than credit card interest rates.
  5. The lender holds the title to your car as collateral and will repossess your car if you do not pay.

Car title loans are much more insidious than payday loans, since the loss of your vehicle can lead to unemployment. These institutions should be avoided at all costs. There is a reason that 31 states have banned the practice or capped the interest rates.

For information on other types of predatory lending, check out our article on bad credit auto refinancing.