4 Reasons Why You Should -- And Shouldn't -- Pay Cash For Your Car

We’ve all heard it. Debt is bad. Avoid it at all costs. If you can’t afford to pay cash, you can’t afford it! So it must be certain that it is always in our best interest to pay cash for a car instead of financing it, right? Well not so fast. There are, of course, positive reasons to buy a car for cash. However, there may be an even better argument to finance instead (sorry Dave Ramsey!) Here are 4 reasons why you should and shouldn’t, pay cash for your car.

1) Why You Should - Frees up your monthly financial obligations
True, paying bills can be stressful on a lot of people. Not having a car payment is something that a lot of families can’t wait for. Not having a car payment can help free up money to pay other expenses as they come.

Why You Shouldn’t - It may deplete your emergency fund
You may be freeing up some cash each month, but at what cost? If you’re paying cash for a car and as a result, have little to no savings left, that may not be the safest move for you and your family. It’s always best to have savings (6 months' living expenses seems to be the standard) in the event of a job loss, a medical emergency or anything else unforeseen (nobody predicted Corona). What happens if the car you buy ends up having a major mechanical problem? Which brings up another question, did you sacrifice on the safety of the vehicle to be able to afford it? You won’t want to skip on cutting edge safety features just because the car is older and more affordable.


2) Why You Should - You’ll save a ton of money on interest
Interest can add up fast. Depending on how high your interest rate is, and how long you intend to finance, some people almost pay for their car a second time just in interest! Not knowing or caring how much money you throw away due to interest paid on loans and credit cards plays a significant role in families not getting ahead of their finances. The money saved on interest could instead be put to better use such as a Roth IRA or 401(k).

Why You Shouldn’t - Money can be cheap, and you’ll deplete capital for better investments
Depending on your credit, there are some amazingly low interest rates out there. If you’re looking to shop for them, companies like PayLow Rate help you find the lowest rates available to you from multiple lenders. Simply put, if the interest you can earn by investing the money is higher than the interest you pay for the loan - it’s better to get the loan and use that capital you would’ve spent more wisely.


3) Why You Should - Keeps your debt to income low and no chance to default
The number one reason why a person may get turned down for a mortgage is not because of their credit score - it’s because their overall monthly debt compared to their monthly income is too high. By not having a car loan, this will help your chances of an approval, and being approved for a bigger home. Not to mention, not having any debt will make it impossible to default on the car loan, sinking any chances of getting a mortgage with it.


Why You Shouldn’t - You miss out on building your credit
One of the best ways to increase, or establish your credit score is by making your car payment on time, every month. What good is keeping your debt to income down, if you haven’t built your credit well enough to get approved? Even if you did get approved, the better your credit is, the lower your interest rate will be which will help keep your mortgage payment as low as possible, which will be considered in your debt to income when the bank is deciding on approving your mortgage or not. If you do get in a debt to income situation, PayLow Rate helps customers refinance their car loans all the time specifically to help obtain a mortgage.

4) Why You Should - You won’t get caught negotiating payments at the dealership
One trick dealers love to use in order to separate the most amount of money from you and your wallet is to negotiate on monthly payment, and not the price of the car. You should know what your budget is going into the purchase, and only having to haggle on the price and the price alone, assures that no “sleight of hand tricks” can be made. Remember, no matter how prepared you are to best the dealers, you might only buy a car once every 7 years. They sell multiple cars every day.

Why You Shouldn’t - You can get a better deal if you finance
You may have heard that you can get a better deal from the dealer by paying cash. If you puff your chest and tell the dealer that you’ve got cash in hand today - surely they’ll break out the red carpet and offer the best deals, right? Well, whoever has told you that is dead wrong. Dealers do not care if you’re paying cash. In fact, they downright hate it. In many cases, dealerships can make more money on the financing than they do on the sale of the car. That’s because often, they can mark up the interest rate by as much as 2.5% and take home the profit. Even if they don’t mark up the rate, they're guaranteed to profit something from the lender they assign your loan to. If the dealer knows they have extra money coming from the lender, they may be more flexible on the price. Manufacturers all have their own lending arm as well (think, GM Financial) and they could even be running rebate specials if you finance the new car loan. If you’re worried about getting stuck with too high of an interest rate, PayLow Rate can often refinance your car loan to a lower rate before you even make your first payment!

10 Myths About Auto Financing

Let’s face it, getting auto financing can be a challenging process and it can be difficult to tell where to begin if you are starting from wrong assumptions due to misinformation.  At PayLow Rate, we try to make the process as easy and transparent as possible.  With that in mind, below are 10 common myths about auto financing.

Myth#1:  “Dealerships always give their customers the best financing terms possible”

Fact:  Dealerships actually mark up their rates by as much as 2.5%, so if you walked out of the dealership with a 6.5% loan, you likely qualified for a loan as low as 4% from the bank and the dealership marked up the rate without you knowing.  At PayLow Rate, we never mark up our rates, so you always get the actual lowest rate that you qualify for from our network of lending partners.

Myth#2:  “Once my auto loan is signed, I am stuck with that car payment until I pay it off or trade it in”

Fact:  While it is true that a dealership will not allow you to change the terms of your auto loan, you are able to refinance your auto loan with another lender at any time.  At PayLow Rate, we partner with a network of lenders so you don’t need to shop around for the lowest rate.  We do the heavy lifting for you, and the best part is we don’t charge our customers for our services.  This is a great option for people who started with a high interest rate, but have improved their credit score and made regular payments.

Myth#3:  “A 0% finance rate will always provide the most savings”

Fact:  0% financing is only offered on current model year new cars as an alternative to a cash rebate (e.g. 0% financing OR $3500 cash back).  In some cases, you may actually be better off by taking the cash rebate and accepting the finance rate that you qualify for.  For a  detailed example of this tradeoff, please see our blog entry on this topic HERE.

Myth#4:  “I cannot trade in my current vehicle until I pay it off”

Fact:  You can trade in your vehicle toward the purchase of a new vehicle at any time, whether it is paid off or not.  The amount of equity (trade-in value of the vehicle minus the amount you still owe on the loan) you have in your trade-in will go toward reducing the new vehicle purchase price.  If you have negative equity (you owe more on the loan than your trade-in is worth), then it will effectively increase the purchase price. The lower your interest rate, the more of your monthly payment goes towards your principal. Refinancing your current interest rate for a lower one will help you accrue more equity in your trade down the road. 

Myth#5:  “I can only refinance my vehicle loan for the amount of the remaining balance on it”

Fact:  You can refinance your vehicle loan typically up to 110% of the vehicle value, regardless of how much you owe on it (even if your vehicle is already paid off, you can take out a low interest auto loan against the value of the vehicle).  This means you can get cash out if you have positive equity in your vehicle.  For instance, if you owe $10,000 on your vehicle loan but your vehicle is worth $15,000, then you are able to refinance for $16,500 (110% of $15,000) which gives you $6,500 cash in your pocket after paying off the original $10,000 loan.  A lot of PayLow Rate customers use this option to pay off high interest credit card debt, student loans, or to get cash out to use for a mortgage down payment or other home project.

Myth#6:  “Refinancing my car will be as difficult and time consuming as a mortgage”
Fact:  While refinancing a mortgage may take 30 days or more and involve seemingly endless paperwork, refinancing your auto loan requires minimal time and effort. Many customers who have good to great credit only need to provide two things: a filled-out credit application, and a driver's license. That’s it. At PayLow Rate, you fill out the credit application online, and you can take a picture of your driver’s license and text it over with your phone. The initial approval can happen in a matter of minutes, and once approved PayLow Rate is able to package all of the loan documents into a concise E-signature email that takes only minutes to click and sign. This online-only approach means you can be on your way to refinancing your auto loan and reducing your monthly payment during your lunch break without ever having to set foot inside a bank!

Myth#7: “If I refinance my auto loan, I will have to pay closing costs”
Fact:  Most people are familiar with closing costs from refinancing a mortgage, which can cost thousands of dollars and counteract the savings from refinancing.  However, unlike refinancing a mortgage, there are no closing costs associated with refinancing an auto loan, but there may be unexpected fees depending on the lending institution.  Some banks and credit unions may charge closing fees or application fees, even if there’s no promise of an approval. Other loan brokers may do the same. At PayLow Rate, we don’t charge any fees for our service. That’s right - nothing out of pocket and nothing built into your loan. We do all of the new title work for you and only pass along the Secretary of State fee which can be as low as $25. So do your homework if you wish - but we’ve already done your homework for you!

Myth#8: “If I refinance my auto loan, my term has to start all over again”
Fact:  You can choose the length of the term on your refinanced loan.  This means if you have 32 months left on your original 72 month loan and you want to refinance to reduce the interest rate, you do NOT have to refinance to another 72 month loan and start all over again.  You have the option to keep the term the same at 32 months remaining, or you can lengthen the term to reduce your monthly payment, or even shorten the term if you want to pay it off sooner.  Your PayLow Rate Success Advisor can show you how much interest you will pay in each scenario and make sure your solution is tailored specifically to your situation so you are happy with the interest rate, monthly payment, and term of the loan.

Myth#9: “My credit score is the same no matter which lender I go to”

Fact:  There are several variables that go into determining your credit score, and each lending institution can weigh those variables differently.  Lenders typically use one of the 3 main credit bureaus as a baseline to determine your score, but may weigh some of those other variables differently to determine the interest rate, or even an approval.  For instance, one lender may value home ownership over renting while another lender may place a high value on having a positive car payment history.  And to further complicate things, each of the three credit bureaus has multiple versions.  So a lending institution that uses Equifax version A may be starting from a different score than one that uses Equifax version B.  This high degree of variability can swing a credit score by 20 - 50 points, or more in some cases, so if you only go to your credit union to get your financing, you may not be getting the best interest rate possible.  That’s why PayLow Rate partners with multiple lenders, so we can do the extra work of shopping for the best rate for you. 

Myth#10:  “I can’t save that much money by refinancing my auto loan”

Fact:  PayLow Rate customers who refinance their auto loans typically save $60 - $120 each month, which can add up to thousands of dollars over the life of the loan.  That’s like finding a wad of $20 bills in your pocket when you take your jeans out of the dryer……...and then that happening again month after month!  

You Can't Go Wrong With 0% Interest, Can You?

Congratulations! You’ve orchestrated an amazing deal on a new car for yourself. You got the most for your trade, you negotiated a bunch of money off the MSRP, and best of all - you got 0% interest on the loan! There’s no possible way you could have done better….right?

Well first, let’s talk about where that 0% or .9% interest rate comes from. All vehicle manufacturers have a financial arm, commonly known as their captive lender, that act as lenders to their franchise dealers. Whether that be Nissan Motor Acceptance Corporation, Ford Credit, GM Financial, etc. - the only way to get a rate like these is to finance through the manufacturer’s lending institution. The reason for this is, these interest rates are subvented interest rates. This means that the captive lender has paid down the interest rate, but usually in lieu of rebates otherwise available to a consumer.

So let’s say you have a total of $6,000 in rebates available to you. If you take, say, 0% interest at 60 months, you may end up forfeiting part of that rebate so you only receive $4,000 of those. So yes, you may have 0% or .9% interest, but it still cost you $2,000. So is that the best scenario for you? Well, math can give us the answer to that.

What you’ll have to do is find out how much you would otherwise be paying in interest with the interest rate you would normally qualify for. If you qualify for one of these dealer’s subvented interest rates, chances are you have a prime credit score and you’ll likely qualify for a low interest rate anyways. If the amount of interest you would pay throughout the entire loan is less than the rebate you would receive, it is certainly better to take the higher interest rate and the rebate in lieu of the lower subvented rate.

If you’re financing $20,000 at 60 months, you can finance your loan all the way up to 3.7% and still pay only $1,938 in interest. Taking the $2,000 in rebates still puts you ahead. Even more, you’d have to be very certain that you’ll be keeping that loan for the entire 60 months. If you pay it off early, trade it in, or the vehicle ends up totalled, you’ll be paying even less in interest. So especially if you only plan on keeping a car for 2 or 3 years, you may be better off keeping the extra rebate and allowing PayLowRate.com to independently find you the lowest interest rate out there.

How much cash can you save each month by refinancing your auto loan?

For most people, the only time they consider the terms of their vehicle loan is when they sign on the dotted line on the day they make their purchase.  After that, the payment is considered to be set in stone for the duration of the loan.  

But did you know you can refinance your auto loan at no cost to you?  Whether you are in a financial bind or you just want some extra cash in your pocket each month, below are 3 common scenarios where refinancing your auto loan may be the right path forward.

• Need to lower your DTI to get a mortgage.  The main reason mortgages are denied is due to the borrower having too much debt related to their income.  Refinancing your auto loan offers a unique solution to lowering your monthly payment commitments without negatively affecting your credit score.  Our quick turnaround time also means you’ll get back to the table for your mortgage within days so you don’t miss out on your dream home!

• Need some extra cash each month.  Whether you just need some extra spending money or are looking for ways to trim the fat out of your budget, we all could use some extra cash each month.  Typical customers who refinance their auto loans save $60 - $120 per month on their loan payment (based on industry averages). Some of our customers have reduced their monthly payments by as much as $500 by refinancing multiple vehicles!

• Want to get some cash out to pay off high interest debt.  High interest credit card debt can be a crushing burden that can take years and years to chip away at.  If you have equity in your vehicle loan (your vehicle is worth more than the remaining balance on the loan), then you may be able to refinance to get cash out to pay off that other debt.  Customers can typically refinance up to 110% of their vehicle’s worth, making this an attractive alternative to dipping into retirement savings or other long term consolidation programs that may affect your credit.  

At PayLow Rate, we consider your whole financial picture to get the most out of your vehicle loan and always at no cost to you for our services.  We partner with multiple lenders and we never mark up their rates so we provide the best rate possible to you with flexible terms to adjust to your unique financial situation.  To see if you can benefit from refinancing your auto loan, click here to get started!

What You Need to Know When Co-signing a Loan

There are many questions that you may have when presented with the decision of cosigning on a loan with someone. Statistics show that 40% of people who cosign on a loan will end up paying part of, or the entire payment. Of course, while there are some risks to consider when cosigning a loan, there are some positive reasons to be aware of as well. So with that in mind, what are those questions you need to consider when cosigning a loan?

1. Why are you being asked to cosign on this loan?
   There could be multiple reasons. Perhaps the lender has stated that their income, relative to the new payment they are seeking, is too low and they need a cosigner’s income to supplement that. If that’s the case, you need to make sure you both have a clear understanding of how the signer plans on consistently making this payment.
   
   It could also be that their credit score is simply too low. If that is the case, how much do you personally know about their credit history? Contrary to popular belief, you can’t tell how well a person pays their bills simply by looking at them. If a bank is wary about lending this person money, you might need to be wary as well. Of course, if you know more personal information about why their credit score isn’t up to snuff and it can be justified, you can provide something to this person that the bank will not  -- empathy.
   
   

2. How long are you on the hook for?
   Short answer: The entire duration of the loan. There is no such thing as only cosigning for a year or two and taking yourself off the loan. The only way for that to be possible is for the original signer to refinance that loan in their name only, or to pay off the total and complete balance. Those are the only two options. So if you’re signing your name on a loan for 72 months, make the assumption that you will be responsible for that loan for an entire 72 months. Which brings us to….
   
   

3. How could the cosigned loan affect me?
   For the entire duration of that loan, the balance and monthly payment will be totaled in your credit score. Not half of the balance, not half of the payment. All of it. So take that into consideration when you’re thinking of cosigning. That loan will be included in your debt to income ratios and will likely be considered when looking at your total monthly car payments, relative to your income. It may not be too difficult for you to cosign on this loan, and get a second auto loan. But if you’re in need of a second car loan yourself, that situation can be more difficult when you already have two in your name - though not impossible. So be sure you think about what your own financial needs might be for years down the road. Certainly, you want to make sure those payments are being made on time because….
   
   

4. This WILL affect your credit score (for better or worse).
   If before you cosign on a loan you are told that it won’t have any effect on your credit score, you’ve just been lied to. Whether you sign first or second, it affects you just the same. If one payment is missed, that blemish will be recorded on your credit report  just the same as you missing the payment.  If so many payments are missed that the loan has to be sent to collections, all of that negative history goes on your credit report. Will you be able to ensure that each payment is made every month? Are you willing to pay it if the other signer doesn’t? If all payments are made on time, it could certainly benefit you just as well. In fact….
   

5. There are sensible reasons you may want to cosign on a loan.
   Ever hear the saying, “It takes money to make money”? Well, one could also say “It takes credit to get credit”. So, what does someone who’s just starting out in life do when they haven’t had a credit history to speak of? Unfortunately for many the answer is to pay a significantly higher interest rate if they can get financing at all. Is that really the best way to have Junior start out on his road to life? If you have a high-school or college grad looking to get their first car, it may make a lot of sense to help cosign on their loan to help get them started in the right direction. Generally speaking, if a 700 credit score cosigns on a loan with someone who is a 600 credit score - or even a no score as young Junior most likely is, you’ll end up with an interest rate that a 700 score qualifies for. Doing it this way will help Junior keep his first car payment low and have most of the payment go towards the principal. Junior will also begin building their credit history and have a credit score that they can soon be proud of. In only a few months (8-16), Junior could quite possibly refinance that loan into their name only and get a very respectable interest rate. That means your name will come off the loan completely, and Junior maintains a great interest rate. Financing young buyers, and even refinancing that loan down the road is a specialty of PayLowRate.com and the experts there can help walk you through both situations. Cosigning a loan is an important decision. But sometimes it can be a rewarding opportunity as well.

Expect to Save on Your Vehicle Loan with PayLow Rate

Thinking of buying or refinancing a car, truck, RV, or boat in 2021?  Let PayLow Rate help you find the lowest rate on your new vehicle loan.  Most people get their financing through the dealer where they purchase their vehicle, but aren’t aware of the hidden fees and costs that come with that.  At PayLow Rate, we believe in transparent pricing so you know exactly what you are getting and we work with a network of lending partners to get you the lowest rate possible at no cost to you.  Here’s how:

• We don’t mark up lender rates.  When you finance through a dealer, they will typically mark up the rate, sometimes by as much as 2.5%.  This means if you walk out of the dealer with a loan at 6%, you might have been able to get the rate for as low as 4% from the lender.  At PayLow Rate, we don’t mark up the rate from our lending partners, so the rate they offer is the rate you get.  This means we can usually beat the rate you would get at a dealer, saving you money every month!

• We partner with multiple lenders.  If you wanted to go to your bank directly to get financing for your vehicle loan, you could potentially miss out on other competitive offers.  We work with a network of lenders so we can save you the time and trouble of shopping around and visiting multiple banks.  Let us do the heavy lifting to shop the lowest rate!

• We get special loan rates not available to individuals.  Even if you wanted to shop around multiple lenders yourself, you still would not have access to the low rates that are available to us at PayLow Rate.  As a brokerage, our lenders know they have to compete to get your business, so they provide us with rates that are lower than what is available to individual borrowers.

Whether you are making a new vehicle purchase or want to get a better rate on your current vehicle loan by refinancing, you can expect to save with PayLow Rate!   Visit www.paylowrate.com/apply-now to get started and find your best rate today!