Latest news with #carfinancing
Yahoo
9 hours ago
- Automotive
- Yahoo
Buying a new car? Why you might want to abide by the 20% rule
Buying an automobile is one of the biggest purchases many Americans will make in their lives. New car prices have hit record highs, creeping up to an average price of nearly $50,000 in 2025, according to Kelley Blue Book. If you're buying a new car in 2025, choosing the right financing strategy can make a huge impact on your ownership experience and monthly payments. What is the "20% rule," and how can you use it to your advantage when purchasing the car, truck, or SUV of your dreams? Thousands of drivers will finance new cars in 2025. The way you structure your financing plan affects how much equity you have in your new vehicle as well as your monthly, annual, and total payments including interest. A minimum down payment of 20% can make financing deals less expensive in the long run for car buyers. The down payment "reduces the principal loan amount and the interest you're likely to pay" according to Chase Bank. Suppose you're financing a new 2025 Toyota RAV4. If you secure a 60-month (five-year) financing loan with an interest rate of 4.99%, your monthly payments could be as low as $440 a month with 20% down (before taxes, fees, and interest). A 20% down payment on the 2025 RAV4 ($29,2590 before taxes and fees) works out to $5,850. This leaves a principal amount of 80% of the SUV's MSRP ($23,400 plus taxes, fees, and interest). Your monthly payment is your principal loan amount divided by your loan term (60 months in the example above) plus the fluctuating monthly cost of interest on the principal (4.99% annually in the example above). Drivers can save thousands in interest payments by putting at least 20% of a car's total cost as a down payment due to the cost of interest over time. If you want to save even more money on your car loan and are able to manage your monthly payments after a 20% down payment, there are methods to pay the full cost of your car's financing before the end of your loan term. That said, there could be costs associated with paying off your car loan early and it could negatively impact your credit score. If you pay your monthly loan amount and make additional payments on the principal, you can pay off your vehicle before the end of your loan term. This ensures that you will reduce the amount of total interest you pay through financing, but it can have unintended consequences depending on your lender. Ultimately, the best way to insure that you save money on interest when financing a vehicle is to make the largest down payment possible and gain more equity in your car. The "20% rule" is a strategy implemented to reduce the total cost of financing a vehicle, but you can tailor your financing agreement to your individual financial needs and goals. The average auto loan payment was "$675 as of Q1 2025", according to consumer credit reporting company Experian. NerdWallet says the average annual percentage interest rate for new cars is 6.70% for individuals with a credit score between 661-780. Interest rates increase significantly for drivers with lower credit scores (13.22% for 501-600 score). Between rising new car prices and high interest rates, financing a new car is more expensive than ever before. Before purchasing a new car, truck or SUV, drivers should: Assess how much the new vehicle's true cost could be including taxes, fees, and interest Calculate the precise monthly auto loan payment and see if it fits within your budget Consider how a high-percentage down payment could reduce your total financing expenditure Brand-new cars may be fun to own and drive, but they are seldom needed, as used cars car provide sufficient value for more affordable prices. Thanks to depreciation, American drivers can find great deals on used car models that cost thousands less than new car models. So, if you're in the market for a new car in 2025, be sure to triple-check your numbers before making any financial commitment. This article originally appeared on USA TODAY: What is the 20% rule for car buying, why do drivers follow it?
Yahoo
07-06-2025
- Automotive
- Yahoo
I just financed a car for $15,000 at 14.89% APR — but then got a call saying my rate is now 15%. What do I do?
Financing a car at a high interest rate can be frustrating, but what's even worse is being promised a specific rate through the car dealer and then being stuck with a different one. Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how I'm 49 years old and have nothing saved for retirement — what should I do? Don't panic. Here are 6 of the easiest ways you can catch up (and fast) Nervous about the stock market in 2025? Find out how you can access this $1B private real estate fund (with as little as $10) It's called yo-yo financing, a deceptive tactic used by auto dealers that allows you to drive the car off the lot before the financing is fully finalized. You are then informed that the loan fell through and that you must accept less favorable terms to complete the purchase. You might have regrets about taking out a $15,000 car loan with a 14.89% annual percentage rate (APR). But it looks like your APR is even higher and you need to re-sign the documents? Should you proceed, or use this opportunity to get out of the loan? The average user car loan rate was 11.87% in Q1 2025, according to Experian. However, the average for customers with Deep subprime (credit scores 300 to 500) and Subprime (credit scores of 501 to 600) credit was 21.58% and 18.99%, respectively. Considering you say you have bad credit, the rate you were offered at the start (14.89%) isn't surprising. However, it doesn't mean you made a smart financial decision with this purchase. More on that later. Now it seems the actual rate has come through at 15%, which means the dealership may be engaging in yo-yo financing. Or, it could just be a case of poor communication. Usually, with yo-yo financing, there's a substantial difference between the original APR offered and the one a dealer tries to stick you with. Here, the difference here isn't so tremendous. Also, dealers commonly use yo-yo financing to lure buyers with super low rates. A 14.89% APR isn't that competitive. Review the paperwork you signed. It could be that it says the sale is not final and the dealer can change the terms. In this case, you would have to resign the documents with the new APR to keep the car. You probably also have the right to give back the car instead of paying a 15% APR on your loan. This could actually be a great opportunity to get out of a bad deal that could hurt you financially. It may be time to give back the car and consider other options, like saving up for a car you can pay in cash for or saving to pay a larger down payment. You don't want to be stuck making payments for a car that you can't afford, and a 14.89% rate is quite high. If you're committed to keeping the car, you'll have to decide if it's worth paying the slightly higher rate. You may be able to refinance later. You can also find alternative financing for the car instead of going through the dealer. If you shop around, you may secure a lower APR. Read more: Want an extra $1,300,000 when you retire? Dave Ramsey says — and that 'anyone' can do it A lower APR means lower interest costs and monthly payments. So, always do what you can to secure the lowest rate possible. One of the best ways to do this is by boosting your credit score. According to Experian, the average used car loan rate for Prime (credit scores of 661 to 780) and Super-prime (credit scores of 781 to 850) buyers was 9.06% and 6.82%, respectively. 'There's no minimum credit score required to get an auto loan. However, a credit score of 661 or above … will generally improve your chances of getting approved with favorable terms,' says the credit bureau. To boost your credit score, aim to pay all debts on time and try to keep your credit utilization as low as possible. Credit utilization is the percentage of total available credit that you're currently using, and is a key credit score factor. Paying down credit card debt can improve your utilization. It's also important to check your credit report regularly for mistakes. You can request a free copy every week here. Also, shop around when you're taking out an auto loan, and don't assume your dealership has the best rate to offer. Financing an auto loan through your dealership may be convenient, but you're probably better off reaching out to banks and credit unions to see what rates they offer. A good place to start is with a bank or credit union you already have a relationship with. Choosing a shorter auto loan term can lower your interest costs, assuming you can get the same interest rate or better. You'll have a higher monthly payment, but you should pay less interest by paying off your car loan more quickly. Finally, you can also save on interest by taking out a smaller loan, by providing a larger down payment up front, or purchasing a more affordable vehicle. Rich, young Americans are ditching the stormy stock market — here are the alternative assets they're banking on instead How much cash do you plan to keep on hand after you retire? Here are 3 of the biggest reasons you'll need a substantial stash of savings in retirement Robert Kiyosaki warns of a 'Greater Depression' coming to the US — with millions of Americans going poor. But he says these 2 'easy-money' assets will bring in 'great wealth'. How to get in now Here are 5 'must have' items that Americans (almost) always overpay for — and very quickly regret. How many are hurting you? Like what you read? Join 200,000+ readers and get the best of Moneywise straight to your inbox every week. This article provides information only and should not be construed as advice. It is provided without warranty of any kind. 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