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Does It Ever Make Sense To Lease A Car?

Most people view leasing with the same attitude as renting a house or apartment. Each monthly payment makes the wallet of the owner a little thicker while the renter has nothing to show for it. At the end of the lease agreement, the lessee (tenant) owns as much of the property as they did before they made the down payment – 0%. If you see a need to lease custom kitchen cabinets in austin for a remodel that’s another article for another day.

The monthly lease payments essentially offset the depreciation value of the vehicle. Just as it always doesn’t make the best financial sense to buy a house, such as only living somewhere for one or two years, there are also times when it might not make sense to buy a car.

car loan refinancing

To lease a car is to rent a vehicle. You will make an initial down payment that can include a refundable security deposit equal to the first monthly payment, any applicable fees or taxes, additional funds to prepay the lease balance to lower the monthly payments, and the first monthly payment.

It won’t be uncommon to pay at least $2,000 just to drive the car off the lot. Most dealers expect an initial down payment of 10% of the capitalized cost (the MSRP and additional dealer fees) of the car. Similar fees are expected when you purchase a vehicle, the primary difference is that you own the vehicle at the conclusion of the financing agreement.

When It Might Make Sense To Lease A Car

Get A New Every Two

If you are one who likes to buy a new vehicle every two or three years when the “new car smell” disappears, leasing can be a better option. Every vehicle depreciates the most within the first few years after it rolls off the assembly line. Some vehicles can depreciate as much as 50% from the original sticker value at the end of three years. Depending on the annual mileage and routine maintenance schedule, cars also start costing a lot more to maintain after the 2 or 3-year mark too.

Leasing is more convenient than buying a vehicle and selling it after 36 months. Instead of trying to sell or trade-in and find the highest bidder, a lessee can drive the vehicle to the dealer lot at the end of the term and drive home in a new one. Part of the lease agreement might also include complimentary routine maintenance at the dealer location. You still might have to pay for normal wear-and-tear expenses such as tires or brakes, but, maintenance can be a “hidden cost” that most people do not budget for on the sales floor.

Lower Monthly Payments

In general, leases have lower monthly payments than car loan payments. For example, the estimated monthly lease for a brand new Ford Focus with an estimated cost of $18,100 before discounts is $181 per month for 36 months. A 36-month loan at 0% APR has an estimated monthly payment of $425. The lower monthly payment can be an affordable way to drive a new vehicle. One expense to consider that might not be included in the monthly lease payment is a product called “GAP Protection.”

Some dealers or insurance providers might require Guaranteed Asset/Auto (GAP) Protection for leased vehicles to cover the difference between the initial lease balance and the payments made so far. In the unfortunate event that the leased vehicle is “totaled” during an accident, this type of coverage will pay the dealer the remaining balance for the vehicle so that the driver will not have to finish paying off that lease and find a way to afford a replacement vehicle.

To save even more money, look out for budget-friendly insurance, which will vary from state to state, city to city. For instance, the best cheap car insurance rates in Austin, Texas will likely be very different from rates in a state that sees plenty of snow and tough rough conditions.

Only Plan to Live Somewhere For A Few Years

Perhaps you need to live abroad for several years for business before returning stateside or bounce around the country every couple of years. Just as you probably wouldn’t buy a house for a 3-year stint as the potential appreciation normally doesn’t offset the fees associated with buying and selling the house, it might be the same thing for a car.

It’s not affordable to ship your car on a barge with your other belongings when you return. Or it might be impractical to own a sports car after moving from the southern U.S. to the northern U.S. with harsh winter conditions. Once again, leasing is a convenient option as you know exactly how much you will pay when you drive the car off the lot.

Factory Overstock Leases

Sometimes dealers will offer lease specials to help clear inventory. This makes the monthly payment even lower than a regular lease payment. At the end of any lease, the driver normally has the option to purchase the vehicle for market value at the end of the lease term. With factory overstock leases, it can make sense to “lease-to-own” as the lease payments can be lower than depreciation. The financing for the remaining value will carry a lower monthly payment than if the vehicle had been financed brand-new.

For this strategy to work, you need to be intentional about banking the extra savings and setting it aside into a “no-touch” fund to buy the car at the end of the lease term. If you decide to purchase the vehicle you will need to pay the appropriate taxes and any loan down payment if you will not pay cash for the car.

Tax Rebates or Factory Subsidies

Sometimes local or state governments can make it cheaper to lease a new vehicle than buy a new vehicle.  This is most common with alternative fuel vehicles such as electric cars or hybrids where governments try to attract new customers to drive these vehicles. Dealers might also add additional subsidies for additional incentives to sign the lease. In addition to eco-friendly cars, certain dealers also offer incentives for high-end luxury vehicles. For some, it might be the only affordable way to drive a luxury car.

Lease For Business

If the leased vehicle will primarily be used for business purposes, it can also make sense to lease as the monthly payments can be tax-deductible. The guidelines are rather strict. It’s a good idea to talk to a tax professional or the accounting department before making this business decision.

lease a car

When It Doesn’t Make Sense To Lease A Car

Drivers who like to “buy and hold” their car until the wheels fall off should never lease. For these types of drivers, it doesn’t make financial sense to constantly be paying a monthly payment to the dealer when that money can be used for traveling, investing, or becoming debt-free. The two most affordable ways to purchase a vehicle that you intend to drive for more than 2-4 years is to buy a late model vehicle that is no more than 6 years old that can be purchased in whole and is still low-mileage.

Even if you need to obtain financing, it will be significantly cheaper than if you had bought the car with 1 mile on the odometer because of depreciation. A low-mileage late model vehicle can still be driven reliably for another 10 years or more, in most instances.

It also might not make sense to lease a brand new vehicle if you can afford the monthly loan payments. Instead of only renting the vehicle for three years (36 months) and returning it to the dealer so they can sell it to somebody else, you actually own the car and can sell it for the same price as the dealer. You won’t get the depreciation value (as the dealer did with lease payments) but it’s still more cost-effective than leasing.

Should You Buy Or Lease a Car?

If you are undecided whether to buy or lease a car, the Edmunds True Cost to Own calculator can help you crunch the numbers.  You should also get buy and lease quotes from your insurance provider as well.  Having realistic cost projections and knowing your preference for convenience (leasing) or ownership, can help make the decision easier.

As you can see, while owning a vehicle (like owning a house) is the most popular option. Sometimes it does make more sense to lease.

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How To Prevent Your Card Being Canceled By Credit Grantor

Not everyone uses their credit cards on a regular basis. Imagine the shock of needing to use your credit card only to find that it has been canceled by a credit grantor. You hear horror stories of people vacationing overseas and discovering this problem, then spending hours trying to fix it.

Unfortunately, the credit card grantor reserves the “right” to cancel or change the terms and conditions at any time. While they are supposed to notify you, this could be lost in the mail, sent to your email spam folder, or simply overlooked.

There are a few main reasons why your credit card might be canceled by a credit grantor. Let’s review the most common ones to prevent this from happening to you.

Not Using Your Credit Card Enough

A credit card company issues a card to you so that they can make money. Not only will they make money when you pay interest and fees, but they do make a small amount of money on each transaction that you use the card for.

This is the most common reason for a credit card to be canceled.

When you do not use the card at all, or only for emergencies, the credit card company makes no money from having you as a customer. Fortunately, this is a problem that is extremely easy to avoid. Simply use the card for the occasional purchase. Try to use it at least once every few months so your account will remain open and active.

You can always use one of the best credit cards with no annual fee to help you keep your account active without having to worry about coughing up the money for any fees.

New Debt

Have you recently taken on new debt? Bought an expensive car or a new home? These are changes that can quickly raise your debt level, change your credit utilization ratio (how much of your available credit you owe), and affect your credit score.

The credit card company may see this new debt and quickly cancel your card. New debt on a credit card changes your credit utilization. But taking out a large loan may affect you as well. The credit card grantor may determine that you have too much outstanding debt to pay promptly.

Changes in Your Credit Score

Any time that your credit score changes or drops, you are at risk for having your credit card canceled by credit grantor. This is one of the most important reasons to keep regular tabs on your credit score. You can avoid having your card unexpectedly canceled. It’s also good to know in case of identity theft.

They Don’t Need a Reason

As mentioned before, credit card companies have the right to cancel your card, for no reason, at any time. Having a credit card is not actually your “right.” The credit card company gets to decide who they want to extend credit to. While this might be you, it could change at any time.

They are supposed to give you notice, but, might not always do so. Sadly, getting a credit card canceled, for any reason, looks pretty bad on your credit report. You definitely want to try and avoid having this happen if you can.

What You Can Do To Prevent Being Canceled By Credit Grantor

First, make sure that you at least occasionally use your credit card so that the account does not go completely dormant. Second, make sure that you keep an eye on how much you owe. Keep your credit utilization as low as you possibly can. Third, follow your credit report on a regular basis (at least once per year) to ensure everything is accurate.

Your credit is important and should be treated as such. You can prepare yourself for the unexpected by following all of the rules and staying on top of your debt carefully.

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Is it Common for Married Couples to have Separate Bank Accounts?

marriage - joint bank accounts question

Congratulations! You’ve made the leap into a lifetime together, and now you’ve joined your families, your friends and … your back accounts? Financials are an important topic in any relationship and become even more important as you make big steps towards building a life together. But, how do you do that? Is one joint account the answer, or should your keep your own accounts?

marriage - joint bank accounts question

Some newly-weds are concerned that separate bank accounts make it easier to keep your lives separate and to split up in the case of a rough-spot in your marriage. However, it is not uncommon to have married couples having separate accounts. A 2014 TD Bank Survey of people married or in long-term relationships who have joint bank accounts also have separate bank accounts. So, there’s no right or wrong answer for your banking set-up. What works for the couple next store doesn’t necessarily work for you. There are a few important steps to make sure that you’re your love and money both have a happily ever after.

Talk it Out

Before heading down the aisle, talking about the future is important. Amongst the discussions of career and family, the important though less exciting financial talks should happen. If you have yet to have The Money Talk, then make a date and get started. Everyone manages their money differently. Some people save every penny, while others splurge at every opportunity, and there’s every style in between. In The Money Talk, you both need to define and describe how you deal with money. And you have to do it honestly. Of course, we would all like to be that person who only spends responsibly and has healthy savings accounts. However, you can’t plan your financial future for yourself and for your new life partner without a clear understanding of your monetary ways.

When you both have an honest picture of your finances, share them with each other. How do you like to spend your money? Do you have credit card debt? What’s your credit history like? What are your savings goals? When would you like to retire? What is your current bank and what kinds of accounts do you have? Do you want to rent or buy a home? If you want to buy, when and how much do you want to have saved before buying? Do you have student loans? Do you want to go back to school? Do you want to travel the world? These kinds of questions are important to ask. You won’t have answers to them all, but the asking them is an important step. Be patient and don’t worry if you find some answers surprising. It’s normal. Finances can be a stressful topic. Some people are happy to review every penny and others freak out at the thought their accounts. The talk might be simple or complicated, but either way, the hardest part will be over with: starting The Money Talk.

Once you have an understanding of your financial situation along with your personal and couple goals, then you should talk to your banker. The first meeting with your banker (or bankers, if your accounts are at different institutions) is an informational one. No papers should be signed and no accounts opened or closed. Simply ask what your options are for both joint and separate accounts. Understand the logistics and costs. With this information, you’ll know a bit more of what to expect from the accounts aspect.

Decision Time

Based on your discussions and the information provided by your bankers, you can now make a decision about what kind of accounts you would like set-up. There are a range of options, though the three most basics ones are: one joint account, one joint account with two separate accounts, or two separate accounts. Any of these choices are great so long as you and your partner are comfortable with it. Pick the best option for the two of you, based on your needs and financial styles, not based on what you think you should have.

Set-up Your Accounts

When your decision is made, you can then start planning your accounts. Perhaps nothing will change. Perhaps you’ll combine your spending accounts for bills and monthly expenses, but keep separate savings ones. Perhaps you’ll merge everything, including some of your investments. Whatever the combination, you need to set-up certain check-ins. Responsibilities of who pays which monthly bill need to be decided. For large purchases, like a shopping trip or new computer, some couples will want to have a check-in before the purchase. For joint savings efforts, like vacations or a home down payment, some couples will want to discuss contributions, or even set up automatic ones. With these roles defined, you can move forward with your new financially joined lives.

Keep On Talking

Of course, finances change as life does. With promotions and layoffs, holidays and vacations, births and deaths, different situations require emotional and pragmatic consideration. When these changes arise, you’ll need to address how that will affect your spending. For good or for bad, these conversations need to happen. No one likes surprises (unless it’s the surprise of winning the lottery!), so it’s essential to have an open dialogue about money matters. Be prepared to share your concerns and expectations, and to change your earning and spending based on what’s needed for your relationship.

Conclusion

There is no one correct way to set up your financial systems as a married couple. With a range of options, you need to figure out the best one for you two. And there’s nothing to say that you might change your account set-up in the future. As your marriage evolves, your finances will, too. It’s important to stay honest, to be clear and direct. Your banking style can be wildly different from your partner’s, but with good communication and planning, that difference will not only not be a problem, but could provide valuable new perspective. Building a happy marriage takes lots of love and hard work. Put some of that hard work towards your collective finances and it will certainly pay off.

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Are Balance Transfer Cards Better Than Rewards Credit Cards?

When people think about applying for a new credit card, they often look at the welcome offers and the types of rewards that can be earned with everyday purchases. Sometimes you might need another perk, besides rewards, to make you click the “Apply Now” button. This might apply to you if you are carrying a balance on one of your current credit cards and are looking for a hand-up to help pay off the debt.

But, is it better to choose a balance transfer card or a rewards credit card? Applying for either type of credit card will count as a hard inquiry and affect your credit score, so you will want to compare the advantages and disadvantages of each credit card to help you make the best decision.

Advantages Of Balance Transfer Cards

While rewards credit cards might offer welcome offers of frequent flyer miles or complimentary hotel stays when you meet a spending minimum, balance transfer credit cards will not charge interest on balances transferred from other credit cards for a predetermined time period (typically 12 to 18 months). Your new credit card might charge a one-time fee of 3% to 5% of the balance transferred (credit cards need to make money somehow). But it’s still cheaper than the interest you are paying on your existing credit card.

These cards can be very advantageous if you have any type of credit card debt as you can make payments interest free for several months. This can be a great alternative to debt repayment compared to a high-interest personal loan. You should view the 0% APR as a “second chance” to getting debt-free and rebuilding your credit.

Disadvantages of Balance Transfer Cards

While balance transfer credit cards offer an introductory 0% APR, there are several drawbacks to these cards. Possibly the largest drawback is the APR after the 0% introductory period ends. If you cannot pay off your balance in full (or most of it), the interest rates on these cards can be noticeably higher than other rewards credit cards with interest rates as high as 23%.

If your balance is too high, it might be better to swap your credit card debt for a personal loan with a lower interest rate. Of course, the post-introductory rate will largely depend on the credit card and your credit score. Not all credit cards or credit scores are created equally. It might pay dividends to look at the interest rates and perks of the card after the introductory period.

If you have a high credit score and a low balance, it might be more advantageous to apply for a new credit card with a short introductory balance transfer period and a low-interest rate.

Caps on Transfer Amounts

Another downside of balance transfer credit cards is that some credit cards cap transfers to a certain dollar amount. For example, the Chase Slate limits balance transfers at $15,000 regardless of your credit limit. Depending on the balance amount you want to be transferred, you will need to verify if the prospective credit card will allow you to transfer your full amount.

A final downside of balance transfer credit cards is the lack of purchase rewards. Cardholders of balance transfer credit cards normally have to trade rewards for 0% APRs on outstanding credit card balances. This isn’t always the case as some balance transfer cards do offer purchase rewards. However, they are usually not as lucrative as those offered by rewards credit cards.

Advantages of Rewards Credit Cards

Rewards credit cards “reward” users for spending and making payments on-time. They might award cardholders with points or cash rewards. Plus, their welcome offers entice new applicants to spend a specific amount of money within the first two or three months of account opening to receive an additional bonus.

In one way, rewards credit cards are the complete opposite of balance transfer cards that offer a “second chance” to pay off their balances without interest. With both types of cards, credit card issuers make their money through transaction fees and balance transfer fees (even when the transferred balance is paid in full before the introductory period ends).

As many balance transfer credit cards do not offer purchase rewards, rewards credit cards are better for those that pay their bills regularly. They might also be a better option for somebody who has a small outstanding balance and has more to gain from long-term purchase rewards, even if it means paying interest on credit card debt. Your amount of debt might determine if short or long-term rewards are better.

Disadvantages of Rewards Credit Cards

One big downside of rewards credit cards is the relatively higher fees that are incurred with balance transfers. Credit cards need to make a profit to remain in business. That means they can only offer so many perks.

This is why most credit cards charge no interest for the first 12 to 24 months of account opening or offer purchase rewards. If rewards cardholders do not meet the payment deadlines, they do not earn rewards points on the outstanding balance.

Rewards credit card programs might also require a higher credit score than balance transfer cards. Each balance transfer and rewards program has different eligibility requirements. Some are more stringent than others. As a whole, balance transfer cards give credit card users a chance to catch up and rebuild their credit.

People with higher credit scores will qualify for rewards credit cards that offer better rewards and have lower interest rates than post-introductory APRs offered by balance transfer credit cards. If you have a history of credit card debt or low credit score, your application for a rewards credit card might not be a sure thing. The best place to get credit score information won’t hurt your credit but will also provide essential information.

Are There Credit Cards With Rewards and Introductory APRs?

Yes! There are a few credit cards that offer 0% APR on balance transfers for at least one year and rewards for everyday purchases. You may need a higher credit score to qualify for these cards, but they do exist. Our study of the best balance transfer credit cards to apply for in 2018 can be found here.

The Verdict on Balance Transfer Cards

Which type of credit card is better? It depends on your financial circumstances. If you have a manageable credit card debt of several thousand dollars that you can pay off within the 0% introductory period, a balance transfer card will be a better option. The interest-free payments will probably be a better “return on investment” than any rewards program.

Once you become debt-free, and if your credit score is high enough, you can always apply for a rewards credit card.

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Best Balance Transfer Credit Cards To Apply For in 2019

best balance transfer credit cards

What is a Balance Transfer Credit Card?

A balance transfer credit card is a great option for those of us looking to consolidate debt in 2019 and move closer to financial freedom. Balance transfer credit cards simply allow you to transfer your debt from a high-interest credit card to one with a lower interest rate, sometimes 0% for up to a year.

When is a Balance Transfer the Right Option?

Balance transfers are a good idea for someone that has a reasonable amount of credit card debt on a high-interest credit card. The majority of reputable balance transfer credit cards require that the applicant have good to excellent credit (around 690 – 850). This isn’t a great debt consolidation option for someone hoping to repair their credit.

How Does a Balance Transfer Work?

Your existing credit card issuer will first need to approve all or part of the balance transfer request. It can take up to 3 – 5 weeks for a balance transfer to take effect, so you will need to continue making payments on your old account until the transfer has been completed.

There are some fees and limitations that apply to balance transfer credit cards. These include:

  • Balance Transfer Fees: Balance transfer fees are typically 3% to 5% of the transfer amount.
  • Interest Rates: Most balance transfer credit cards offer a 0% APR introductory rate; however, interest rates apply after this introductory period, just as they would for any other credit card.
  • Annual Fees: Ideally, a balance transfer card won’t include annual fees; however, a few do. It is important to be aware of this when looking for cards.

The criteria above are highlighted for each of the cards we’ve identified in this post.

The Top Balance Transfer Credit Cards for 2019

BankAmeriCard Credit Card

Balance Transfer Fee: 3% of the amount transferred, with a minimum of $10.

Introductory APR: 0% on purchases for 15 months.

Regular APR: 12.99% to 22.99% variable

Annual Fee: $0

Recommended Credit Score: 690 – 850

Rewards: Access to FICO score for free once per month.

Pros: No annual fee and a great introductory offer – $0 balance transfer fee on transfers made within the first 60 days of opening an account. If you are able to pay down your debt quickly, you may not incur any interest or pay any fees.

Cons: Comparatively high balance transfer fee after the introductory period, and a comparatively shorter introductory APR period. There are also no additional rewards associated with this card.

Chase Slate Credit Card

Balance Transfer Fee: 5% of the amount transferred, with a minimum of $5.

Introductory APR: 0% on purchases for 15 months.

Regular APR: 15.99% to 24.74% variable

Annual Fee: $0

Recommended Credit Score: 630 – 719

Rewards: No rewards, but cardholders can check their FICO score once a month for free.

Pros: No annual fee and a great introductory offer – $0 balance transfer fee on transfers made within the first 60 days of opening an account. This card is also available to those with average credit, compared to the rest of the cards on this list, which require excellent credit.

Cons: No rewards, and account holders can’t transfer balances from other Chase credit cards or non-credit-card debt. Transfers can’t exceed $15,000 in total, so this card isn’t a good option for someone with relatively high credit card debt. It also has a comparatively short introductory APR period.

Citi Simplicity Card

Balance Transfer Fee: 3% of the amount transferred, with a minimum of $5.

Introductory APR: 0% on purchases for 21 months.

Regular APR: 14.99% to 24.99% variable

Annual Fee: $0

Recommended Credit Score: 690 – 850

Rewards: None.

Pros: No annual fees, no late fees, and an extremely long introductory APR offer. This card is ideal for someone that needs a little longer to pay down their debt. Citi also allows you to transfer any type of debt to your card, including non-credit-card debt such as student loans and auto loans.

Cons: No rewards, and account holders can’t transfer balances from other Citi credit cards.

Citi Diamond Preferred Card

Balance Transfer Fee: 3% of the amount transferred, with a minimum of $5.

Introductory APR: 0% on purchases for 21 months.

Regular APR: 13.99% to 23.99% variable

Annual Fee: $0

Recommended Credit Score: 690 – 850

Rewards: None.

Pros: No annual fee, and a comparatively long 21-month introductory period. This is an excellent card for someone that needs longer to pay back their debt.

Cons: No rewards, and account holders can’t transfer balances from other Citi credit cards.

Discover it Card

Balance Transfer Fee: 0% on balance transfers for 18 months.

Introductory APR: 0% on purchases for 6 months.

Regular APR: 11.99% to 23.99% variable

Annual Fee: $0

Recommended Credit Score: 690 – 850

Rewards: Earn 5% cash back at gas stations, grocery stores, Amazon.com, or wholesale clubs each quarter. Cash back can be redeemed at any time, it never expires.

Pros: This is the only balance transfer card on this list that offers robust cash back rewards, so it is worth holding onto long after your debt has been paid off. If you have good to excellent credit and are able to pay down your debt quickly, this card is an excellent option. There are also new-cardholder bonuses that grow the more often you use your card for everyday purchases.

The 18 month 0% balance transfer fee period isn’t as long as the two 21-month options offered through Citi, but it still stacks up nicely against introductory offers from other balance transfer credit cards.

Cons: Comparatively short introductory period. Unless you can pay your debt off within six months, you will likely incur interest charges with this card.

Top Recommendations of Balance Transfer Credit Cards

Best Long-Term Value

The Discover it MasterCard is by far the best long-term value. It is the only card that offers rewards on everyday purchases, and its 18-month 0% transfer charge is a strong introductory offer.

Best Introductory Offer and Flexible Repayment Options

For those that may need longer to pay off their debt that also has the bulk of their debt in student loans or an auto loan, the Citi Simplicity card is the best option.

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Tips to Raise Your FICO Credit Score

Your FICO credit score is one of the major factors a lender will consider when determining whether or not to approve you for credit. There are many things that go into your FICO score, which means that there are things that you can do to improve it. Careful attention to your FICO score can help you build your credit.

Here are tips that can help build and raise your FICO score

Apply for credit cards

You may be wondering if applying for credit cards can hurt your credit, but, just the opposite is true when you use them responsibly. The same goes for installment loans. Those with no credit will be a higher credit risk than someone who has demonstrated responsibility by making payments regularly and on time.

Make every payment on time

When you make your payments late, this shows up on your credit report. Lenders do not like to see you making a habit of late payments. As your FICO score is computed, 35% of the score is dependent upon you making timely payments for credit cards and loans. Never missing a payment is the best way to get the most from this factor. The longer the history that you have of making payments on time, the better this part of your score will be.

Pay off balances in full each month

While this is difficult for some, especially those who have accumulated large amounts of debt, making the largest payments you can afford is smart. This will help you lower the balances. Once you get your credit cards paid off, try to pay the entire amount that you owe each month. Never make less than the minimum payment required. The lower your overall balance, or credit utilization, the better your FICO score will be.

Communicate with creditors if there are problems

If you fall on hard times financially, contact your creditors before you begin to miss payments. Often they can work out a temporary solution, or negotiate a payment plan with you before your credit is adversely affected. When you are making regular payments, even when you are struggling financially, you can often keep your credit score from dropping too far.

Don’t rush to close credit cards to raise your FICO score

Closing credit card accounts can actually have a negative impact on your FICO score, especially if you have had the credit card for a long time. If you close credit cards that are paid in full, yet you still have others open that you carry a balance on, then you are going to see your credit score drop because your credit utilization will increase. This means that you will be using a higher percentage of your available credit. You are going to be better off keeping cards open when they have a zero balance, particularly if you have a long history with that creditor.

Keep track of your credit utilization

If you have a high credit utilization or a high debt-to-credit ratio, contact your creditors to see if you can have your credit limit raised. This can help improve your ratio and also your FICO score.

Don’t open too many accounts too close together

This is especially important for new credit users. When you are just starting out, one or two cards is plenty. Even if you have well-established credit, opening too many credit cards in too short a time period will have a negative impact on your FICO score.

Make sure your creditors know how to reach you

Always notify your credit card companies if you have an address change. If you miss a bill because they moved, it will not be their fault. You will likely see a change in your FICO score as a result. This is a common mistake, and one that is completely avoidable.

Immediately report if your card is lost or stolen

Reporting a lost or stolen card as soon as you are aware of it is crucial. Most credit card companies will not hold you liable for unauthorized purchases under these circumstances. If you do not promptly report it, you could be held responsible for large purchases. This will also affect your FICO score.

Check your credit report regularly

You should check your credit report at least once a year. Make sure that there are no inaccuracies. Most free credit reports will get information from the three major credit bureaus—TransUnion, Equifax, and Experian. Checking your credit report will not hurt your credit score. It will help you keep tabs on any accounts that you are responsible for. If you notice any inaccuracies, contact those creditors immediately to have the issue resolved.

Your FICO score is important. You should know what it is and make efforts to keep it solid or improve it. Use these tips to keep your credit great!

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7 Ways To Pay Down Your Business Debt

Sometimes business debt can get out of hand without us noticing it. It’s so overwhelming that you don’t even know where to begin. While we all experience debt at some point in our lives – business and personal – you still have time to take control of your finances. Here are a few ways that you can start paying off your debt and get your finances back in order.

1. Assess your budget

Most of the time, debt occurs when there’s no budget to help you stop your overspending or if your current budget isn’t working. Finding the right financing options for your business is key. Your budget should cover all your business necessities and unexpected costs that may arise, such as broken equipment.

Once you’ve calculated overhead fees, use the rest of your income to pay off your debt. Remember to tweak your budget every few months to accommodate for business growth.

2. Cut costs

Once you’ve analyzed your budget, see what areas you’re spending too much on each month. It’ll help you see what’s dragging you deeper into debt. If it’s a business necessity, you’ll have to decide what your alternatives are. For instance, you may be able to cut some telephone costs by using a business credit card that will reward you for those expenses.

Another way to cut costs is to reduce office space. Depending on the type of business you own, you might be able to let your employees work from home or split rent with another small business that compliments your own. Both alternatives can inspire greater productivity.

When it comes to cutting costs, you have to determine whether or not your business needs certain expenses or if it can operate without them.

3. Increase revenue

Unlike consumers, businesses are versatile in how they generate their monthly revenue. The more income you have coming in, the faster you’ll be able to pay down your business debt.

If you have an overstock of merchandise that is taking up space, offering discounts and coupons will bring in more sales. On the other hand, if you notice that certain items are always going out of stock, raise your prices. When you’re offering good, quality merchandise, customers typically don’t mind the price increase.

4. Consider debt consolidation

Debt consolidation combines multiple debts, such as credit cards, payday loans, and medical bills, into one monthly payment with lower interests. These programs make it easier to handle payments because you don’t have to remember how much you owe and to who. You may even consider using a balance transfer credit card that consolidates your debt into fewer payments at a lower interest fee.

If your debt doesn’t exceed 50% of your income and you pay it on time each month, these may be viable options for you. However, these programs are not for people who are unwilling to address the spending habits that got them into debt in the first place.

5. Request late payments

Some customers pay you late. You may even expect them to. The problem is that the money they owe is money you need. Start requesting your late payments. Start with gentle reminders to avoid a ruined relationship.

However, some people might try to evade you after your multiple attempts of contacting them. In that case, you shouldn’t do business with them anymore. While you might think you’re losing money by losing customers, in the long run, you’re saving money by no longer working with people who don’t pay their dues.

To avoid significantly late payments in the future, set up a 30-day payment term with growing interest every month that the bill is not paid in full. This helps you receive your money and pay off debt faster.

6. Start a side job

Running a business is hard work that requires many hours out of your day. The good news is that most side jobs don’t require you to work a full-time schedule. You can work flexible hours and still make enough to help lower your debt.

If you don’t mind traveling, you can become an Uber driver. Not only does it help you pay off your debt, but you also get to meet different people. However, if that’s not what you’re into, try being a virtual assistant. Or a logo designer. Whatever the case, you can make decent money.

Once you’ve paid off some of your debt, work on building your credit. You can get a free credit score without affecting credit. Make a plan of how you are going to manage your finances and execute it. By paying down your business debt, you’ve already begun the process towards financial independence.

7. Sell assets

Every business has some assets that they can live without for a while they pay off debt. As a disclaimer, this is the last resort if nothing else works.

Selling your desktop and printer isn’t what you want, but it’ll help you in the long run with paying off your debt. As alternatives, you can get a refurbished laptop and use the printer at your local library or go paperless. It’s not ideal, but remember that your priority is to get rid of your debt so you can eventually invest in something better.

Small business debt is something you can overcome. Although, it’s critical to make sure that you work on any problems that resulted in you being in debt. It may require some sacrifices, but once you’re done, you’ll have the financial freedom you’ve been wanting.

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Should I Refinance My Private Student Loans?

college savings option

There’s no denying that college is expensive. A recent report shows that the average 2018 college graduate has nearly $40,000 in student loans. Depending on the salary of their first “real” job, a graduate might be struggling to make the monthly payments once their student loans enter repayment status. This is where refinancing comes into the picture!

should i refinance my student loans

What Is Student Loan Refinancing?

Each college student has the option of applying for federal and private student loans to pay for their education. Both types of student loans can be refinanced (federal loans call the process consolidation instead of refinancing). This article will focus on private student loan refinancing.

Refinancing of any loan is renegotiating your outstanding loan balance and accrued interest for a new interest rate and repayment terms. As a college graduate might have private loans from two or three different lenders, the refinancing process will merge all those loans into one account with a single interest rate and one monthly payment. That means instead of paying $257 the 15th of each month to “Bank A” for a loan with a 6.0% interest rate and $200 to “Bank B” on the 27th for a loan with 6.3% interest, only one payment of $425 needs to be paid on the 1st of each month and the new interest rate is 5.5%.

Advantages of Student Loan Refinancing

Possibly the best benefit of student loan refinancing is the potential to secure a lower interest rate than what is charged on your current student loans. As you have a steady income and a potentially higher credit score than when the loans were originated during college, you might qualify for lower interest rates. As a cautionary note, these lower interest rates might have a longer repayment period than your original loans. This means you are charged less interest each month but will pay more if you use the full loan repayment period (10 years, 15 years, 20 years, etc.) to pay off the principal.

Sometimes it takes a year or two to earn a salary high enough that allows a graduate to pay their bills without struggling to make ends meet. Because a lower interest rate is charged, you should have a lower monthly payment and a longer repayment period.

If you struggle to make the minimum payment on your original loans, think about refinancing. The difference could potentially make all the difference in your monthly budget by refinancing. Of course, if you can pay more than the minimum payment, you will pay off the loan sooner and pay less interest.

Additional Benefits

Another benefit of refinancing is a single due date. Depending on when the due dates are for your current student loans and when you receive your paycheck, your wallet might feel very thin. Plus, having multiple bills due on multiple days during the month increases the likelihood of forgetting to make a payment.

With one due date for all your student loans, it is easier to keep track of when you need to make the payment. You should be able to schedule the due date for after you receive your paycheck, ensuring you have plenty of money in the bank.

Disadvantages of Student Loan Refinancing

If you have a mixture of federal and private student loans, you might have to refinance each type of loan separately. Due to several nuances between federal and private loans, many lenders will not refinance federal and private student loans in the same package.

While refinancing can be a lifesaver for some, refinancing can cost more money in the long-run if you only make the minimum monthly payment each month. Besides the potential application and origination fees a refinancing lender may charge an applicant, they do not offer lower interest rates. Some graduates need the lower payments just to make ends meet in the short-term, but will still have to pay back the entire loan amount plus interest even if it takes the entire 15 or 25-year life of the loan to do it.

This is the same thing when comparing a 15-year mortgage to a 30-year mortgage or a 3-year auto loan to a 5-year auto loan. Shorter loans require a higher monthly payment to meet the deadline. As long as the loan doesn’t have an early payoff or prepay penalty, you can pay back your student loan sooner without having to pay an additional fee. Even if you do, it might be cheaper to pay the penalty than pay interest for the life of the loan.

Fixed or Variable Interest Rate

Depending on how much of a monthly payment you can afford and how fast you intend to pay off your loans, you will need to decide between a fixed interest rate or variable interest rate.

Fixed Interest Rates

Fixed interest rates are best for those that will require at least 5 years to repay their loans because the rate will remain constant for the life of the loan. Nobody can predict the future, but, interest rates for most loans are near record lows at the present moment and they are more likely to increase instead of decrease in the future.

Current fixed rates for student loan refinancing range from 6% to 12%. If you secure a rate today at 6% and rates increase to 10% in 15 years when you pay off the loan, think of all the extra money you saved by going with a fixed interest rate instead of a variable interest rate.

Variable Interest Rates

On the other hand, variable interest rates are best if you plan to pay off your loans in less than five years or sooner. Variable interest rates currently range from 2% to 8% depending on your creditworthiness and repayment terms. If rates do rise, they most likely will not exceed the current fixed rates by the time you pay off your loan.

Keep in mind that lower interest rates usually come with a shorter repayment period.  If you do not feel comfortable that you can make the required monthly payments to meet the deadline, you should opt for a longer repayment period, even it charges a higher interest rate. By choosing a variable rate you will probably still have a lower rate than a similar fixed rate loan.

Similar Rates

If both types of loans are charging near-similar interest rates, it might be better to go with a fixed rate plan. The interest rate might be a little higher than a variable, but you have an extra safety net for a longer repayment period in case you cannot meet the monthly payments required by a variable loan. Also, a fixed rate also hedges against any variable rate increases. If you can still prepay your loan, you will still be saving money overall.

When To Apply For Refinancing

The ideal candidate for refinancing is somebody struggling to make their current monthly payments. Refinancing might provide them the ability to pay their student loans, rent, electric bill, and build up an emergency fund. You might also benefit from refinancing if you can qualify for a lower interest rate than what your student loan provider currently charges. The potential savings increase with a larger balance (you might need a $10,000 minimum balance just to qualify for any student loan refinancing) as the principal will accrue less interest every month.

Refinancing might even be beneficial if you plan to pay off your loan early. As one of the perks of refinancing is the potential to save money, try to apply for a program that will not charge an application or origination fee. If your credit score is lower or you have a lower income this might be a little difficult, but, fee-free programs do exist.

When Not To Apply For Refinancing

Sometimes refinancing is more trouble than it is worth. This might be your case if you can already pay off your student loans within the next 4 to 5 years. Most programs also require a minimum loan balance (i.e. $10,000) to apply for refinancing. If you are right at this level and have a similar interest rate, it might not be worth the hassle.

Another reason to not pursue refinancing is if you have no trouble making the minimum payments and the interest rate isn’t significantly different. It might be tempting to refinance to get the lower monthly rate. But, if you are not disciplined to pay more than the minimum, it might be better to keep your original loans. The shorter repayment period might mean you will pay less interest, even if the overall interest rate is higher.

Should I Refinance My Private Student Loans Summary

Paying for student loans isn’t the most exciting facet of life. Refinancing can serve two different purposes. It allows low-earning graduates the ability to pay the student loan obligations by extending the repayment period or it helps others pay less interest even if they prepay. Many graduates can benefit from refinancing if done properly, and every college graduate should at least consider it if they qualify.

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What Is The Difference Between Federal and Private Student Loans?

federal and private student loans

Every fall and spring, a college student needs to apply for loans to cover the remaining cost of college that financial aid and scholarships will not cover. There are a couple different loan options to choose from, but the primary decision will be choosing between federal and private student loans. Each type of loan will pay the college bill, but are differences between federal and private student loans?

All About Federal Loans

Federal student loans are administered by the Department of Education. They are the most popular option among college students and their parents because of the multiple offerings and extra protection. They usually have lower interest rates than private loans. Let’s break down the different features offered by federal loans.

Interest Rates

Most federal loans have a fixed interest rate. This means you pay the same interest rate for the entire life of the loan. If interest rates drop, the rate might also lower but it will never exceed the original amount. Most private loans are variable rate loans (the rate can go up or down), although private fixed-rate loans exist as well. Variable rate loans typically have lower interest rates. But, you run the risk of paying more interest in the long run if rates increase and exceed the fixed rates offered at the time of loan origination.

Subsidized and Unsubsidized Loans

Depending on your total calculated need on the FAFSA form, you might qualify for a subsidized federal loan. These loans mean that the federal government pays the interest accrued while you remain actively enrolled in school. You will begin paying interest once the loan enters repayment status.

If you do not qualify for a subsidized loan, all the interest accrued will capitalize and be rolled into the principal when the loan enters repayment status six months after graduation. You can pay the accrued interest before it capitalizes to avoid paying interest on interest. Over the course of four years of study, the capitalization amount can be several thousand dollars.

Repayment Based On Income

Another benefit of federal loans is that you have more flexibility in negotiating the repayment of your federal loans each month. Certain professions pay less than others. It can be a struggle for a recent graduate to make the regular monthly payments of a federal or private loan until they have a few years of experience under their belt.

If you meet the income-to-expense requirements, your payment plan will be restructured to where you will owe up to 10% of your discretionary income. The loans will still need to be repaid, but this option allows you to make reduced payments without penalty.

Loan Forgiveness

Graduates that find employment for a government or non-profit organization may qualify for loan forgiveness after 120 (10 years) qualifying payments. Further qualification for this option also requires being enrolled in an income-driven repayment plan (discussed above) or a 10-year repayment plan.

Projecting your future employment situation at graduation, let alone 10 years after graduation, can be somewhat difficult to predict for college students or high school seniors. However, it can be a nice option to have in your pocket in case you need it.

Other circumstances when federal loans can be forgiven can be when the borrower dies or becomes permanently disabled. Note that it is harder to have private student loans forgiven for any of the reasons mentioned in this section.

federal and private student loans

Private Student Loans

For one reason or another, sometimes students will also need to go with private student loans. Here are the advantages of a private loan compared to federal loans:

No Borrowing Limit

A drawback of federal student loan programs is that a college student or family can only borrow so much money per college semester. If they do not have the cash to pay the difference, they will need a private loan. To avoid the hassle of applying for multiple loans, it might be easier to borrow all the money from one lender if the interest rates are similar to each other.

Competitive Interest Rates & Repayment Plans

Private lenders offer fixed and variable interest rates. They are usually a little higher than what is offered by federal programs. But applicants with great credit scores can qualify for rates that are competitive with or lower than federal interest rates. To qualify for these lower rates, the student will most likely need a co-signer with an excellent score. But, it is possible to get low rates through a private program.

Also, private loans also offer differ loan repayment terms. Federal loans often start with a 10-year repayment plan with the option to extend repayment up to 25 years. With a private loan, your repayment term will vary by the lender but it could be 15 or 20 years from the origination date. Loans with shorter repayment periods will have lower interest rates, but will charge a higher monthly payment to meet the payment deadlines.

A Private Market Solution

As a matter of principle, some families do not want to accept student loans from the government for personal reasons. It’s not required to fill out the FAFSA (required to qualify for federal loans) or accept federal loans before applying for a private loan. These loans offer another option to pay for school.

Similarities Between Federal and Private Student Loans

Although the two differ in a few ways, there are many similarities between federal and private student loans. The federal loans have more “perks” for students. This is especially true if a college graduate will be struggling to make the monthly payment. But, private loans are not the “scary monster” that people sometimes refer to. Federal and private student loans share some certain similarities.

Prepayment Penalties

Nobody wants to pay on their student loans until their own children begin attending college. Neither private nor federal loans charge prepayment penalties if you pay off your student loans in full before a certain date. Check the fine print before signing for a loan just to make sure. By paying more than the monthly minimum, you will save thousands of dollars in interest.

Refinance

With either type of loan, you can also consolidate or refinance your loans. A graduate with a combination of federal and private student loans will need to apply twice for refinancing (once for federal and once for private). Most lenders will not allow the applicant to refinance in the same loan because you lose the special privileges of federal loans when they are combined with private loans.

Interest Rate Discounts

To reduce your monthly interest charge, both federal and student loans types offer interest rate discounts if you meet certain criteria. This can include scheduling automatic payment withdrawals instead of manually having to send a check each month. You might also earn a discount if you go through loan counseling or maintain a good GPA.

One final similarity between both programs is that loan interest is tax-deductible. Each tax year, you can deduct up to $2,500 in paid student loan interest. This can help you receive a larger tax refund and is an indirect discount on your student loans.

federal and private student loans

Which Is Better Between Federal and Private Student Loans?

Each person has different financial and personal needs. As today’s college graduates are leaving with more student loan debt than ever before, it might make more sense to maximize the federal student loan offerings because of the repayment and loan forgiveness options.

Nobody can predict the future and these “safety nets” might come in handy. This doesn’t mean that a college student that solely takes out private loans is doomed to financial failure.

At the end of the day, each student and family need to do what makes the best sense financially. As it can take at least a decade to repay the loans, much interest can accrue. Choosing an option with the lowest principal and lowest interest rate is the best decision.

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What Is Needed To Buy A Car?

best deals on car insurance

Let’s face it, most people need to borrow money to buy a car. Only 1 out of 10 new car buyers buy with cash. This is one reason why auto loans are the third most common loan in America, trailing home mortgages loans and student loans. Because so many people need to take out an auto loan, it is very important to have a high credit score to qualify for the lowest interest rates.

What Credit Score Do I Need To Buy A Car?

Pay In Cash

If you are able to pay for your next car with cash, pat yourself on the back! Whether you are the first owner or the third owner of your new vehicle, not having a car loan can be a great feeling. By not having a car loan, the money you would be putting towards a monthly car payment can be invested in a Roth IRA account, pay down other loans, or just about anything else.

When paying in cash, keep in mind that you will also need to pay an additional amount of money above the sales price of the vehicle for registration fees and taxes. Each state charges a different amount, but you can expect to pay more for a $20,000 vehicle than a $5,000 vehicle.

Your Credit Score Determines The Interest Rate

There are several factors that contribute to securing an auto loan. This includes your income and credit history, but your credit score is also important. This three-digit number is what tells the lender and the finance guy at the dealership whether you have good or bad credit. The higher your score, the lower the interest rate on the auto loan.

Here is a breakdown of what type of interest rate you can expect with your credit score if you decide to finance a new car loan:

Estimated Interest Rate For A New Car Loan (Newer than 2 years)
Creditworthiness Credit Score Range Estimated Interest Rate
Excellent 740-850 1.49%
Good 680-739 3.35%
Fair 620-670 4.59%
Credit Needs Improvement 619 or lower 6.99%

The above table is only a guideline to show how interest rates increase as credit scores decrease.  Interest rates will be higher for a used vehicle that is older than two years. Also, lenders will rate credit scores differently. One bank might require you to have a credit score above 750 to get the lowest interest rate, while the dealer might offer the same interest rate if your credit score is around 720.

FICO

Another factor that makes it difficult to estimate your interest rate is that auto lenders use the FICO Auto score instead of the traditional FICO credit score that you can access. Only lenders & dealers have access to this credit score, so it’s impossible to obtain this score before visiting the dealership. You probably will not find out the score until you are signing paperwork to initiate the car buying process.

The FICO Auto score has a similar score range (350-900) to the traditional FICO but puts greater emphasis on payment history with previous auto loans and installment loans. It’s not uncommon for the score to be a couple points different.

What If I Have A Low Credit Score or No Credit History?

Most lenders will only offer decent interest rates to “prime” borrowers with a credit score of 620 or higher. A credit score between 500 and 600 normally falls into the “sub-prime” category with most lenders. The interest rates will be higher than the rates paid by prime borrowers. Also, some traditional banks might not consider lending to “subprime” borrowers. You may have to find an alternative company or dealership.

Don’t worry, if your score falls into the “sub-prime” category you should be able to get a car loan. But, it will most likely have to be through a special financing service or a dealership that specifically advertises financing for those with low credit scores. Just remember that interest rates will be noticeably higher than those advertised to prime borrowers. If the interest rates are too high, you may have to consider a cheaper car to ensure you can make the monthly payments.

Co-Signor

If you have a low credit score or virtually no credit history (even with a good credit score), the lender might require a co-signor on the loan application. Having a co-signor reduces the lender’s risk in case a borrower misses payments. They have a backup source to pay the monthly installments. Having a co-signor might also allow you to get a lower interest rate compared to obtaining a loan outright. You can read more about co-signors and how to acquire an auto loan with a bad credit score here.

Credit History and Proof-Of-Income

Two additional factors that lenders look at is your credit history and employment history. Loan officers value both pieces of information as much as the credit score which is a short summary of your credit history. You might have an “Excellent” credit score of 770 but have not had any previous car loans. Lenders look at your credit history to see if you have made payments on-time for any type of loan or credit card in the recent past.

Because lenders look at the FICO auto score, they place the greatest value on prior car loans. They might give you some grief if the only loan payment history you have is student loans. It isn’t the preferred type of loan when determining an auto loan interest rate.

If you have a little credit history or are currently repairing your credit score, the lender will most likely ask for your two most recent paystubs for proof-of-income. If your take-home pay is high enough, this also will allow you to qualify for a low-interest rate and eliminate the requirement of a co-signor.

Get Pre-Approved

Another proactive action you can take is getting pre-approved for an auto loan through your bank. You might already be receiving the e-mails and brochures periodically from your bank about these pre-approval offers. While obtaining an auto loan isn’t as rigorous as getting a home loan, getting pre-approval can only help you. Dealers will take you more seriously during negotiations. The pre-approval also gives you a starting point with an interest rate and loan limit. For example, you are pre-approved for a 36-month loan at 2.49% interest up to $25,000.

Shop Around

Just as you will probably visit several different dealerships to find your ideal car at the right price, you should also compare interest rates from different banks. If you are pre-approved, you already have a baseline to compare to other bank rates. If you know your credit score, most banks have a detailed breakdown similar to the table earlier in this article. Most do not publish the credit score ranges (i.e. 720 is “Excellent” at Bank A but Bank B requires a 750 to get the “Excellent” interest rate), so you will have to ask if they can disclose that information to you. Interest-rate shopping will allow you to get the lowest rate for your credit score.

Down Payment

Depending on how much you can get a car loan for, you might have to pay a down payment as well. One approach is that the down payment can be the registration taxes and dealer fees. These can finance the cost of the car or put down 5% of the selling price. Each person has different financial circumstances. Keep in mind that the less you borrow, the lower your monthly payment.

Car Insurance

Another expense to think about before purchasing a vehicle is car insurance. If you take out a car loan, the lender will require that you carry collision and comprehensive insurance for the duration of the loan. If your current vehicle only has liability insurance, your monthly bill will be significantly higher carrying these additional policies. Insurance companies will give you a free quote if you buy a particular vehicle. If you are not pleased with the quote, you can “insurance shop” and try to find a lower quote for similar coverage.

Also, car insurance is cheaper for drivers older than 25 years old. So if you are an 18-year old eyeing a nice sports car but can only buy one with a loan, you should probably get an insurance quote first. You might be able to afford the monthly loan payment, but not the monthly insurance payment. If that is the case, you should probably wait a couple years before buying this car as the rates will drop if you have a clean driving record.

Summary

Buying a car is more complex than simply going to the dealership and driving home in a new vehicle.  While obtaining a car loan is less complex than applying for a mortgage, banks still put great emphasis on your credit score, credit history, and current income earnings. The better prepared you are beforehand (knowing your spending limit and how much you can borrow), the better you can get the best deal.