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7 Signs Your Job May Be In Danger

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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While some signs of job troubles are fairly obvious (you’re called in for an impromptu review that doesn’t go well, or you’re given a verbal or written warning), there are others that might go unnoticed to the untrained eye. Of course picking up on the subtle clues that your higher-ups are less than satisfied with your work can mean the difference between fixing the mistakes in time and starting a brand new job search.

We checked in with some experts for what they would consider are the subtle signs that someone should be wary of how their job performance is going — and perhaps start making some moves to up their game.

Sign 1: Your boss has to verbally ask for your input

Why it could be a bad sign: To the untrained eye, your boss valuing your input is a good thing — and it is a good thing! — but she shouldn’t have to ask for it. “If you like to sit on the peripheral chairs in meetings and do not often speak up, and if your colleagues or boss subtly nudge you to sit in the so-called central chair or if people are often asking you for your opinion in meetings, it may be time to step up your game,” says Gia Ganesh, a career coach and founder of GiaGanesh.com. Instead of forcing your boss to wonder if you have the potential to say and contribute more, prove it by impressing her with you know-how before she even has to ask.

Sign 2: Your boss has changed the way she treats you socially

Why it could be a bad sign: It’s an obvious bad sign if you’re suddenly looked over for new projects, clients or tasks that in the past you would have always been considered to take the lead on, but it’s also important to pay attention to the way your boss and key co-workers are treating you in general. If they’re not being as social, friendly or cordial as they have been in the past, it may be time to make some changes. “If your boss avoids having meaningful conversations with you about the status of your projects or quality of work, or even to engage in what had been in the past light social discussions, these are signs,” says Fred R. Cooper, founder/managing partner of Compass HR Consulting, LLC. If you find yourself dealing with this type of situation, having a frank, potentially uncomfortable conversation with your supervisor may help salvage your relationships, as well as provide a blueprint for future success and a road map for expectations on both sides moving forward.

Sign 3: You suddenly find yourself being micromanaged

Why it could be a bad sign: Generally it’s a good sign when your boss has enough confidence in your skills to allow you to handle your own projects and deadlines without any additional help. “If your boss is micromanaging you with frequent meetings and overly-detailed comments on your work, it could mean that he or she doesn’t trust you to operate independently,” says Sam McIntire, founder of online learning platform Deskbright. If this happens, McIntire suggests having a transparent conversation with your manager about what aspects of your work you can improve, and what skills and output you need to demonstrate in order to earn autonomy and self-direction. “Your goal should be for your manager to delegate tasks to you and trust that you’ll competently execute them with minimal direction.”

Sign 4: Your boss is unaware of some of your talents

Why it could be a bad sign: If you’ve taken certain courses or classes or had particular experience in a past job that would really come in handy in your current gig, you need to speak up about that. “If you hear from your boss, ‘I had no idea that you did that or know that,’ in reference to some professional work, skill, talent or knowledge, it means you are not tooting your horn enough and it may be another sign to step up your career game,” says Ganesh.

Sign 5: You can’t remember the last time your boss came to you with a time-sensitive issue

Why it could be a bad sign: When there is an urgent, fire-drill type of task that needs doing, does your boss come to you to complete it? If not, it could be that he doesn’t consider you a go-to person. “Ultimately, being an action-oriented problem solver and leader is what is most likely to move your career forward,” says Mike McRitchie, a career and small business strategist. So the next time you see your boss struggling to get something done on a tight deadline, offer to take on the task, or at least check in to see how you can help out — then make your work really stand out.

Sign 6: Your boss has no idea what you’re working on

Why it could be a bad sign: While a little autonomy is a good thing, it’s still essential that your boss knows and understands the value you deliver to the office every single day. “Being a silent giant is not a good place to be,” says Kristi Daniels, an executive career coach and founder of Thrive 9 to 5, LLC. “Even if they’re focused on other priorities, make sure your manager knows your contribution to the team and the organization.”

Sign 7: Your boss or manager describes you in terms that don’t align with how you see yourself

Why it could be a bad sign: Obviously one of the more important aspects of your job is that both you and your boss agree on what your objectives and goals are within your position — if you don’t, that is a problem. “If you don’t brand yourself, someone else will,” Daniels said. “You need to actively demonstrate and share your skills, passions and what you have to offer. You teach others how to talk about you.”

Cheryl Lock
Cheryl Lock |

Cheryl Lock is a writer at MagnifyMoney. You can email Cheryl at cheryl@magnifymoney.com

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Why You Shouldn’t Take Out an 84-Month Auto Loan

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Part I: The Truth About Long Term Auto Loans

When poor credit and high monthly payments are keeping you from buying the car you need, it may be tempting to lower your payments by signing up for a 72-, 84- or even 96-month term loan. Before you do, it’s important to know exactly what you’re signing up for — and be sure you’re making the right move for your finances.

Lower car payments with longer terms mean you’re paying more in interest, and loan companies love this for obvious reasons. Evidently, consumers do, too. In the first quarter of 2017, new car loans with terms from 73 to 84 months represented 34.9 percent of all auto financing. For used cars, they represented 19.5 percent.

Most of the big dealerships offer 84-month financing through banks like Ally Financial or Santander. Local dealers are also known to offer longer term financing offers, typically through third party financing companies, credit unions, or insurers like Nationwide.

Let’s take a look at what you’re getting into when you choose a longer term on your auto loan…

Note: These numbers don’t include tax, title, or registration, which will only increase the amount of interest you pay if you include those costs in the total amount you borrow. These numbers also don’t include any down payment or trade-in you may have, which will decrease the amount of the loan and the amount of interest paid.

5 reasons long auto loan terms are a bad idea

  1. More interest. As you saw in the example above, you’re going to pay a lot more interest on a car loan with a longer term. If you spend more than those average amounts on a new or used car, the amount of interest you pay is only going to go up.
  2. Your loan will outlast your warranty. Most manufacturer’s warranties last 3 to 5 years, so you’ll be paying on your loan for an additional 2 to 4 years after the warranty runs out. Which leads to…
  3. New car payment, old car repair costs. Think about this. You’re going to be making your car payment for the next seven years. With a shorter term, you’d have paid off your vehicle before you started paying for costly repairs. But with an 84-month loan, you’re going to be paying both your monthly loan and the inevitable repair costs that come with an older vehicle.
  4. Negative equity. Stretching out a car loan over time means you’re paying less on the principal and more in interest with each payment. As your vehicle continues to decline in value each year, you’ll continue to be upside-down on your loan unless you made a significant down payment.
  5. Unable to refinance. If you’re upside-down on your loan, meaning you owe more on your loan than the vehicle is worth, you’ll be unable to refinance your loan.

When it makes sense to get an 84-month auto loan

  • You absolutely can’t afford a car any other way. This is probably the number one reason why people choose longer terms on their auto loan. An 84-month auto loan will lower your monthly payment, allowing you to purchase that vehicle that otherwise would be just out of reach. However, you should consider whether you’re borrowing too much if you can’t afford the monthly payment on a shorter term loan. Can you compromise by buying a used car at a lower price point? Or, could you scrounge up more money for a larger down payment to reduce the amount you need to borrow?
  • You have higher interest debt to worry about. If you have other loans at a higher interest rate, it may make sense to get a lower monthly loan payment so you can free up capital each month. That way, you can use the extra money you’re saving to pay down higher interest loans.

How to make the most of a long-term loan

  • Compare rates. Companies like LendingTree and MagnifyMoney allow you to compare auto loan rates from multiple lenders. So you can make sure you’re getting the best deal and a low APR. (Disclosure: LendingTree is the parent company of MagnifyMoney)
  • Buy now, refinance later. If you’re absolutely bent on getting a certain car now, you can always choose to refinance down the road, when your financial situation improves.
  • Make a larger down payment. Getting out of a bad car loan can be difficult when you’re upside-down. By putting more down on your vehicle up front, you’ll prevent this from happening while saving money in interest and avoiding gap insurance.
  • Buy used. The average used car payment is $145 less than the average new car payment, according to Experian, so save yourself some money with a more affordable monthly payment by buying a used vehicle.

5 tips to lower your costs of borrowing

  1. Keep your car after it’s paid off. Once your car is paid off, keep it — especially if it’s reliable and gets good gas mileage.
  2. Make an extra payment each month. By paying an extra $100 per month, you could save $1,819 in interest and own your car in a little over five years when you buy a $30,534 new car with an 84-month loan. When it comes to that $19,126 used car, you’d save $1,598 in interest and pay it off in under five years.
  3. Compare rates. Shop around for the best rates, and get multiple offers from lenders to compare. A difference of 3 percent on your interest rate could save you $3,689 on that 84-month new car loan of $30,534 and $2424 on that $19,126 used car.
  4. Buy used. With used car payments an average of $145 less than new, you’ll save a lot when you buy used over new.
  5. Don’t finance extras. Pay up front for your license, tax, and registration. If you purchase an extended warranty or prepaid maintenance package, don’t finance those into your loan either.

Part II: Understanding the Auto Loan Process

84-month auto loan
Source: iStock

Most people do it backward — they go shopping for a car first, then shop for a loan. When you do this, you’re making yourself vulnerable to high-pressure sales associates and putting yourself at a disadvantage when it comes to financing your vehicle.

When you get pre-approved for auto loans before heading to a dealership, you have an understanding of how much money you can qualify for, so you’re not shopping for vehicles that are too expensive. You also have a loan amount and interest rate to compare any other financing that’s offered to you.

How to get pre-approved for an auto loan

You can get pre-approved with a bank, credit union, auto finance company, or dealership finance center.

  1. Research rates online. Many sites, like MagnifyMoney’s parent company Lendingtree.com, will offer auto loan rates online. It’s a good idea to check them out so you have an idea of what’s being offered. Keep in mind that your creditworthiness will affect the rates you’re able to qualify for, and the credit score for an auto loan is a little different from other loans.
  2. Gather your documents. Get everything you need together before calling or taking a visit to your lender. This may include:
    1. Personal information, like your name, address, phone number, and Social Security number.
    2. Employment information, like your employer’s name and address, your title and your salary
    3. Financial information, including what kind of credit you have available now, your current debts and your credit score.
  3. Apply. Choose a few lenders and apply online or in person for your auto loan.
  4. Get a quote. Once you’ve completed the loan application and you’ve been pre-approved, you’ll receive a loan quote showing how much you qualify for, the interest rate and the length of the loan. You can take this to the dealership with you when you’re shopping and use it as a negotiating tool.

For more information on your loan choices, check out these resources:

Getting a cosigner for an auto loan

Having a co-signer can help you qualify for a loan you wouldn’t otherwise get. As long as the co-signer has a strong credit score, it’s likely you’ll qualify for a better interest rate using a co-signer too. And making on-time payments on this type of loan will help build your credit.

The drawbacks of having a co-signer are that the cosigner is responsible for the loan if you fail to pay. If this happens, chances are you’ll negatively affect your relationship with whoever cosigned for you. If that’s a friend or family member, (which it usually is) look out! Think twice about the responsibilities of having a co-signer, and the importance of paying back the loan, so you don’t leave your cosigner on the hook for money you borrowed.

Understanding your auto loan contract

Here are some key terms you’ll need to know when it comes time to signing a contract.

  • Sticker Price – A manufacturer’s suggested retail price that is printed on a sticker and affixed to a new automobile
  • Purchase Price – This may be less than the sticker price, and is the price you agree to purchase the vehicle for from the dealer.
  • Amount Financed – This is how much money you are borrowing and the amount you’ll pay interest on. Be careful about financing extras into your loan, as doing so may put you upside-down in the vehicle.
  • Down Payment – An amount of cash provided at the time of vehicle purchase and credited toward the purchase price of the vehicle to reduce the amount financed.
  • Interest Rate – The amount of money charged for loaning money, expressed as a percentage of the Amount Financed.
  • Fixed-Rate Financing – With a fixed rate, your interest rate will never change and you’ll always pay the same amount each month.
  • Variable Rate Financing – A variable interest rate is subject to change and may increase your monthly payment amount.
  • Monthly Payment Amount – This is how much you’ll pay each month.
  • Finance Charge – This is a fee, charged by the lender, for extending you credit.
  • Annual Percentage Rate (APR)APR includes both the interest and fees expressed as a percentage, making it easier for you to compare multiple loan offers.
  • Term — This is the length of the loan expressed in months, usually 36, 48, or 60.
  • Extended Warranty Contract – An extended warranty covers the vehicle beyond the manufacturer’s warranty for a fee.
  • Guaranteed Auto Protection (GAP) – If you owe more than the car is worth, you’ll be offered GAP insurance, which will cover the difference if the vehicle is lost, stolen, or totaled.
  • DMV Fees – These may include title, license, and registration.
  • Title — The legal document proving ownership of a vehicle.

Auto loan contract traps

Here are few traps dealers can use against you. Know them so you can protect yourself and avoid getting ripped off

  • Rate mark ups. Your dealer is getting financing from a bank, and they mark up the rate, charging you an extra percentage or two when you could have just gone directly to the bank in the first place.
  • Yo-yo financing. The dealer says you’re approved and you drive away. Later, the dealer says you were denied, and asks for a larger down payment or increases the interest rate. If you refuse, you must return the vehicle, and the dealer may try to keep any deposit you made.
  • Falsified credit application. Sometimes dealers will falsify information on your credit application, like increasing your income, to help you qualify for a vehicle you wouldn’t otherwise qualify for. Be sure to check your credit application before signing.
  • Selling extras. Whether it’s GAP insurance, prepaid maintenance, or extended warranties, the dealership is going to try to upsell you on some extras to rack up the charges and, if you agree to roll it into your financing, increase the amount of interest you pay. Be careful when selecting these extras and make sure you understand what you’re getting and know it’s worth the expense.
  • Negative equity financing. If you owe more on your trade-in vehicle than it’s worth, dealers will try to offer you a deal where you roll the negative equity into your new auto loan.
  • Extra charges. Look over your contract for any extra charges. One way to spot these is if they’re pre-printed on the contract. Many of these charges are not required and can be negotiated down.

Using an auto loan to improve your credit

If you’re working toward improving your credit, there are two rules you must follow. And while going from good to excellent isn’t easy, there are a few ways your auto loan can help you improve your score.

  • Payment history. On-time payments are 35 percent of your FICO score, so paying your auto loan on time will help with your payment history.
  • Credit mix. Because having a mix of different types of credit (home loans, personal loans, credit cards) makes up 10 percent of your FICO, throwing an auto loan in there will certainly improve your mix.
  • Report to credit bureaus. Make sure the lender you’re working with reports your payments to the three major credit bureaus. Beware of “Buy here, pay here” dealerships who may or may not report your payments to the credit bureaus.

And if you want to prevent your credit from getting worse, make sure you don’t do any of the following:

  • Make late payments on your auto loan.
  • Stop making payments and get sent to collections or have your car repossessed.
  • Include your car loan in your bankruptcy (if applicable).

When it makes sense to lease vs. buy a car

If you’re taking out a longer term loan in order to lower the monthly payment, you may want to consider leasing as an option. There are some things you should know before leasing a car, especially if you’re comparing leasing to buying. And while leasing isn’t for everyone, it can be a viable alternative to taking out an 84-month lease. in fact, according to Experian data, the number of people taking out a lease continues to increase.

“Another reason why we see consumers increasingly choose to lease, is they’re generating around $100 lower payment. And the biggest difference is in non-prime, [where there’s a] $109 difference between a loan and a lease,” says Melinda Zabritski, senior director of sales at Experian.

The Pros and Cons of Leasing a Car

Pros:

  • Lower monthly payment. The payment to lease is an average of $100 less than buying according to Experian’s 2017 report.
  • Warranty coverage. The average lease lasts 36 months and during that time, you’ll have full warranty coverage for anything that goes wrong with the vehicle.

Cons:

  • Mileage penalties. Most leases have a limit on how many miles you can drive (10,000 per year for an average lease), and you’ll pay for additional miles you drive unless you secure an extra-mileage or unlimited-mileage lease upfront.
  • Wear-and-tear fees. Nicks, scratches, stains — they all amount to extra wear and tear on your leased vehicle, and you’ll pay for them at the end of your lease. So if you’re hard on your vehicles, buying may save you some money here.

The Pros and Cons of Buying a Car

Pros:

  • Ownership. Once you’ve paid off your loan, the vehicle is yours.
  • No mileage penalties. Drive as much as you like, you won’t pay a dime for “extra” miles you drive like you would with a lease.

Cons:

  • Maintenance and repairs. With ownership comes responsibility. In addition to being responsible for the maintenance, once the manufacturer’s warranty expires, you’ll be responsible for all any repair costs needed. That’s why some people consider buying an extended warranty.
  • Loss of value. Although you won’t pay fees for wear and tear, or extra miles you put on the car, those things will still lower the value of the vehicle when it comes time to sell it. And every year you own it, the value of the vehicle is likely to continue to decrease.

The Bottom Line: Is an 84-month auto loan ever a good idea?

In our opinion, no. Most people make the choice to take out a longer term auto loan in order to lower their monthly payments to afford the car they want. ‘Want’ being the operative word here. Chances are, you can purchase a less expensive car that would give you the same monthly payment. Although it’s difficult, putting your emotions aside can really help you make a financially sound decision when it comes to choosing the terms of your auto loan. If you know this is an area where you struggle, ask for help from a friend or family member who can be the voice of reason.

If you do choose to go with an 84-month auto loan, just understand that you’ll be paying more interest on your loan. And hopefully, you have a good job for the next seven years to help you pay for it.

Ralph Miller
Ralph Miller |

Ralph Miller is a writer at MagnifyMoney. You can email Ralph here

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Your Guide to Navigating New and Used Boat Loans

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Bankrolling a new or used boat can shock borrowers straight out of the water if they don’t understand the lending process. There are ample financing options to find a good deal. Loans are available from manufacturers, dealers and financial institutions – each source with distinct advantages and drawbacks.

PART I: How to finance a boat

boat loans
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When you apply for boat financing, the application process involves a written application (or telephone screening), followed by verification of income and submitting details on the watercraft make, year, model and features. Similar to underwriting on auto loans, the lender will review the applicant’s credit history, debt to income ratio, and the market value of the boat.

Experian reports that terms on auto loans average 69.7 months, with higher subprime terms up to 72 months. In contrast, boat loan terms at Essex Credit, a 30-year-old boat lender and division of Bank of the West, go as long as 360 months on loans of $250,000+.

Jim Coburn, consumer finance consultant and former president of the National Marine Lenders Association (NMLA), says banks and credit unions allow the use of cosigners in a boat loan. Each lender has their own sets of requirements for cosigners. For boat financing companies that do not accept cosigners, there’s a simple way around this limitation: applicants can instead apply for a personal loan that allows a cosigner and use that loan to pay for the boat.

The pros and cons of financing a boat depend almost entirely on the kind of loan used to buy the watercraft. Here are some general considerations:

The Pros and Cons of Boat Financing

Pros:

  • You’ll have predictable monthly payment amounts (with fixed-rate loans)
  • You’ll know exactly how long it will take to pay off the loan
  • So long as you make on-time payments, financing can help build credit
  • The boat can be used as loan collateral

Cons:

  • Variable interest rate loans can blindside your budget
  • Unsecured loans may cost more than those using a boat or home as collateral
  • Subprime boat loans can carry double-digit interest rates
  • Loan payments can tie up cash reserves

Boat loan interest rates — what can I expect?

The interest rate on a boat loan will depend on the type of boat financed and the total amount you’re looking to borrow. But there are three other key factors to keep in mind that are directly in your control.

You creditworthiness. Plain and simple, the better your credit score is, the better your boat loan rate will be. That being said, lenders have no problem extending loans to “subprime” borrowers — even those with credit scores under 550, Coburn says— but they will charge a hefty price for doing so. Borrowers with poor credit can easily face double-digit interest rates ranging from 10-20%, per Coburn — which means your boat loan APR could be higher than the APR on some major credit cards. Furthermore, borrowers with poor credit will also likely face limitations in how much they can borrow and for how long. Repayment terms are typically shorter than those offered to customers with good credit, he says.

Your debt-to-income ratio. Just like a mortgage, a key factor for determining interest charges is the applicant’s debt-to-income (DTI) ratio. Your DTI simply tells the lender how much of your income is being spent on debt payments. To get your DTI, simply add up your total monthly debt payments and divide it by your gross monthly income. A low DTI can help you secure a lower interest rate, while a high DTI may indicate the borrower has maxed out their credit. According to boat lender SeaDream, a DTI above 40% can disqualify loan applicants.

Your down payment. The amount of your down payment will depend largely on the type and age of the boat you’re looking to finance. Some lenders will require a minimum down payment based on the amount you wish to borrow and the type of boat. Essex Credit cites its required down payments by price range as:

  • $10,000 – $150,000, 10 percent down
  • $150,001 – $250,000, 15 percent down
  • $250,001 – $500,000, 20 percent down
  • $500,001+, 25 percent down
  • Boats constructed from 1919 to 1996, 30 percent down

Other factors include the borrower’s assets, the cost of the boat, the boat’s age, current value and the amount of the down payment.

Boat loan terms

Terms for boat loans are generally pegged to the total amount the borrower finances – not on the current value of the watercraft. For example, boat loans by BoatUS that are financed for more than $100,000 have terms available up to 20 years. According to the NMLA, lenders who only offer boat loans may offer longer terms than those offering multiple loan products.

When considering terms, loan applicants need to recognize that the term directly affects the total cost paid for interest on the boat and the amount charged for monthly payments. A longer term can deliver a schedule of lower monthly payments, but you’ll pay more interest on the boat overall. However, a short-term loan may strap the buyer to payments that put their monthly cash reserves on a perilous edge. Boat loan calculators (more on these later) can be instrumental in finding an affordable balance of terms, interest rates and payments.

What type of boat is eligible for a boat loan?

Financing is available for most of today’s range of new and used boats, including:

  • Human-powered craft
  • Sailboats
  • Motorboats
  • Powerboats
  • Cabin cruisers
  • Sailboats
  • Fishing boats
  • Open-bow craft
  • Houseboats
  • Classic wooden boats
  • Yachts
  • Catamarans
  • Canal cruisers
  • Wakeboard and ski boats
  • Runabouts
  • Personal watercraft
  • Cuddy boats
  • Kayaks
  • Trawlers
  • Runabouts
  • Pontoon boats
  • Center-console boats
  • Dinghies

Types of boat loans

Banks, credit unions, and financial service companies are the more-common sources of loans for boat buyers. Many boat loan providers are members of the NMLA. Applicants have a choice of loan types that best-suit their finances and credit. The three major types include

Let’s examine each in order:

Fixed-rate collateral loans

How they work: When consumers take out a fixed-rate collateral boat loan, they can expect to make a predictable monthly payment over the life of the loan, with an unfluctuating interest rate. The collateral used on boat loans typically is the watercraft itself, which can be plucked out of the water by the lender without notice following a missing payment. Borrowers should check their contract to see if there is a grace period for delinquencies. Repo laws vary by state.

The security against the loan is evaluated during the application process. The lender may require a market-value assessment by a professional marine surveyor to determine the value of the security. The larger the boat, the larger the cost for a survey, according to Coburn. “Pricing for marine surveys vary widely for recreational boats and may cost for anywhere from $10 to $25 per foot,” he says. He recommends that consumers choose a qualified surveyor who is an accredited member of the Society of Accredited Marine Surveyors, Inc. (SAMS), an organization of marine surveying professionals that evaluates standards and practices.

Penalties for defaulting: According to Coburn, each lender has its own policy on when a default takes place. “Most lenders we deal with consider foreclosure (boat repossession) more in the sixty days [late] or greater range,” he says.

Who fixed-rate collateral loans are best for: A fixed-rate collateral boat loan is a good option for buyers who don’t have other assets to apply toward the loan. Fixed-rates offer protection from fluctuations in national interest rates. They’re a good choice for consumers who cannot secure a collateral-free loan because of their income, outstanding debt, or low credit score.

Home equity loans

How they work: A home equity loan can provide a borrower a source of cash for buying their boat. The amount you can borrow depends on your current loan-to-value (LTV) ratio and current market value of the home. The LTV represents how much the borrower owes on the mortgage compared to the home’s current market value.

According to Wells Fargo’s lending department, consumers with 621-699 credit scores should expect to pay higher rates on a home equity loan. The amount you borrow and the existing debt on the home, combined, cannot exceed 85 percent of current home value. And your current debt may not exceed 43 percent of your monthly pre-tax earnings.

Pros: The interest rate on a home equity loan is fixed, meaning stable, predictable monthly payments over the term. And the rate will be lower than the interest charged on unsecured personal loans. The lump-sum of the equity loan can be more than the total cost of the boat, which can be a blessing given the insurance and operating costs of maintaining a safe watercraft. Plus, interest paid on a home equity loan may be tax deductible.

Cons: On the negative side, home equity loans come with initial fees and closing costs. In a worst-case scenario, a borrower uses up home equity and, if they default on their loan, they lose their house.

Personal loans

Unsecured or secured personal or “signature” loans can let boat buyers pay for their boat if they can afford the higher interest associated with these loan products. The good thing about personal loans, is that lenders don’t care how you spend the money.

With a secured personal loan, the borrower puts up the boat as collateral. They usually offer higher loan limits than unsecured signature loans. Current rates on a personal loan are as low as 3.24% APR.

Based on the applicant’s creditworthiness, unsecured personal loans are usually extended with fixed rates.

Variable rate vs. balloon payment loans

In addition to fixed-rate boat loans, consumers can also choose variable-rate or balloon-payment loans. A variable-rate lender may extend a low introductory rate on their loan product that adjusts following the initial rate period. These loans reset according to interest rate indexes, so borrowers need to ensure that they can afford monthly payments after the attractive introductory rate expires.

With a balloon payment loan, borrowers agree to pay off the balance on a specified date. The NMMA advises that balloon-payment loans may be best suited for borrowers that intend to own the boat a short while and sell it off prior to the due date of the balloon payment.

PART II: Shopping for Your Boat Loan

Credit score and credit history are the key variables lenders examine when it comes to approving an affordable boat loan. Don’t sail into the application process blindly. Is your credit good enough to land a favorable interest rate and term? Should you improve your credit score prior to searching for financing?

Know your credit score

Credit scores directly impact loan approvals and rates in a similar way that they affect home mortgages and car loans. Good credit scores are considered optimal for securing a boat loan at a favorable rate. You can check your credit score for free using the Discover Scorecard.

The credit-reporting firm Experian defines an “excellent credit score” as 750 or higher. Boat lender Lightstream offers loans to excellent credit applicants with rates from 3.24 percent to 10.59 percent.

Bad credit will severely impact the interest rates on a boat loan, although there are mid-tier credit and subprime loans available. Applicants with credit scores in the 500-550 range can anticipate rates from 10 to 20 percent, according Coburn.

Know how much boat can you afford

The National Marine Manufacturers Association (NMMA), an organization that represents more than 80 percent of today’s boat and marine engine makers, recommends that new owners consider more than the asking price of the watercraft. Consider costs for insurance, equipment upgrades, maintenance, and storage as well.

A good way to begin assessing the affordability is to use the free NMMA Boat Loan Calculator or LendingTree’s free Boat Loan Calculator [Disclaimer: MagnifyMoney is a subsidiary of LendingTree]. Enter the loan amount (sans the down payment), the interest rate and the length of the term. The calculator will crunch the numbers and estimate the monthly payment on the loan. Compare the monthly payment to your income and financial cushion.

One way to constrain the monthly payments is to alter the term or the down payment. A longer term may make monthly payments more affordable, but the total price of the loan will increase accordingly. The size of the down payment can also reduce the monthly payments. Consider the size of a down payment you can make without toppling your finances.

How to get pre-approved for your boat loan

Getting a pre-approval for a boat loan is a solid way of determining the ceiling of your budget. The pre-approval (or pre-qualification) process for a boat loan is similar to other types of loans. The lender does not have to look at the prospective boat contract. The underwriter calculates the amount the applicant can spend based on the loan amount and allows consumers to go boat shopping knowing their limits.

Once the lender grants a pre-approval, the shopper has more leverage with the dealer, who knows the buyer can afford the boat and is ready to buy if it meets their requirements. A pre-approval can provide a hedge against unfair seller mark-ups or long delays in waiting for the loan to go through.

Pre-approvals are acceptable during a specific time frame, typically up to 60 days.

New vs. used boat loans

There’s an age-old argument over whether buying a new or used boat makes more sense. Financing options are much the same for each. Banks, credit unions and dealers can help buyers into fixed-rate collateral, home equity and personal loans to pay for the watercraft. Buying a used boat may be a good option for first-time owners who want to decide on the kind of watercraft they’re after and whether they will use it enough to justify the expense. The NMMA cites the benefits of buying new vs used, which we’ve summarized below:

New boats

In purchasing a new boat, there’s no reason to consider depreciation, wear and tear, and why the boat was put up for sale in the first place. New boats often come with warranties to cover repairs at local dealers. And owners can outfit their new watercraft with exactly the features they need.

Used boats

A marine survey can detect any or all items of concern with a used boat on the market. Buying a boat that’s five years old can stave off much of the depreciation. The NMMA reports that in buying a used boat, the new owner avoids the “25 to 33 percent depreciation” that occurs in the initial five years.

Where to shop for your loan

Boat loans are made by banks and credit unions, boat dealerships and financial service companies and consumers may benefit by comparison shopping among lenders. Each type of lender source comes with a unique set of considerations.

Banks and credit unions

Banks and credit unions may offer the widest selection of options for boat loans, from personal loans and home-equity products to collateral loans. They may also be more lenient on credit scores than other lenders. On the negative side, many of the largest banks in the country do not offer boat loans. The formal application procedure of traditional lenders can take longer than it does for online institutions. It’s wise to compare interest rates as well when it comes to bricks-and-mortar institutions vs. online lenders.

Boat dealerships

One plus of working with a dealership is that it may be able to offer discounts or rebate programs provided by manufacturers. The NMLA claims that specialized marine lenders can approve a loan in as little as “a few hours”.

Dealer-lenders may also allow financing that includes funds for electronics, navigation gear and extended warranties. On the downside, consumers may be restricted to the type of loan product offered by the dealer, rather than the wider options offered by banks or other lenders.

Like car buyers, boat customers should try to negotiate prices from dealers based on their own price research. “[Negotiating with dealerships] is occurring more and more in recent years,” Coburn says.

Financial service companies

Whereas banks and credit unions are savings and loan institutions, financial service companies just offer loans. NMLA membership is made of banks and credit unions, but also of major financial service companies offering financing on new and used boats. The NMLA claims its members provide applicants with faster credit decisions, longer financing terms and specialized help in securing used boat loans. A potential downside of some financial service companies lies in the variation of loan rates and terms based on location. They are licensed by the states in which they do business. However, financial service companies are regulated by The Consumer Financial Protection Bureau (CFPB).

What to expect on a boat loan application

Lenders establish their own guidelines for underwriting a boat loan. Depending on the type of loan, the lender and the total loan amount, applications may be made in person, online or over the telephone. Borrowers must give verbal (for telephone applications) or written authorization for the lender to pull a credit report. Be prepared to offer thorough information about the borrower, any cosigners and details about the boat. A customary application includes:

Borrower

  • Borrower’s name and address (owner or renter)
  • Driver’s license
  • Employment status and proof of income (may require immediate past two years of tax returns)
  • Financial assets and liabilities (cash on-hand, investments, outstanding debt and other loans)

Cosigner (for personal loans or with boat dealers accepting co-signers)

  • Name and address
  • Monthly house payment
  • Driver’s license
  • Employment status and proof of income

Boat information

  • Manufacturer, model and year
  • Length and hull number
  • Engine make/horsepower (if applicable)
  • Optional equipment
  • Intended use (pleasure, residence or charter)
  • Years of boat experience and/or previous ownership
  • Total cost to finance (price, sales tax, title and registration)

Part III: Understanding Your Boat Loan Contract

The Boat Owners Association of The United States (BoatUS), representing half a million members, recommends borrowers scrutinize potential sales contracts carefully since they are legally binding. A contract may only consist of written terms and agreements on a sheet of paper (for private sales) or a lengthy legal document prepared by attorneys representing a dealership. Here are key items commonly included in the sales agreement:

Boat description

Manufacturer’s Statement of Origin or a listing of the boat and engine, hull-identification number (HIN), complete listing of all equipment. It should also provide a seller’s statement that the boat has no existing liens and encumbrances.

Price

Listing of the purchase price including any down payments and/or trade-in credit.

Contingencies

For buyers without pre-approval on a loan, the contract should spell out contingencies that can include the buyer’s ability to secure financing and insurance. Other contingencies affecting the sale may call for satisfactory findings through a formal marine survey.

Watercraft condition on delivery

The seller should itemize all the features of the boat upon delivery. For a used boat, the seller should itemize add-on equipment/gear and remedies for any shortcomings that are discovered during the marine survey. Who is responsible for amending the condition: seller or buyer?

Delivery

The contract should set a delivery date and location upon completion of the sale.

Warranties or service plans

BoatUS recommends that the contract stipulate warranties on new boats or service contracts for used watercraft. Buyers should be meticulous in examining the details on the boat condition if there is no warranty and it is sold “as-is”.

Watch out for boat loan scams

Charles Fort, director of the BoatUS Consumer Protection Bureau, the nation’s largest organization representing recreational boaters, identifies red flags that indicate the seller may be engaged in a scam. Many scams, he says, are represented by bold-face lies and delivered via email.

Common red flags include:

  • Abysmal use of grammar and poor spelling
  • Vague language that doesn’t identify the boat for sale (current location and HIN number)
  • Absence of other forms of contacting the seller (especially no personal or business address)
  • Offer to sell the boat located abroad or nationally without offering an inspection
  • Request for payment via Western Union, PayPal, or MoneyGram
  • Request for a long-distance purchase secured by payments via a fictitious escrow service

Potential buyers sniffing out a scam should walk away from the seller immediately and file a complaint with the FTC’s Bureau of Consumer Protection.

Boat Financing FAQs

Daylong or vacation boat rentals are easy. Long-term boat leasing is offered by dealerships, boat charter clubs and through shared-leasing businesses. But leasing a watercraft over the long term can be costly since consumers rarely enjoy rate reductions based on boat depreciation.

Depending on the lender, using a cosigner can be advantageous if the buyer has less than good credit. Read about cosigner’s obligations at the Federal Trade Commission.

Live-aboard boats are financed through boat loans. If the craft is stationary and is not self-propelled, it can be considered a houseboat, requiring its own form of marine loan. Learn more about houseboat financing.

Dealers and lenders can include the cost of maintenance, liability insurance, electronics and specialized gear in the total loan amount.

Lenders base loan amounts on variables including income, credit and type of craft. Essex Credit, for example, has a $10,000 loan minimum on pleasure boats and $25,000 minimum on a live-aboard craft. Essex maximums are $5 million. At LendingTree, loan amounts range from $1,000 to no upper limit.

One score does not fit all. Better rates, lower down payments and affordable loans typically go to applicants with at least a 690 FICO score. A high credit score is not a requirement for all lenders. According to Coburn, people with scores from 500-550 can receive subprime loans strapped to a 12-19-percent interest rate.

Comparing rates and terms from multiple lenders is one way to find an affordable boat loan. The age of the boat also affects the cost of the loan. For instance, Essex publishes online rates for boats manufactured from 2007 to current models. For financing boats older than 2007, buyers need to contact the lender. Applicants can negotiate for the best cost for a loan by considering shorter terms that typically come with lower rates. At LendingTree, buyers can receive free competitive bids for new and used boats, or for refinancing.

Gabby Hyman
Gabby Hyman |

Gabby Hyman is a writer at MagnifyMoney. You can email Gabby here

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Articles, News

Why These 3 Families Chose to Live on a Single Income

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Before they decided to live off only one income, Devra Thomas, 39, and her husband, Clinton Wilkinson, 38, brought in a combined $50,000 annually working in corporate retail. When their daughter, Sophia, was born, they struggled to find ways to juggle their work schedules with child care.

“Since we were both working at the time, we really had to supplement with a lot of funky child care between parents, extended families, after school care, and babysitters,” says Devra.

Then Clinton got an opportunity for a raise and a job relocation. The family moved from outside of Chapel Hill, North Carolina, to Morehead City, where their cost of living was lower and Clinton’s work commute was shorter. Devra, who was an arts administrator at the time, initially looked for work when they moved, but when she wasn’t able to find a job in her field in the area, she and Wilkinson changed their plan. They decided Devra would stay home so they could eliminate one significant expense: child care.

For the couple, deciding to live off one income was worth it if it meant they could simplify their lives. Still, choosing to live on a single income didn’t come without its own set of challenges.

Devra and Clinton, along with two other single-earner families, told MagnifyMoney why they chose to budget their lives on a single income and how they make it work. For this article, we define single-earner families as those in which one family member generates 80% or more of the total household’s income used to cover household expenses.

Devra Thomas & Clinton Wilkinson

Morehead City, North Carolina

Annual Income: $70,000 to $80,000

Clinton Wilkinson, 38, Devra Thomas, 39, and daughter, Sophia, 9. Source: Devra Thomas

Their strategy: Zero-based budgeting and constant communication

Devra and Clinton swear by a zero-sum budget.

“Every time we get paid, all of that money has a name,” says Devra. The couple sits together every two weeks to discuss and create their budget and make sure every dollar earned is fulfilling a purpose. They put each dollar they’ve earned in a spending category such as groceries, transportation, subscription services, utilities and savings.

Devra does some light freelance marketing and writing projects on the side, which helps supplement their income to the tune of about $10,000 per year. Any income she brings in from freelance work becomes what they call “play money.” It either gets added to savings or spent on something they want but haven’t been able to fit into their budget, like a date night.

For example, they’ve already earmarked funds for their anniversary in August. Every part of their date night is planned for, with money going into categories for the dinner, babysitter, hotel, someone to watch their dog, and other expenses.

Where they run into obstacles

Thomas and Wilkinson like their single-income lifestyle, but as their daughter, 10, gets older, the pressure to keep up with the Joneses increases.

“There are other things kids in school have that she says I wish I had … or it may even be an experience like going to Disney World,” says Wilkinson. When that happens they explain to her that those things are “not where [they] are choosing to put [their] priorities.”

They also advise their daughter to try making use of her community. If she wants to play with a toy a friend has, for example, she can borrow it from them, or vice versa.

Overall, making all of their financial decisions together has been a crucial element in making their strategy work. “That’s typically when we break our budget. When we weren’t communicating about spending,” says Thomas.

Sage & Emerson Evans

Salt Lake City, Utah

Annual Income: $50,000

Sage, 25, and Emerson Evans, 24. Source: Sage Evans

Salt Lake City, Utah newlyweds Sage and Emerson Evans chose to live on one income while Emerson focuses on applying to medical school. They have learned to manage their lifestyle on Sage’s $50,000 salary in digital marketing and public relations. Their hope is that investing in Matt’s education will pay off by way of a higher salary later.

Their strategy: deal-hunting and communication

Sage and Emerson, both in their mid-20s, don’t follow a strict budget but they try to add at least $500 to their savings account each month. The couple spends the bulk of their income on things like dinner, cultural events, movies, and travel. But they have no student loan debt and only one car payment to manage.

Emerson says he’s used to pinching pennies because he grew up being frugal. He was able to qualify for the Pell grant and other scholarships to help pay for college. Although he isn’t working full time, he takes odd jobs on the weekend to earn pocket money for minor expenses like gas for his car or lunch outside of home.

“I make it so that Sage never has to send money my way,” says Emerson. “I know I’m not the income and I know I’m not working full time. I try to make sure I’m not a financial burden.” For example, if he doesn’t have money for lunch, he’ll simply skip lunch that day.

“He almost takes it too far,” says Sage, “I had to force him to buy a new pair of shoes.”

Where they run into obstacles

For Sage, adjusting to married life on a single income was tough. “I definitely had to learn to think of money as our money and not just my income,” Sage says about the transition.

“Part of it was just a personal problem that I had to overcome. Realizing that when you get married, me becomes we,”  she adds.

The couple has learned to communicate about things such as what qualifies as a large purchase and whether or not Sage had to inform her husband of what she’s doing with what’s technically ‘her’ income.

Sage imagines their roles will flip once Emerson completes medical school and earns a higher wage than hers or if she elects to stay at home after having children.

“We get by, but it’s definitely not an income I want to spend the rest of my life on,” says Sage.

Matt and Brit Casady

Rancho Cucamonga, California

Income: $60,000 – $70,000

Matt, 28, and Brit Casady, 26, and 1-year-old son. Source: Matt Casady.

Matt, 28, and Brit Casady, 26, decided to live on one income to save on childcare, which doesn’t come cheap in their hometown of Rancho Cucamonga, California. They manage on Matt’s salary as an online marketer for a self storage company, where he makes between $60,000 and $70,000 a year.

“We were scared at first but we knew that we wanted to live on one income because we didn’t want to have to pay for child care,” says Brit, adding she’s always wanted to be a stay at home mom. “That money that I’d be earning from working would be paying just for daycare. So financially, one income makes more sense.”

Their strategy: thrifting and living two paydays ahead

The couple decided to transition to a single-income household when they were expecting their son, now 1. They started by reducing their monthly bills by paying off both of their car loans and cutting back on unnecessary expenses. The couple also got lucky: Within six months of having their son, Matt got a new job that paid a higher salary. But the new job also meant relocating the family from their hometown in Lehi, Utah to Rancho Cucamonga, a vastly more expensive area.

All of the furniture in their new house is either a hand-me-down or was purchased used. The Casadys bargain shop at discount retailers when they want nice, designer clothes.

“We’re very cheap people. We don’t feel like we live a restricted life,” says Matt. The couple also finds deals on things like furniture and decor for their baby’s room by joining yard sale or thrifting groups on Facebook.

They use a Google spreadsheet to keep track of the monthly family budget. When Matt’s paycheck comes in, the couple takes no less than 20 percent of his take-home pay and adds it to their savings. After paying for fixed expenses, they put the remainder of their funds to a spending category. When they spend money, they record the amount, place and description of the purchase in the spreadsheet and subtract it from the limit in the spending category.

“It’s more freeing than it is restrictive when you know that the money that you’re spending isn’t going to prevent you from paying rent next month,” Matt says.

Brit earns $2,000 to $3,000 annually freelancing as a graphic designer. She says about 90% of the time, the money she makes is added to the couple’s savings account. If Matt gets a bonus, or the couple receives an influx of funds in a tax return, it’s treated the same way.

Where they run into obstacles

Moving to a more expensive place has presented some challenges. Housing alone costs about 69% more in Rancho Cucamonga than in Lehi, Utah, according to Sperling’s Best Places cost of living calculator.

“It’s definitely been a sticker shock. Rent alone is significantly more money,” says Matt. The couple says they have adjusted to the rise by staying frugal.

“The activities that we do are mostly free, so we can create memories versus [buying] things that cost a lot of money,” says Brit.

The couple also tries to avoid keeping score on things like who has spent more money from the ‘fun’ category in their budgeting. For example, Matt, a fan of UFC foodball, may buy a ticket to a game for $150 and Brit may get her hair done for $90, but she doesn’t try to find another way to spend $60 afterward.

“Just because he spent more doesn’t mean I can spend more,” Brit says. “It helps us to stay in our budget and not compare [who spent what] so we are not constantly trying to level up.”

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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Auto Loan, Featured, News

Auto Loan Interest Rates and Delinquencies: 2017 Facts and Figures

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Led by a prolonged period of low interest rates, consumers now have a record $1.2 trillion1 in outstanding auto loan debt. Despite record high levels of issuance, the auto lending market shows signs of tightening. With auto delinquencies on the rise, consumers are facing higher interest rates on both new and used vehicles. In particular, over the last three years, subprime borrowers saw rates rise faster than the market as a whole. MagnifyMoney analyzed trends in auto lending and interest rates to determine what’s really going on under the hood of automotive financing.

Key insights

  1. Overall auto delinquency is on the rise, and the first quarter of 2017 saw near record levels of new auto loan delinquency rates.54
  2. Interest rates are on the rise, with average new car loan rates up to 4.87%, 60 basis points from their lows in late 2013.2
  3. The average duration of auto loans (new vehicles) is a record 67.37 months, reducing the monthly payment impact of higher interest rates.31

Facts and figures

  • Average Interest Rate (New Car): 4.87%2
  • Average Interest Rate (Used Car): 8.88%3
  • Average Loan Size New: $29,3144
  • Average Loan Size Used: $17,1805
  • Median Credit Score for Car Loan: 7066
  • % of Auto Loans to Subprime Consumers: 31.34%7

Subprime auto loans

  • Total Subprime Market Value: $229 billion8
  • Average Subprime LTV: 113.4%9
  • Average Interest Rate (New Car): 11.05%10
  • Average Interest Rate (Used Car): 16.48%11
  • Average Loan Size (New Car): $28,09912
  • Average Loan Size (Used Car): $16,02613
  • % Leasing: 25.9%14

Prime auto loans

  • Total Prime Market Value: $717 billion15
  • Average Prime LTV: 97.91%16
  • Average Interest Rate (New Car): 3.77%17
  • Average Interest Rate (Used Car): 5.29%18
  • Average Loan Size (New Car): $32,15319
  • Average Loan Size (Used Car): $20,77820
  • % Leasing: 37.4%21

Auto loan interest rates

Interest rates for auto loans continue to remain near historic lows. As of the first quarter of 2017, interest rates for used cars was 8.88% on average. The average interest rate on new cars (including leases) is 4.87%. However, the low average rates belie a tightening of auto lending, especially for subprime borrowers.

New loan interest rates

Consumer credit information company Experian reports that the average interest rate on all new auto loans was 4.87%, up six basis points from the previous year.24 The small interest rate increase masks a larger underlying tightening in the auto loan market for new vehicles.

During the last year, lenders tilted away from subprime borrowers. Just 10.88% of new loans went to subprime borrowers compared to 11.41% the previous year. The movement away from subprime borrowers led to a smaller increase in new car interest rates compared to if car rates had stayed the same.25

Across all credit scoring segments, borrowers faced higher average borrowing rates. Subprime and deep subprime borrowers saw the largest absolute increases in rate hikes, but super prime borrowers also saw an 18 basis point increase in their borrowing rates over the last year. The average interest rate for super prime borrowers is now 2.84% on average, the highest it’s been since the end of 2011.27

When comparing credit scores to lending rates, we see a slow tightening in the auto lending market since the end of 2013. The trend is especially pronounced among subprime and deep subprime borrowers. These borrowers face auto loan interest rates growing at rates faster than the market average. Consumers should expect to see the trend toward slightly higher interest rates continue until the economic climate changes.

Even with the tightening, interest rates remain near historic lows, but that doesn’t mean consumers are paying less interest on their vehicle purchases. The estimated cost of interest on new vehicle purchases is now $4,223,29 up 42% from its low in the third quarter of 2013.

Growth in interest paid over the life of the loan stems from longer loans and higher average loan amounts. The average maturity for a new loan grew from 62.5 months in the third quarter of 2008 to 67.4 months in early 2017.31 During the same time, average loan amounts for new vehicles grew 14.7% to $29,134.32

Used loan interest rates

Over the past year, interest rates for used vehicles fell by 35 basis points to 8.88%. The drop in average interest rates came from a dramatic increase of prime borrowers entering the used car financing market. In 2017, 47.4% of used car borrowers had prime or better credit. The year before, 43.99% of used borrowers were prime.34

On the whole, borrowers in the used car market face nearly identical rates to this time last year. Super prime and prime borrowers saw upticks of 15 basis points and 4 basis points, respectively. This brought the average super prime borrowing rate up to 3.56% for used vehicles, and the prime rate to 5.29%.36

On the other end of the spectrum, subprime and deep subprime borrowers saw their interest rates fall by approximately 10 basis points year over year. Despite the decrease, interest rates for these borrowers are up a dramatic 250 basis points (2.5%) from their 2008 rates.

Although average interest rates on used vehicles continue to fall, the estimated interest paid on a used car loan rose $12 from the previous year to $4,046. The increase in overall interest is part of a larger trend. Over the past four years, estimated interest on used cars was 8.4%. Almost all of the increase comes from longer average loan terms (61 months vs. 57 months),38 leading to more interest paid over the life of a car loan.

Auto loan interest rates and credit score

As of March 2017, the median credit score for all auto loan borrowers was 706.40 A credit score of 706 is just shy of the prime credit rating (720). This is the highest median rate since the first quarter of 2011.

In the first quarter of 2017, just 31% of all auto loans were issued to subprime borrowers compared with an average of 35% over the past three years.

Total auto loan volume decreased dramatically between 2008 and 2010. During that time, subprime and deep subprime lending contracted faster than the rest of the market. Since early 2010, auto lending as a whole is near prerecession levels. However, subprime lending has not completely recovered. In the first quarter of 2017, banks issued just $41.5 billion to subprime borrowers. That’s $6.7 billion less than the average $48.2 billion of subprime auto loans issued each quarter between 2005 and 2007.

Loan-to-value ratios and auto loan interest rates

One factor that influences auto loan interest rates is the initial loan-to-value (LTV) ratio. A ratio over 100% indicates that the driver owes more on the loan than the value of the vehicle. This happens when a car owner rolls “negative equity” into a new car loan.

Among prime borrowers, the average LTV was 97.91%. Among subprime borrowers, the average LTV was 113.40%.44 Both subprime and prime borrowers show improved LTV ratios from the 2007-2008 time frame. However, LTV ratios increased from 2012 to the present.

Research from the Experian Market Insights group46 showed that loan-to-value ratios well over 100% correlated to higher charge-off rates. As a result, car owners with higher LTV ratios can expect higher interest rates. An Automotive Finance Market report from Experian47 showed that loans for used vehicles with 140% LTV had a 3.03% higher interest rate than loans with a 95%-99% LTV. Loans for new cars charged just a 1.28% premium for high LTV loans.

Auto loan term length and interest rates

On average, auto loans with longer terms result in higher charge-off rates. As a result, financiers charge higher interest rates for longer loans. Despite the higher interest rates, longer loans are becoming increasingly popular in both the new and used auto loan market.

The average length to maturity for new car loans in 2017 is 67.37 months.48 For used cars, the average is 61.12 months.49 The increase in average length to maturity is driven primarily by a concentration of borrowers taking out loans requiring 61-72 months of maturity.50

In the first quarter of 2017, just 7.1% of all new vehicle loans had payoff terms of 48 months or less, and 72.4% of all loans had payoff periods of more than 60 months.51 Among used car loans, 18.5% of loans had payoff periods less than 48 months, and 58.3% of loans had payoff periods more than 60 months.52

Auto loan delinquency rates

Despite a trend toward more prime lending, we’ve seen deterioration in the rates and volume of severe delinquency. In the first quarter of 2017, $8.27 billion in auto loans fell into severe delinquency.54 This is near an all-time high.

Overall, 3.82% of all auto loans are severely delinquent. Delinquent loans have been on the rise since 2014, and the overall rate of delinquent loans is well above the prerecession average of 2.3%.

Between 2007 and 2010, auto delinquency rates rose sharply, which led to a dramatic decline in overall auto lending. So far, the slow increase in auto delinquency between 2014 and the present has not been associated with a collapse in auto lending. In fact, the total outstanding balance is up 33.4% to $1.167 billion since 2014.57

However, the increase in auto delinquency means lenders may continue to tighten lending to subprime borrowers. Borrowers with subprime credit should make an effort to clean up their credit as much as possible before attempting to take out an auto loan. This is the best way to guarantee lower interest rates on auto loans.

Sources

  1. Quarterly Report on Household Debt and Credit May 2017.” Total Debt Balance and Its Composition: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 17, 2017.
  2. State of the Automotive Finance Market,” New Car Average Rates – Page 25, from Experian.TM
  3. State of the Automotive Finance Market,” Used Car Average Rates – Page 25, from Experian.TM
  4. Board of Governors of the Federal Reserve System (US), Average Amount Financed for New Car Loans at Finance Companies [DTCTLVENANM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENANM, July 17, 2017.
  5. Board of Governors of the Federal Reserve System (US), Average Amount Financed for Used Car Loans at Finance Companies [DTCTLVEUANQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUANQ, July 18, 2017.
  6. Quarterly Report on Household Debt and Credit May 2017.” Credit Score at Origination: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 17, 2017.
  7. Quarterly Report on Household Debt and Credit May 2017.” Auto Loan Originations by Credit Score, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 17, 2017.
  8. Calculated metric: “State of the Automotive Finance Market” Loan Balance Risk Distribution Q1 2017 – Page 5, from Experian,TM and “Quarterly Report on Household Debt and Credit May 2017.” Total Debt Balance and Its Composition: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 17, 2017.(3.76% of All Loans Are Deep Subprime + 15.94% of All Loans Are Subprime)X ($1.167 trillion in Auto Loans)
  9. U.S. Auto Loan ABS Tracker: January 2017,” from S&P Global Ratings. Accessed July 17, 2017.
  10. State of the Automotive Finance Market,” New Car Subprime Average Rates, Page 25, from Experian.TM
  11. State of the Automotive Finance Market,” Used Car Subprime Average Rates, Page 25, from Experian.TM
  12. State of the Automotive Finance Market,” Average Loan Amounts By Tier, Page 19, from Experian.TM
  13. State of the Automotive Finance Market,” Average Loan Amounts By Tier, Page 19, from Experian.TM
  14. State of the Automotive Finance Market,” % Leasing By Tier, Page 16, from Experian.TM
  15. Calculated metric: “State of the Automotive Finance Market” Loan Balance Risk Distribution Q1 2017 – Page 5, from Experian,TM and “Quarterly Report on Household Debt and Credit May 2017.” Total Debt Balance and Its Composition: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 17, 2017.(41.7% of All Loans Are Prime + 19.74% of All Loans Are Super Prime)X ($1.167 trillion in Auto Loans)
  16. U.S. Auto Loan ABS Tracker: January 2017,” from S&P Global Ratings. Accessed July 17, 2017.
  17. State of the Automotive Finance Market,” Average Interest Rate Prime Rating (New Car), Page 25, from Experian.TM
  18. State of the Automotive Finance Market,” Average Interest Rate Prime Rating (Used Car), Page 25, from Experian.TM
  19. State of the Automotive Finance Market,” Average Loan Amounts By Tier, Page 19, from Experian.TM
  20. State of the Automotive Finance Market,” Average Loan Amounts By Tier, Page 19, from Experian.TM
  21. State of the Automotive Finance Market,” % Leasing By Tier, Page 16, from Experian.TM
  22. Graph 1 – Auto Loan Interest Rates, data compiled from historic Experian State of Automotive Finance Reports.
  23. Graph 2 – Average New Vehicle Interest Rates, data compiled from historic Experian State of Automotive Finance Reports.
  24. State of the Automotive Finance Market,” Average Interest Rate Prime Rating (New Car), Page 25, from Experian.TM
  25. State of the Automotive Finance Market,” New Loan Risk Distribution, Page 15, from Experian.TM
  26. Graph 3 – % of New Car Loans Issued to Subprime Borrowers, data compiled from historic Experian State of the Automotive Finance Market Reports.
  27. Average Interest Rate by Credit Score, data compiled from historic Experian State of Automotive Finance Reports.
  28. Graph 4 – Average Interest Rate by Credit Score (New Car Loans), data compiled from historic Experian State of Automotive Finance Reports.
  29. Calculated metric: Total Interest over the Life an Auto Loan (New Car).
    1. Board of Governors of the Federal Reserve System (US), Average Amount Financed for New Car Loans at Finance Companies [DTCTLVENANM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENANM, July 17, 2017.
    2. Board of Governors of the Federal Reserve System (US), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENMNM, July 18, 2017.
    3. Average New Car Interest Rate, data compiled from historic Experian State of Automotive Finance Reports.

    Calculated Total Interest is Amortized Interest as a function of Average Amount Financed,a Average Interest Rate on New Cars,c and Average Length to Maturity of new car loans.b

  30. Graph 5 – Estimated Interest on New Car Loan.
    1. Board of Governors of the Federal Reserve System (US), Average Amount Financed for New Car Loans at Finance Companies [DTCTLVENANM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENANM, July 17, 2017.
    2. Board of Governors of the Federal Reserve System (US), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENMNM, July 18, 2017.
    3. Average New Car Interest Rate, data compiled from historic Experian State of Automotive Finance Reports.

    Calculated Total Interest is Amortized Interest as a function of Average Amount Financed,a Average Interest Rate on New Cars,c and Average Length to Maturity of new car loans.b

  31. Board of Governors of the Federal Reserve System (US), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENMNM, July 18, 2017.
  32. Board of Governors of the Federal Reserve System (US), Average Amount Financed for New Car Loans at Finance Companies [DTCTLVENANM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENANM, July 17, 2017.
  33. Graph 6 – Average Used Vehicle Interest Rates, data compiled from historic Experian State of Automotive Finance Reports.
  34. State of the Automotive Finance Market,” Used Car Loan Risk Distribution, Page 15, from Experian.TM
  35. Graph 7 – Lending By Credit Score Q1 2016 vs. Q1 2017 “State of the Automotive Finance Market,” Used Car Loan Risk Distribution, Page 15, from Experian.TM
  36. State of the Automotive Finance Market,” Average Loan Rates By Credit Tier (Used Cars), Page 25, from Experian.TM
  37. Graph 8 – Average Interest Rate by Credit Score (Used Car Loans), data compiled from historic Experian State of Automotive Finance Reports.
  38. Board of Governors of the Federal Reserve System (US), Average Maturity of Used Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVEUMNQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUMNQ, July 17, 2017.
  39. Graph 9 – Calculated metric: Estimated Interest on Used Car Loans.
    1. Board of Governors of the Federal Reserve System (US), Average Amount Financed for Used Car Loans at Finance Companies [DTCTLVEUANQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUANQ, July 18, 2017.
    2. Board of Governors of the Federal Reserve System (US), Average Maturity of Used Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVEUMNQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUMNQ, July 17, 2017.
    3. Average Used Car Interest Rate, data compiled from historic Experian State of Automotive Finance Reports.

    Calculated Total Interest is Amortized Interest as a function of Average Amount Financed,a Average Interest Rate on New Cars,c and Average Length to Maturity of new car loans.b

  40. Quarterly Report on Household Debt and Credit May 2017.” Credit Score at Origination: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 17, 2017.
  41. Graph 10 – Credit Score at Auto Loan Origination “Quarterly Report on Household Debt and Credit May 2017.” Credit Score at Origination: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 17, 2017.
  42. Graph 11 – % of New Loans Issued to Subprime Borrowers. Calculated metric from “Quarterly Report on Household Debt and Credit May 2017.” Auto Loan Originations by Credit Score ((<620+620-659)/Total Lending), from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 17, 2017.
  43. Graph 12 – Auto Loan Origination by Credit Tier “Quarterly Report on Household Debt and Credit May 2017.” Auto Loan Originations by Credit Score, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 17, 2017.
  44. U.S. Auto Loan ABS Tracker: January 2017,” from S&P Global Ratings. Accessed July 17, 2017.
  45. Graph 13 – Average LTV at Auto Loan Origination “U.S. Auto Loan ABS Tracker: January 2017,” from S&P Global Ratings. Accessed July 17, 2017.
  46. Understanding automotive loan charge-off patterns can help mitigate lender risk,” from Experian.TM Accessed July 17, 2017.
  47. State of the Automotive Finance Market Q4 2010,” Pages 25-26, from Experian.TM
  48. Board of Governors of the Federal Reserve System (US), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENMNM, July 18, 2017.
  49. Board of Governors of the Federal Reserve System (US), Average Maturity of Used Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVEUMNQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUMNQ, July 17, 2017.
  50. State of the Automotive Finance Market,” Percentage of new loans by Term, Page 22, from Experian.TM
  51. Calculated metric: “State of the Automotive Finance Market,” Percentage of new loans by Term, Page 22, from Experian.TM
  52. Calculated metric: “State of the Automotive Finance Market,” Percentage of new loans by Term, Page 22, from Experian.TM
  53. Graph 14 – Average Auto Loan Length to Maturity (Months).
    1. Board of Governors of the Federal Reserve System (US), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENMNM, July 18, 2017.
    2. Board of Governors of the Federal Reserve System (US), Average Maturity of Used Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVEUMNQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUMNQ, July 17, 2017.
  54. Quarterly Report on Household Debt and Credit May 2017.” Transition into serious delinquency (90+ days): Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 17, 2017.
  55. Graph 15 – New Severely Delinquent Auto Loans (90+ Days) “Quarterly Report on Household Debt and Credit May 2017.” Transition into serious delinquency (90+ days): Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 17, 2017.
  56. Graph 16 – % of All Loans Severely Delinquent “Quarterly Report on Household Debt and Credit May 2017.” % of Balance 90+ Days Delinquent: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 17, 2017.
  57. Quarterly Report on Household Debt and Credit May 2017.” Total Debt Balance and Its Composition: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 17, 2017. (Q1 2014 compared to Q1 2017.)
Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com

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Average Credit Score in America Reaches New Peak at 700

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

In late 2016, American consumers hit an important milestone. For the first time in a decade, over half of American consumers (51%) recorded prime credit scores. On the other side of the scale, less than a third of consumers (32%) suffered from subprime scores.1 As a nation, our average FICO® Score rose to its highest point ever, 700.2

Despite the rosy national picture, we see regional and age-based disparities. A minority of Southerners still rank below prime credit. In contrast, credit scores in the upper Midwest rank well above the national average. Younger consumers struggle with their credit, but boomers and the Silent Generation secured scores well above the national average.

In a new report on credit scores in America, MagnifyMoney analyzed trends in credit scores. The trends offer insight into how Americans fare with their credit health.

Key insights

  1. National average FICO® Scores are up 14 points since October 2009.3
  2. 51% of consumers have prime credit scores, up from 48.1% in 2007.4
  3. One-third of customers have at least one severely delinquent (90+ days past due) account on their credit report.5
  4. Average VantageScores® in the Deep South are 21 points lower than the national average (652 vs. 673).6
  5. Millennials’ average VantageScore® (634) underperformed the national average by 39 points. Only Gen Z has a lower average score (631).7

Credit scores in America

Average FICO® Score: 7008

Average VantageScore®: 6739

Percent with prime credit score (Equifax Risk Score >720): 51%10

Percent with subprime credit score (Equifax Risk Score <660): 32%11

Credit score factors

Percent with at least one delinquency: 32%12

Average number of late payments per month: .3513

Average credit utilization ratio: 30%14

Debt delinquency

Percent severely delinquent debt: 3.37%15

Percent severely delinquent debt excluding mortgages: 6.9%16

States with the best and worst credit scores

What is a credit score?

Credit scoring companies analyze consumer credit reports. They glean data from the reports and create algorithms that determine consumer borrowing risk. A credit score is a number that represents the risk profile of a borrower. Credit scores influence a bank’s decisions to lend money to consumers. People with high credit scores will find the most attractive borrowing rates because that signals to lenders that they are less risky. Those with low credit scores will struggle to find credit at all.

The Big 3 credit scores

Banks have hundreds of proprietary credit scoring algorithms. In this article, we analyzed trends on three of the most famous credit scoring algorithms:

  • FICO® Score 8 (used for underwriting mortgages)
  • VantageScore® 3.0 (widely available to consumers)
  • Equifax Consumer Risk Credit Score (used by the Federal Reserve Bank of New York)

Each of these credit scores ranks risk on a scale of 300-850. In all three models, prime credit is any score above 720. Subprime credit is any score below 660. All three models consider similar data when they create credit risk profiles. The most common factors include:

  • Payment history
  • Revolving debt levels (or revolving debt utilization ratios)
  • Length of credit history
  • Number of recent credit inquires
  • Variety of credit (installment and revolving)

However, each model weights the information differently. This means that a FICO® Score cannot be compared directly to a VantageScore® or an Equifax Risk Score. For example, a VantageScore® does not count paid items in collections against you. However, a FICO® Score counts all collections items against you, even if you’ve paid them. Additionally, the VantageScore® counts outstanding debt against you, but the FICO® Score only considers how much credit card debt you have relative to your available credit.

American credit scores over time

Average FICO® Scores in America are on the rise for the eighth straight year. The average credit score in America is now 700.

On top of that, consumers with “super prime” credit (FICO® Scores above 800) outnumber consumers with deep subprime credit (FICO® Scores below 600).

We’re also seeing healthy increases in prime credit scores, defined as Equifax Risk Scores above 720. According to the Federal Reserve Bank of New York, 51% of all Americans have prime credit scores as measured by the Equifax Risk Score. Following the housing market crash in 2010, just 48.4% of Americans had prime credit scores.20

A major driver of increased scores is the decreased proportion of consumers with collection items on their credit report. A credit item that falls into collections will stay on a person’s credit report for seven years. People caught in the latter end of the real estate foreclosure crisis of 2006-2011 may still have a collections item on their report today.

In the first quarter of 2013, 14.64% of all consumers had at least one item in collections. Today, just 12.61% of consumers have collections items on their credit report. Overall collections rates are approaching 2005-2006 average rates.40

Credit scores and loan originations

Following the 2007-2008 implosion of the housing market, banks saw mortgage borrowers defaulting at higher rates than ever before. In addition to higher mortgage default rates, the market downturn led to higher default rates across all types of consumer loans. To maintain profitability banks began tightening lending practices. More stringent lending standards made it tough for anyone with poor credit to get a loan at a reasonable rate. Although banks have loosened lending somewhat in the last two years, people with subprime credit will continue to struggle to get loans. In June 2017, banks rejected 81.4% of all credit applications from people with Equifax Risk Scores below 680. By contrast, banks rejected 9.11% of credit applications from those with credit scores above 760.22

Credit scores and mortgage origination

Before 2008, the median homebuyer had an Equifax Risk Score of 720. In 2017, the median score was 764, a full 44 points higher than the pre-bubble scores. The bottom 10th of buyers had a score of 657, a massive 65 point growth over the pre-recession average.23

Some below prime borrowers still get mortgages. But banks no longer underwrite mortgages for deep subprime borrowers. More stringent lending standards have resulted in near all-time lows in mortgage foreclosures.

Credit scores and auto loan origination

The subprime lending bubble didn’t directly influence the auto loan market, but banks increased their lending standards for auto loans, too. Before 2008, the median credit score for people originating auto loans was 682. By the first quarter of 2017, the median score for auto borrowers was 706.26

In the case of auto loans, the lower median risk profile hasn’t paid off for banks. In the first quarter of 2017, $8.27 billion dollars of auto loans fell into severely delinquent status. New auto delinquencies are now as bad as they were in 2008.28

Consumers looking for new auto loans should expect more stringent lending standards in coming months. This means it’s more important than ever for Americans to grow their credit score.

Credit scores for credit cards

Unlike other types of credit, even people with deep subprime credit scores usually qualify to open a secured credit card. However, credit card use among people with poor credit scores is still near an all-time low. In the last decade, credit card use among deep subprime borrowers fell 16.7%. Today, just over 50% of deep subprime borrowers have credit card accounts.30

The dramatic decline came between 2009 and 2011. During this period, half or more of all credit card account closures came from borrowers with below prime credit scores. More than one-third of all closures came from deep subprime consumers.

However, banks are showing an increased willingness to allow customers with poor credit to open credit card accounts. In 2015, more than 60% of all new credit card accounts went to borrowers with subprime credit, and 25% of all the accounts went to borrowers with deep subprime credit.

State level credit scores

Consumers across the nation are seeing higher credit scores, but regional variations persist. People living in the Deep South and Southwest have lower credit scores than the rest of the nation. States in the Deep South have an average VantageScore® of 652 compared to a nationwide average of 673. Southwestern states have an average score of 658.

States in the upper Midwest outperform the nation as a whole. These states had average VantageScores® of 689.

Unsurprisingly, consumers across the southern United States are far more likely to have subprime credit scores than consumers across the north. Minnesota had the fewest subprime consumers. In December 2016, just 21.9% of residents fell below an Equifax Risk Score of 660. Mississippi had the worst subprime rate in the nation: 48.3% of Mississippi residents had credit scores below 660 in December 2016.35

These are the distributions of Equifax Risk Scores by state:37

Credit score by age

In general, older consumers have higher credit scores than younger generations. Credit scoring models consider consumers with longer credit histories less risky than those with short credit histories. The Silent Generation and boomers enjoy higher credit scores due to long credit histories. However, these generations show better credit behavior, too. Their revolving credit utilization rates are lower than younger generations. They are less likely to have a severely delinquent credit item on their credit report.

Gen X and millennials have almost identical revolving utilization ratios and delinquency rates. Compared to millennials, Gen X has higher credit card balances and more debt. Still, Gen X’s longer credit history gives them a 21 point advantage over millennials on average.

To improve their credit scores, millennials and Gen X need to focus on timely payments. On-time payments and lower credit card utilization will drive their scores up.

A report by FICO® showed that younger consumers can earn high credit scores with excellent credit behavior. 93% of consumers with credit scores between 750 and 799 who were under age 29 never had a late payment on their credit report. In contrast, 57% of the total population had at least one delinquency. This good credit group also used less of their available credit. They had an average revolving credit utilization ratio of 6%. The nation as a whole had a utilization ratio of 15%.39

Sources

  1. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  2. Ethan Dornhelm, “US Average FICO Score Hits 700: A Milestone for Consumers,” Fair Isaac Corporation. Accessed July 23, 2017.
  3. Ethan Dornhelm, “US Average FICO Score Hits 700: A Milestone for Consumers,” Fair Isaac Corporation. Accessed July 23, 2017.
  4. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  5. 2016 State of Credit Report” National 2016 90+ Days Past Due, Experian. Accessed May 24, 2017
  6. 2016 State of Credit Report” State 2016 Average VantageScore®, Experian. Accessed May 24, 2017.
  7. 2016 State of Credit Report” National 2016 Average VantageScore®, Experian. Accessed May 24, 2017.
  8. Ethan Dornhelm, “US Average FICO Score Hits 700: A Milestone for Consumers,” Fair Isaac Corporation. Accessed July 23, 2017.
  9. 2016 State of Credit Report” National 2016 Average VantageScore®, Experian. Accessed July 23, 2017.
  10. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  11. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  12. 2016 State of Credit Report” National 2016 90+ Days Past Due, Experian. Accessed July 23, 2017.
  13. 2016 State of Credit Report” National 2016 Average Late Payments, Experian. Accessed July 23, 2017.
  14. 2016 State of Credit Report” National 2016 Average Revolving Credit Utilization Ratio, Experian. Accessed July 23, 2017.
  15. Quarterly Report on Household Debt and Credit May 2017” Percent of Balance 90+ Days Delinquent by Loan Type, All Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  16. Calculated metric using data from “Quarterly Report on Household Debt and Credit May 2017” Percent of Balance 90+ Days Delinquent by Loan Type and Total Debt Balance and Its Composition. All Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017. Multiply all debt balances by percent of balance 90 days delinquent for Q1 2017, and summarize all delinquent balances. Total delinquent balance for non-mortgage debt = $284 billion. Total non-mortgage debt balance = $4.1 trillion$284 billion /$4.1 trillion = 6.9%.
  17. 2016 State of Credit Report” State 2016 Average VantageScore®, Experian. Accessed July 23, 2017.
  18. Ethan Dornhelm, “US Average FICO Score Hits 700: A Milestone for Consumers,” Fair Isaac Corporation. Accessed July 23, 2017.
  19. Ethan Dornhelm, “US Average FICO Score Hits 700: A Milestone for Consumers,” Fair Isaac Corporation. Accessed July 23, 2017.
  20. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  21. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  22. Survey of Consumer Expectations, © 2013-2017 Federal Reserve Bank of New York (FRBNY). The SCE data are available without charge at http://www.newyorkfed.org/microeconomics/sce and may be used subject to license terms posted there. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.
  23. Quarterly Report on Household Debt and Credit May 2017” Credit Score at Origination: Mortgages, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  24. Quarterly Report on Household Debt and Credit May 2017” Credit Score at Origination: Mortgages, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  25. Quarterly Report on Household Debt and Credit May 2017” Number of Consumers with New Foreclosures and Bankruptcies, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  26. Quarterly Report on Household Debt and Credit May 2017” Credit Score at Origination: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  27. Quarterly Report on Household Debt and Credit May 2017” Credit Score at Origination: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  28. Quarterly Report on Household Debt and Credit May 2017” Flow into Severe Delinquency (90+) by Loan Type, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  29. Quarterly Report on Household Debt and Credit May 2017” Flow into Severe Delinquency (90+) by Loan Type, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  30. Graham Campbell, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klauuw, “Just Released: Recent Developments in Consumer Credit Card Borrowing,” Federal Reserve Bank of New York Liberty Street Economics (blog), August 9, 2016. Accessed July 23, 2017.
  31. Graham Campbell, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klauuw, “Just Released: Recent Developments in Consumer Credit Card Borrowing,” Federal Reserve Bank of New York Liberty Street Economics (blog), August 9, 2016. Accessed July 23, 2017.
  32. Graham Campbell, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klauuw, “Just Released: Recent Developments in Consumer Credit Card Borrowing,” Federal Reserve Bank of New York Liberty Street Economics (blog), August 9, 2016. Accessed July 23, 2017.
  33. Graham Campbell, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klauuw, “Just Released: Recent Developments in Consumer Credit Card Borrowing,” Federal Reserve Bank of New York Liberty Street Economics (blog), August 9, 2016. Accessed July 23, 2017.
  34. 2016 State of Credit Report” State 2016 Average VantageScore®, Experian. Accessed July 23, 2017.
  35. 2016 State of Credit Report” State 2016 Average VantageScore®, Experian. Accessed July 23, 2017.
  36. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  37. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  38. 2016 State of Credit Report” National 2016 VantageScore®, Experian. Accessed July 23, 2017.
  39. Andrew Jennings, “FICO® Score High Achievers: Is Age the Only Factor?” Fair Isaac Corporation. Accessed July 23, 2017.
  40. Quarterly Report on Household Debt and Credit May 2017” Third-Party Collections (Percent of Consumers with Collections), from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  41. Quarterly Report on Household Debt and Credit May 2017” Third-Party Collections (Percent of Consumers with Collections), from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com

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5 Smart Ways to Lower the Cost of Therapy

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Sasha Aurand has had to scramble for four years to find high-quality mental health care she can afford on her salary from running a website on psychology and sex.

The 25-year-old New Yorker suffers from post-traumatic stress syndrome, depression, and anxiety, and has no health insurance.

“So I’ve always had to find other solutions,” she tells MagnifyMoney. Aurand originally sought help for these conditions while still a college student in Indiana. But after the school’s counseling center referred her to a private practice she couldn’t afford, she researched, asked around, and found a community health clinic where a therapist helped her for $20 a visit.

After graduating from college, Aurand moved to New York, where she briefly had health insurance, enabling her to see what she describes as a “phenomenal psychiatrist” for depression medications. But her insurance ended, and she could no longer afford the psychiatrist’s $350/hour fee.

Aurand is not alone, having to be resourceful finding doctors and therapists in her price range. According to the 2016 State of Mental Health in America report, one out of five American adults with mental illness report they are unable to get the treatment they need, often due to cost. And with an uncertain health care climate in Washington, the challenges are unlikely to ease soon.

Although the Senate failed in its recent attempt to repeal the Affordable Care Act — an effort, says Colin Seeberger, strategic campaigns director for Young Invincibles, “that would have allowed states to opt out of the ACA’s essential benefits, such as substance abuse and mental health coverage” — there’s still some instability in the insurance markets as a result.

In such a confusing environment, how can you find the help you need at a price you can afford?

Here are a few options if you’re looking for affordable therapy options:

1. Work with a therapist-in-training

If you live near a university with a graduate psychology program, it most likely has an in-house clinic. You can see a trainee at one of these clinics for a reduced fee. Yes, the therapists are students, but each one is closely supervised by a seasoned, licensed professional.

Pros: “Because the therapists are still in school, they’re up to date on the latest developments in psychology,” says Linda Richardson , Ph.D., a psychologist who works with the National Alliance on Mental Illness in San Diego. “You’ll also have the advantage of two heads being better than one.”

Cons: Most trainees work at these clinics for a year or less. If you find someone you like, they’re eventually going to leave.

2. Don’t be afraid to ask about sliding scales or reduced cash fees

After losing her insurance, Aurand went back to her $350/hr psychiatrist and “explained the situation and asked if there was anything she could do,” she says. The psychiatrist agreed to see Aurand for $100 a visit as long as Aurand paid in cash. Aurand now sees the doctor every three months.

Many therapists offer a sliding scale based on a patient’s income. If you find a therapist you like, let him or her know your financial concerns and inquire about paying a lower fee. Another option is to check out Open Path Psychotherapy Collective, a nonprofit that lists therapists who offer a few weekly sessions at a lower rate. There’s a one-time $49 fee to join the collective; therapists in the collective charge $30 to $50 per session.

Pros: With a sliding scale, you get all the benefits of good, one-on-one therapy at a lower rate.

Cons: If you don’t reassess the financial arrangement occasionally, says Erika Martinez, a psychologist in private practice in Miami, Fla., “a therapist can become resentful or frustrated with a client,” especially if your income rises. To avoid this, discuss payments every few months to see if an adjustment is needed.

3. Consider group therapy

According to the American Psychological Association, group therapy works as well as individual therapy for many conditions, such as depression, PTSD, and bipolar disorder — and for a fraction of the price. Martinez, for example, charges $150 an hour for individual therapy but only $65/hour for a group session.

Pros: There’s a lot of power in knowing you’re not alone. “When you share about your struggles in group where others have the same concerns, and you feel their empathy, that’s incredible,” says Martinez.

Cons: Some people aren’t comfortable speaking about emotional issues in a group. Also, you have to share the therapist’s attention with others.

4. Try online services & therapy apps

There are many online tools, including Breakthrough.com and Betterhelp.com that offer individual therapy sessions with licensed therapists over the phone or via a secure, HIPAA-compliant video for considerably less than an in-office visit. Rates vary, but if you search, you can find someone affordable.

Several California-based therapists (among the most expensive in the nation) on Breakthrough.com, for example, offer sessions for as low as $55 an hour. A note of caution: Choose someone licensed in your state. In case of an emergency, a therapist can only help secure needed services if you’re in the same state.

Pros: You can get high-quality, one-on-one therapy without ever having to leave your home, office, or pajamas — and at a reasonable cost.

Cons: Insurance often doesn’t cover phone or video sessions. “Also, you can’t fully see the nonverbal language of the therapist,” says Martinez. “And the Internet connection can be bad.”

Better Help App. Source: iTunes

Therapy apps — which allow you to text or chat with a licensed therapist — are becoming increasingly popular. Among the many available are Betterhelp.com, Talkspace.com, and iCounseling.com. Studies in both The Lancet and the Journal of Affective Disorders have shown that online therapy is an effective way to get help, and many services start for as little as $35 a week.

TalkSpace app. Source: iTunes

Pros: You can get help anytime, anywhere, even while sitting in a business meeting or on the subway. Also, it’s a good option for people afraid to walk into a therapist’s office.

Cons: Chat and text therapy, which are not covered by insurance, are inappropriate if you’re feeling suicidal or have severe mental illness. And some people find the technology alienating. “I tried one of these apps a few years ago,” says Aurand, “ and I just missed the human interaction of seeing a therapist in person.”

5. Tap into community resources for free or discounted counseling

You can find psychological and psychiatric care at public mental health clinics, which offer services for free or on a sliding scale, based on your income. Organizations devoted to helping survivors of sexual assault and domestic abuse also offer a wide range of services, including free counseling. And religious organizations, such as Jewish Family Services, often offer therapy on a sliding scale. The best way to find resources in your community, says Richardson, is to dial the information hotline, 211, on your phone or look online at http://www.211.org.

When her PTSD flares up and she needs to talk to a therapist, Aurand supplements her psychiatrist visits by going to a community health clinic, the Ryan/Chelsea Clinton Community Health Center, which offers a sliding scale based on her income and charges $100-$125 a session.

Pros: You can find good care for low or no cost.

Cons: The demand at public health clinics is huge, and staffs are often overwhelmed. “There can be long waiting lists, especially for individual counseling,” says Richardson. “You may have better luck if you’re willing to join a group, such as anger management, that fits your needs.”

The bottom line

When it comes to finding affordable mental health care, persistence is the key. “It can be really daunting, especially if you’re not feeling well or don’t have insurance and think you can’t get help,” says Aurand. “But if you take the time and do your research, you’ll find someone who wants to help you. There are a lot of good therapists and psychiatrists out there, and it’s not necessarily all about the money.”

Laura Hilgers
Laura Hilgers |

Laura Hilgers is a writer at MagnifyMoney. You can email Laura here

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With the Fate of Public Service Loan Forgiveness Uncertain, Here are Tips for Confused Borrowers

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Source: iStock

More than half a million Americans are working toward Public Service Loan Forgiveness (PSLF), a program that eliminates federal student loan debt for people with jobs in the public sector. But the proposed 2018 White House budget reportedly calls for ending PSLF for future borrowers — and even current participants’ status could be in doubt, with a lawsuit claiming the government has reversed previous assurances given to certain borrowers that their employment qualifies.

Final decisions have not yet been made in either scenario. But even with this uncertainty, there are steps both current borrowers and interested potential future PSLF participants can take to make themselves as secure as possible.

First, a quick primer on PSLF: The program began in October 2007 under George W. Bush, and it wipes clean the remaining federal student debt for qualifying borrowers who have made 120 payments, or 10 years’ worth (more information is available at StudentAid.gov/publicservice). So the earliest any public service worker could receive loan forgiveness under PSLF is October 2017.

“The idea is to avoid making debt a disincentive to choosing public service,” explains Mark Kantrowitz, a student loan expert and publisher at college scholarship site Cappex.com. “Think about a public defender. They might make $40,000 a year, but they’ll incur $120,000 in debt for law school. That debt-to-income ratio is impossible, so PSLF makes that career path possible — and attracts people who might have otherwise taken high-paying private-sector jobs.”

Public Service Loan Forgiveness — on the chopping block?

At this time, the biggest threat to the future of PSLF is President Donald Trump’s 2018 White House education budget proposal. The budget proposal would eliminate PSLF — citing costs — and replace all current income-based repayment/forgiveness plans with a single income-driven system. While existing borrowers would be grandfathered into PSLF, any new students who take out their first federal loans on or after July 1, 2018, would not qualify. Still, all of this can happen only if Congress passes the budget — and it remains to be seen whether this section will pass as currently written in the proposal.

If you’re one of the more than 550,000 borrowers who is already working toward forgiveness — that is, you have already taken out at least one federal loan and/or you’ve completed school and are working in public service — the proposed cancellation of PSLF won’t affect you. Again, if the program is cut, it will impact only students who take out their first federal loans on or after July 1, 2018.

But even existing borrowers working toward PSLF can’t fully relax. As first reported by The New York Times, the Department of Education added a serious wrinkle by sending letters to people saying their employment was no longer eligible for PSLF, after the borrowers had confirmed with their loan servicer that they qualified. Four borrowers and the American Bar Association have filed a lawsuit against the department, and the case is currently in progress.

That may leave many workers questioning whether or not they will ultimately be eligible for loan forgiveness after all — even if they work in the nonprofit or public sector. MagnifyMoney has spoken to experts and reviewed the rules of the program to help.

How Can I Be Sure I Qualify for Public Service Loan Forgiveness?

Qualifying for PSLF depends on meeting several specific requirements, so the first step in determining your eligibility is to make sure your loans and employment check all the boxes.

1. Your student loan must qualify for forgiveness.

PSLF provides forgiveness only for federal Direct Loans:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans—for parents and graduate or professional students
  • Direct Consolidation Loans

Note that loans made under other federal student loan programs may become eligible for PSLF if they’re consolidated into a Direct Consolidation Loan, but only payments toward that consolidated loan will count toward the 120-payment requirement. And, according to ED, parents who borrowed a Direct PLUS Loan “may qualify for forgiveness of the PLUS loan, if the parent borrower—not the student on whose behalf the loan was obtained—is employed by a public service organization.”

2. You must be enrolled in the right type of repayment plan.

You must be enrolled in one of the Direct Loan repayment plans, some of which are income-based. The umbrella term for these plans is income-driven repayment plans, which include the Pay As You Earn and Income-Based Repayment plans. While payments under other types of Direct Loan plans, like the 10-year Standard Repayment Plan, do qualify and count toward your 120 payments, you’ll want to switch to an income-driven plan as soon as possible — because if you stick with a standard 10-year repayment, you’ll have paid off your loan in full after 10 years with nothing left to be forgiven under PSLF. Check the official PSLF site for more details. And note that private loans, including bank loans that are “federally guaranteed,” do not qualify.

3. You must make 120 on-time payments while employed full time by an eligible employer.

If you drop to part-time work, those payments won’t qualify. You must also be employed full time in public service at the time you apply for loan forgiveness and at the time the remaining balance on your eligible loans is forgiven. After you make your 120th payment you’ll need to submit the forgiveness application, which the Department of Education says will be available in September 2017.

4. Your employer must count as a public service organization.

This is the big one, and the most complicated step of the process for some borrowers to figure out. While the Education Department does address types of employers that fit under the PSLF program, there are some gray areas. Broadly, the types of employers that qualify include governmental groups, not-for-profit tax-exempt organizations known as 501(c)(3)s, and private not-for-profits. That last category includes military; public safety, health, education, and library services; and more.

Pro tip: Certify that your employer is included in the program every year.

Each year and whenever you change employers, you should fill out and send an Employment Certification form to FedLoan Servicing. The form isn’t required to be submitted on an annual basis, but it’s highly recommended to fill it out annually so there are no unhappy surprises down the road. It also helps you keep track of progress toward your 120 payments and gives you a chance to find out whether there is any change to your eligibility status.

What if you fear your job’s eligibility is unclear?

The validity of that FedLoan Servicing certification form is at the center of the lawsuit against the Department of Education. Although it’s important to have your employer’s eligibility certified by the department, the Education Department has said the form isn’t necessarily binding and the eligibility of employers can possibly change. As The New York Times put it, the department’s position implies “that borrowers could not rely on the program’s administrator to say accurately whether they qualify for debt forgiveness. The thousands of approval letters that have been sent … are not binding and can be rescinded at any time, the [DOE] said.”

That puts existing borrowers in a tough spot, says Joseph Orsolini, CFP and president of College Aid Planners: “[PSLF] is sort of an all-or-nothing in that you can’t apply for the forgiveness until you’ve already done your 120 payments. So to have someone choose this career path and work for years only to be told, ‘never mind, you no longer qualify even though we said you did,’ it would be hard for them not to see that as reneging on a deal.”

That possibility is “terrifying” for Frances Harrell, 35, a preservation specialist who works for a nonprofit that supports small and medium-size libraries in caring for their collections. She completed a library graduate school program in 2013 and emerged with a total of about $125,000 in debt, including her undergraduate loans.

“Everyone I know is in public service, and we all saw the Times article [about the PSLF lawsuit] and flipped out,” says Harrell, who currently lives in Gainesville, Fla. “I felt like I had been dropped in a bucket of ice. We’re making life decisions based on this understanding, and it feels so precarious not to have any true confirmation that we’ll get the forgiveness in the end.”

Christopher Razo, 22, who this month will begin classes at Chicago’s John Marshall Law School, plans to take advantage of PSLF while working toward his dream of becoming a state attorney. (Photo courtesy of Christopher Razo)

Harrell has also dealt with confusion from loan servicers and other experts — and based on incorrect advice, she nearly consolidated her loans in a way that would have reset the clock on her years of payments.

Christopher Razo, 22, who this month will begin classes at Chicago’s John Marshall Law School, is relieved that he is enrolling before the 2018 uncertainty begins. Razo is one of Orsolini’s clients, and he plans to take advantage of PSLF while working toward his dream of becoming a state attorney.

“[PSLF] is complex as it is, so my initial thought was, ‘Wow, great timing for me that I’m starting in 2017,’” Razo says. “But I understand the program affects way more than just me. [PSLF] gives you comfort to pursue public-service goals without having to make your employment about the money. I’m optimistic that [lawmakers] will see the good in the program so it can continue.”

When in doubt: Follow the ‘3 phone call rule’

While borrowers may think their loan servicer has all of the answers, Harrell’s situation isn’t uncommon, says Orsolini. He recommends “the three phone call rule”: Call three times and ask the same question, documenting whom you spoke to and when.

“These programs are complicated — which is one of the issues that critics [of PSLF] bring up — and you don’t always get the right information,” Orsolini says. “Before you plan your whole life around the [first] answer you get, you have to double- and triple-check that it’s right.”

If you’re taking out your first qualifying loan on or after July 1, 2018, Orsolini says “there’s not much to do besides hurry up and wait” to see what happens with the White House budget as it relates to PSLF.

“The important thing to remember is that a proposal is just a proposal, and these don’t always see the light of day,” Orsolini adds. “It doesn’t do any good to be overly worried, but you’ll want to keep a close eye on the news.”

Other types of loan forgiveness, cancellation, or discharge:

PSLF isn’t the only option. But not all types of federal student loans offer the same forgiveness, cancellation, or discharge options. See the chart below and check out StudentEd.gov pages here and here for more details.

Still, borrowers should know Trump’s desire to streamline federal programs into a single option means some of these loan types and forgiveness plans could be changed or canceled as well.

Julianne Pepitone
Julianne Pepitone |

Julianne Pepitone is a writer at MagnifyMoney. You can email Julianne here

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How to Master the College Enrollment Process and Beat ‘Summer Melt’

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

As many as 40 percent of college-bound students never make to campus their freshman year thanks to a phenomenon called “Summer Melt.” The term was coined by researcher Karen Arnold in 2009 to describe what happens when high school seniors get accepted into postsecondary institutions but still fail to enroll.

Students susceptible to summer melt, many of whom are often low-income and first generation college students, may get stuck on one or more of the steps required to complete enrollment. These steps can be as simple as filling out housing applications, taking placement tests and attending summer orientation — but the most common culprit behind summer melt is the financial aid process.

“A lot of the reason why students struggle over the summer is wrapped up in the process of accessing financial aid and following through with the financial aid that they are offered,” says researcher Lindsay Page , who co-authored the book, “Summer Melt: Supporting Low-Income Students Through the Transition to College”.

Making a mistake on the Free Application for Federal Student Aid, or FAFSA, or missing important financial aid deadlines could mean little or no scholarship or grant money for at-risk low-income students, who may not be able to attend attend school without the aid.

Here are a few steps students and their families can take to make sure they don’t fall prey to summer melt.

Reach out to school counselors and nonprofits for help

Dejah Morales, 19, could easily have fallen into the summer melt trap. As a first generation college student, the East Boston, Mass. teen told MagnifyMoney she wasn’t sure how to navigate the college matriculation process. But rather than giving up, she sought help from nonprofit organizations with experts on hand to guide her.

“I wanted to go find help because I knew all of the paperwork that is filled out needs to be done correctly because it affects how much [money] you get for financial aid and anything that has to do with you living on campus,” Morales said.

She started by contacting her high school college admissions counselor, who turned her on to a program offered by Bottom Line, a Boston, Mass.-based nonprofit that helps low-income and first-generation students get through the college application process and provides additional support when students are in school. Bottom Line made sure she correctly completed the application process in order to become a student. The nonprofit also has offices in Chicago, New York City, and Worcester, Mass.

For first generation college students like Dejah Morales, 19, (pictured above) getting accepted to college is only half the battle. Completing the enrollment process is the next hurdle. Photo courtesy of Dejah Morales.

When it came to sorting outout the nitty-gritty details of securing financial aid, Dejah turned again to her high school’s resources. All Boston-area high schools are staffed with a counselor from uAspire, a nonprofit that helps college-bound students get the information and resources they need to complete the college admissions and financial aid process.

“Submitting your actual [income verification] paperwork to the school was the hard part. And then having to get my parents tax information was always a struggle especially my dad since he wasn’t living with me,” says Morales. The uAspire counselor assisted her through the entire process.

Even if your school doesn’t have dedicated college counselors on staff, there are many free programs dedicated to helping students navigate the college financial aid process. Check out national non-profits like the College Goal Sunday Program hosted by the National College Action Network, or Reach4Succes. Also, students and families can contact their school counselor’s office for access to local resources.

Know your national AND state FAFSA deadlines — and submit your forms early

In order to get access to financial aid — that includes federal grants like the Pell grant and federal student loans — students and families absolutely MUST fill out the Free Application for Federal Student Aid (FAFSA).

That’s why it is so crucial to stay on top of deadlines to submit your FAFSA. If you miss the deadline, your options for financing school become incredibly limited.

Check out our guide on how to get through the FAFSA smoothly >

What’s more, federal grants and scholarships — ‘free’ money for school that you don’t have to pay back — are typically doled out on a first come, first serve basis. That means the later you wait to submit the FAFSA application, the less likely those funds will be available to you — even if you qualify for the aid.

There are two deadlines to keep in mind: the national FAFSA deadline and your state FAFSA deadlines.

State FAFSA Deadlines:

Your state may have set a different FAFSA submission deadline to qualify for state-specific aid. Check here to find your state’s deadline.

Get your parents on board early

Joe Orsolini, CFP and founder of College Aid Planners, says the majority of financial aid issues he sees occur just weeks before the fall semester begins are a result of parents not getting involved early on. Even small mistakes, like entering an incorrect social security number or miscalculating a parent’s income, could mean delays in receiving aid.

“The parents never really sat down with the kid and asked, ‘Hey. where is the rest of this money coming from?’” says Orsolini.

You’ll need to have important documents like your parent’s taxes and income from the past two years and your social security number on hand to complete the FAFSA form. Those can be difficult to get hold of when you don’t live with one or both your parents or if your parents don’t fully understand what they are being asked to provide.

Easy mistakes that can throw off your FAFSA submission

Incomplete e-signature. The FAFSA can also trip you up on seemingly-easy steps, like providing an e-signature. If you don’t provide the e-signature correctly, or think you hit ‘submit’ but didn’t, you may waste valuable time waiting for an email that won’t come until you sign the form properly.

Missing mistakes on your Student Aid Report. About two weeks after you submit the form, you should receive a Student Aid Report which gives you basic information about your eligibility for federal student aid along with your Expected Family Contribution – what your family is expected to pay. The SAR also includes a four-digit Data Release Number (DRN), which you’ll need to allow your school to change certain information on your FAFSA.The SAR also lists your responses to the questions on your FAFSA, so be sure to review it and correct any mistakes.

Income verification notifications. After you receive your SAR, check to see if you’ve been flagged for ‘income verification’ as about 1/3 of students are required to verify their parent’s income with additional proof to complete the FAFSA process. The government usually follows up on students who are more likely to qualify for the federal Pell grant or other grant-based aid, Page says. If flagged for income verification, you’ll have to submit verification to each school you apply to, and the schools may have different paperwork and processes.

Missing deadlines in e-mail. When you create and submit the FAFSA, you give the Education Department your email address. The Education Department will email you, so you need to check the inbox of the email address you provided for correspondence. Create your FAFSA account using an email account you check regularly. Turn on your email notifications on your devices so you won’t miss any emails reminding you to submit your FAFSA form or letting you know if something went wrong somewhere in the process.

Formally accept your financial aid awards

After submitting your FAFSA, you will receive a student aid award letter from your college. But your work isn’t done there. You’ll have to sign online to officially accept the aid (student loans, grants, work-study programs, etc). Typically, that will be facilitated through your college’s website.

If you applied for federal work-study, this is when you’ll decide if accepting it is best for your circumstances. Work with a financial aid counselor at the college if you need help weighing the pros and cons of accepting or denying any aid you’ve been offered.

Don’t forget to sign your Master Promissory Note. In order to receive federal student loans, you must sign a Master Promissory Note. The MPN is a legal document you must sign saying you promise to repay your loan(s) and any accrued interest and fees to the U.S. Department of Education. If you miss this final step, you won’t actually get any of the federal loans you’ve been assigned.

Log into your school’s student portal ASAP

Income freshman likely have access to a student portal provided by their college or university. There, you’ll likely find a checklist of important steps to complete before you can officially enroll.

The list may include important financial aid actions like accepting grants and scholarships or signing your Master Promissory Note.

Contact your school’s financial aid counselors early

If you’re not sure what your next steps should be in the financial aid process, you should reach out to the school you’re planning to attend. Call or send an email to the financial aid or admissions offices at your school if you are concerned about receiving the aid you need or get stuck completing all of the steps in the process.

In the future, your college may be the one reaching out to you first, as Georgia State University did with it’s Fall 2016 freshman class. The school experimented using a “chatbot” to send a control group of incoming freshmen alerts about the enrollment process.

The chatbot ‘nudged’ students to remind them of things they needed to do, like signing their MPN, or accepting scholarships, but it could also respond to students’ questions or help them get in contact with a human if asked or if it couldn’t answer the question.

“We saw our melt rate drop from 18% to 14%,” says Scott Burke, the school’s’ Associate Vice President and Director of Undergraduate Admissions. “That was 300 more students in our freshman class in fall 2016 than in fall 2015.”

Don’t forget your high school resources

Like Morales, high school seniors can still ask their high school counselors for help after they’ve graduated. Don’t hesitate to reach out with questions you may have about your transcripts or other parts of the financial aid process.

High school counselors, like Morales’ uAspire counselor, are usually equipped to answer many of the questions you may have about the financial aid process or with the FAFSA, but they may not be able to answer more college-specific questions. For example, your high school counselor could help you navigate your way through Loan Entrance Counseling, but may not be able to explain the process you need to go through to accept any awarded scholarships or grants from the university.

If a high school counselor can’t answer your questions, they generally direct you to the proper entity or person who can.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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Older Americans Are Getting Crushed by Debt, New MagnifyMoney Analysis Shows

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

More American seniors are shouldering debt as they enter their retirement years, according to a new MagnifyMoney analysis of data from the latest University of Michigan Retirement Research Center Health and Retirement Study release. MagnifyMoney analyzed survey data to see whether debt causes financial frailty during retirement. We also spoke with financial experts who explained how seniors can rescue their retirements.

1 in 3 Americans 50 and older carry non-mortgage debt

The Health and Retirement Study from the University of Michigan Retirement Research Center surveys more than 20,000 participants age 50+ who answer questions about well-being. The survey covers financial topics including debt, income, and assets. Since 1990, the center has conducted the survey every other year. They released the 2014 panel of data in November 2016. MagnifyMoney analyzed the most recent release of the data to learn more about financial fitness among older Americans.

In an ideal retirement, retirees would have the financial resources necessary to maintain the lifestyle they enjoyed during their working years. Debt acts as an anchor on retiree balance sheets. Since interest rates on debts tend to rise faster than earnings from assets, debt has the power to destroy the balance sheets of seniors living on fixed incomes.

We found that nearly one-third (32%) of all Americans over age 50 carry non-mortgage debt from month to month. On average, those with debt carry $4,786 in credit card debt and $12,490 in total non-mortgage debt.

High-interest consumer debt erodes seniors’ ability to live a quality lifestyle, says John Ross, a Texarkana, Texas-based attorney specializing in elder law.

“From an elder law attorney perspective, we see a direct correlation between debt and institutional care,” Ross says. “Essentially, the more debt load, the less likely the person will have sufficient cash assets to cover medical care that is not provided by Medicare.”

Even worse, debt leads some retirees to skip paying for necessary expenses like quality food and medical care.

“The social aspect of being a responsible bill payer often leads the older debtor to forgo needed expenses to pay debts they cannot afford instead of considering viable options like bankruptcy,” says Devin Carroll, a Texarkana, Texas-based financial adviser specializing in Social Security and retirement.

Some older Americans may even be carrying debt that they don’t have the capacity to pay.

According to our analysis, 40% of all older Americans have credit card debt in excess of $5,000. More than one in five (22%) Americans age 50+ have more than $10,000 in credit card debt. On average, those with more than $10,000 in credit card debt couldn’t pay off their debt even by emptying their checking accounts.

Over a third of American seniors don’t have $1,000 in cash

It’s not just credit card debtors who struggle with financial frailty approaching retirement. Many older Americans have very little spending power. More than one-third (37%) of all Americans over age 50 have a checking account balance less than $1,000.

Low cash reserves don’t just mean limited spending power. They indicate that American seniors don’t have the liquidity to deal with financial hardships as they approach retirement. This is especially concerning because seniors are more likely than average to face high medical expenses. Over one in three (36%) Americans who experienced financial hardship classified it as an unexpected health expense, according to the Federal Reserve Board report on the Economic Well-Being of U.S. Households in 2015. The median out-of-pocket health-related expense was $1,200.

Debt pushes seniors further from retirement goals

Seniors carrying credit card debt exhibit other signs of financial frailty. For example, seniors without credit card debt have an average net worth of $120,000. Those with credit card debt have a net worth of just $68,000, 43% less than those without credit card debt.

The concern isn’t just small portfolio values. For retirees with debt, credit card interest rates outpace expected performance on investment portfolios. Today the average credit card interest rate is 14%. That means American seniors who carry credit card debt (on average, $4,786) pay an average of $670 per year in interest charges. Meanwhile, the average investment portfolio earns no more than 8% per year. This means that older debtors will earn just $4,508 from their entire portfolio. Credit card interest eats up more than 15% of the nest egg income.

For some older Americans the problem runs even deeper. One in 10 American seniors has a checking account balance with less than $1,000 and carries credit card debt. This precarious position could leave some seniors unable to recover from larger financial setbacks.

Increased debt loads over time

High levels of consumer debt among older Americans are part of a sobering trend. According to research from the University of Michigan Retirement Research Center, in 1998, 36.94% of Americans age 56-61 carried debt. The mean value of their debt (in 2012 dollars) was $3,634.

Over time debt loads among pre-retiree age Americans are becoming even more unsustainable. Today 42% of Americans age 50-59 have debt, and their average debt burden is $17,623.

Credit card debt carries the most onerous interest rates, but it’s not the only type of debt people carry into retirement. According to research from the Urban Institute, in 2014, 32.2% of adults aged 68-72 carried debt in addition to a mortgage or a credit card, and 18% of Americans age 73-77 still have an auto loan.

Even student loan debt, a debt typically associated with millennials, is causing angst among seniors. According to the debt styles study from the Urban Institute, as of 2014, 2%-4% of adults aged 58 and older carried student loan debt. It’s a small proportion overall, but the burden is growing over time.

According to the Consumer Financial Protection Bureau, in 2004, 600,000 seniors over age 60 carried student loan debt. Today that number is 2.8 million. Back in 2004 Americans over age 60 had $6 billion in outstanding student loan debts. Today they owe $66.7 billion in student loans, more than 10 times what they owed in 2004. Not all that student debt came from seniors dragging their repayments out for 30-40 years. Almost three in four (73%) older student loan debtors carry some debt that benefits a child or grandchild.

Even co-signing student loans puts a retirement at risk. If the borrower cannot repay the loan on their own, then a retiree is on the hook for repayment. A co-signer’s assets that aren’t protected by federal law can be seized to repay a student loan in default. Because of that, Ross says, “We never advise a person to co-sign on a student loan. Never!”

How older Americans can manage debt

High debt loads and an impending retirement can make a reasonable retirement seem like a fairy tale. However, an effective debt strategy and some extra work make it possible to age on your own terms.

Focus on debt first.

Carroll suggests older workers should prioritize eliminating debt before saving for retirement. “Several studies have shown a direct correlation between debt and risk of institutionalization,” he says. Debt inhibits retirees from remodeling or paying for in-home care that could allow them to age in place.

Downsize your lifestyle

As a first step in eliminating debt, seniors should check all their expenses. Some may consider drastic measures like downsizing their home.

Cut off adult children

Even more important, seniors with debt may need to stop supporting adult children.

According to a 2015 Pew Center Research Poll, 61% of all American parents supported an adult child financially in the last 12 months. Nearly one in four (23%) helped their adult children with a recurring financial need.

Wanting to help children is natural, but it can leave seniors financially frail. It may even leave a parent unable to provide for themselves during retirement.

Work longer

Older workers can also eliminate debt by focusing on the income side of the equation. For many this will mean working a few years longer than average, but the extra work pays off twofold. First, eliminating debt reduces the need for cash during retirement. Second, working longer also allows seniors to delay taking Social Security benefits.

Working until age 67 compared to age 62 makes a meaningful difference in quality of life decades down the road. According to the Social Security Administration, workers who withdraw starting at age 62 received an average of $1,077 per month. Those who waited until age 67 received 27% more, $1,372 per month.

Retirees already receiving Social Security benefits have options, too. Able-bodied retirees can re-enter the workforce. Homeowners can consider renting out a room to a family member to increase income.

Consider every option

If earning more money isn’t realistic, a debt elimination strategy becomes even more important. Ross recommends that retirees should consider every option when facing debt, including bankruptcy. He explains, “A 65-year-old, healthy retiree would be well advised to pay down the high-interest debt now. Alternatively, an 85-year-old retiree facing significant health issues is better off filing bankruptcy or just defaulting on the debt. For the older person, their existing assets are a lifeline, and a good credit score is irrelevant.”

Don’t take on new debt

It’s also important to avoid taking on new debt during retirement. “The only exception,” Ross explains, “[is taking on] debt in the form of home equity for long-term medical care needs, but then only when all other reserves are depleted and the person has explored all forms of government assistance such as Medicaid and veterans benefits.”

Every senior’s financial situation differs, but if you’re facing financial stress before or during retirement, it pays to know your options. Conduct your research and consult with a financial adviser, an elder law attorney, or a credit counselor from the National Foundation for Credit Counseling to choose what is right for your situation.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com

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