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College Students and Recent Grads, Reviews

Sallie Mae Student Loans Review for 2020

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Most students who borrow money for their education should start with federal student loans. The federal loan programs offer borrowers a variety of repayment, forgiveness, cancellation and discharge programs that aren’t available from private lenders.

But if you reach your federal loan limits, or examine your options and find you might be better off with a private student loan, you can compare loan offerings from private student lenders. One of the largest private student loan companies, Sallie Mae, has more than a dozen education loan products you can consider.

What is Sallie Mae?

Started nearly 50 years ago, Sallie Mae has played a variety of roles in the student loan space, including lending federally guaranteed loans and private student loans, and servicing federal and private loans.

Sallie Mae spun off a portion of its student loan servicing business to form a new company, Navient, in 2014. And due to changes in the federal student loan programs, Sallie Mae no longer originates federally guaranteed loans. Now, Sallie Mae only offers and services private student loans, while also offering other banking products, such as savings accounts.

Types of student loans Sallie Mae offers

Whether you’re a parent of a grade school student or about to begin your doctorate, Sallie Mae may have a student loan that fits your needs. Its loans are designed for undergraduate students, graduate students and parents or sponsors of students. It also has loans to cover medical residency or bar exam costs.

  1. K-12: For a parent or sponsor of a child who wants to take out a loan to pay for a student’s private kindergarten-through-high school education
  2. Parent: For a parent or sponsor of a child who wants to take out a loan to pay for an undergraduate, graduate or certificate program
  3. Career training: For students at eligible non-degree granting schools
  4. Undergraduate: For students at degree-granting schools who are earning an associate or bachelor’s degree
  5. Graduate: For students at degree-granting schools who are earning a master’s, doctorate or law degree
  6. MBA: For business school students
  7. Health professions graduate: For graduate health profession students, including those in allied health, nursing, pharmacy, and other graduate-level health degrees.
  8. Dental school: For graduate dental degree students, including those in dentistry, endodontics and orthodontics programs
  9. Medical school: For graduate medical degree students, including those in allopathic, osteopathic and podiatric programs
  10. Medical residency and relocation: For medical residency students to help pay for board examinations and residency-related travel and moving expenses
  11. Dental residency and relocation: For dental residency students to help pay for board examinations and residency-related travel and moving expenses
  12. Bar study: For law students and recent graduates to help pay for bar review courses, registration and living expenses while you study
  13. Law school: For students studying for their law degree

Sallie Mae student loans in a nutshell

Most of Sallie Mae’s loans are identical when it comes to fees, cosigner release options and discounts.

Fees

  • Aside from the K-12 loan’s 3% disbursement fee, none of the loans have application, origination, disbursement or prepayment fees.
  • Late payments result in a fee that’s 5% of the amount due (capped at $25).
  • Returned checks carry a $20 fee.

Cosigner release

  • You can apply to release a cosigner after making 12 consecutive, on-time, full interest and principal payments. However, parent loans don’t offer a cosigner release option.

Discounts

  • With all but the K-12 loans, you can receive a 0.25% interest rate discount if you sign up for automatic payments.
 K-12 loansParent loansCareer trainingUndergraduate loansGraduate loansMBA loans
Fixed APR range*Not available5.49% -
13.87%
Not available4.25% -
12.59%
5.50% -
10.23%
5.50% -
10.23%
Variable APR range*7.24% - 13.87%3.50% -
13.12%**
4.25% - 11.64%**1.25% -
11.35%**
2.25% -
7.96%**
2.25% -
7.96%**
Loan termsThree years10 yearsFive to 15 yearsFive to 15 yearsFive to 15 yearsFive to 15 years
Loan amount$1,000 minimum

Borrow up to the school-certified cost of tuition
$1,000 minimum

Borrow up to the school-certified cost of attendance
$1,000 minimum

Borrow up to the school-certified cost of attendance
$1,000 minimum

Borrow up to the school-certified cost of attendance
$1,000 minimum

Borrow up to the school-certified cost of attendance
$1,000 minimum

Borrow up to the school-certified cost of attendance
Repayment plans (both in-school and post-school)Full interest and principal paymentsFull interest and principal payments

Interest-only payments
$25 a month

Interest-only payments


12-month interest-only repayment that begins after your separation or grace period ends
Deferment

$25 a month

Interest-only payments

12-month interest-only repayment that begins after your separation or grace period ends
Deferment

$25 a month

Interest-only payments

12-month interest-only repayment that begins after your separation or grace period ends
Deferment

$25 a month

Interest-only payments

12-month interest-only repayment that begins after your separation or grace period ends

**Variable rates are capped at 25%.

 Health professionsDental schoolMedical schoolMedical residencyDental residencyLaw school
Fixed APR range*5.50% - 10.23%5.50% - 9.99%5.49% -
9.98%
6.52% - 12.00%6.52% - 12.00%5.50% -
9.99%
Variable APR range*2.25% - 7.96%**2.25% - 7.66%**2.25% -
7.62%**
3.03% - 9.62%3.03% - 9.62%2.25% -
7.79%
Loan termsFive to 15 years20 years20 yearsUp to 20 yearsUp to 20 yearsUp to 15 years
Loan amount$1,000 minimum

Borrow up to the school-certified cost of attendance
$1,000 minimum

Borrow up to the school-certified cost of attendance
$1,000 minimum

Borrow up to the school-certified cost of attendance
$1,000 minimum

Borrow up to $20,000
$1,000 minimum

Borrow up to $20,000
$1,000 minimum

Borrow up to the school-certified cost of attendance
Repayment plans (both in-school and post-school)Deferment

$25 a month

Interest-only payments

12-month interest-only repayment that begins after your separation or grace period ends
Deferment

$25 a month

Interest-only payments

12-month interest-only repayment that begins after your separation or grace period ends
Deferment

$25 a month

Interest-only payments

12-month interest-only repayment that begins after your separation or grace period ends
Full interest and principal payments

Two- or four-year interest-only repayment
Full interest and principal payments

Two- or four-year interest-only repayment
Deferment

$25 a month

Interest-only payments

12-month interest-only repayment that begins after your separation or grace period ends

**Variable-rate loans have a 25% APR cap.

How Sallie Mae compares with other lenders

Sallie Mae finished first among MagnifyMoney’s top five private student lenders for 2019. We compared undergraduate student loan products and began with the nation’s 10 largest national lenders. The ranking focused on loans’ APR ranges, discounts, fees and repayment terms, as well as lenders’ policies for releasing a cosigner, deferring loan payments and their online applications.

In addition to having a top-rated undergraduate loan, Sallie Mae differentiates itself by offering its wide variety of different student loans. Many of these other loans share characteristics with the undergraduate loan, including the 12-payment cosigner release requirement, lack of a specific maximum loan amount and a 0.25% interest rate discount for auto debit.

However, as with any lender, there are pros and cons to consider before taking out a loan from Sallie Mae.

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Lender Disclosure

Advantages of Sallie Mae Student Loans

You may be able to choose a repayment plan. Depending on the loan product, you may be able to choose from up to three different repayment plans. A plan that requires you make payments while you’re in school could help you save money in the long run; however, deferring your full payments can give you more money to cover education and living expenses now.

12-month payment requirement for cosigner release. With most Sallie Mae student loans, you can apply to release your cosigner once you make 12 consecutive, full, on-time payments. Other lenders may let you apply for cosigner release, but it could take longer to qualify, in some cases requiring 48 full monthly payments before you can apply.

In addition to the payments, you’ll need to pass a credit check and meet Sallie Mae’s requirements for releasing a cosigner.

Discharge due to death or permanent and total disability. Similar to the federal student loan guidelines, Sallie Mae will waive a borrower’s current balance if he or she dies or becomes permanently and totally disabled. The benefit may be especially important to borrowers who have a cosigner or dependents, such as a spouse or child(ren), who could be affected if the debt isn’t waived.

No preset loan limit. While some federal student loans and private student loans set dollar-amount limits on how much you can borrow, most Sallie Mae student loans allow you to borrow up to your school’s certified cost of attendance.

Loans for less-than-half-time students. Some private school lenders require borrowers to have at least a half-time course load to qualify for a student loan. Sallie Mae’s loans for students don’t have this requirement.

Forbearance and deferment options. Putting your loans into forbearance or deferment lets you temporarily stop making payments without getting charged late fees or hurting your credit. Forbearance is generally for when you have trouble making payments, perhaps due to losing a job or a medical emergency. Deferment, meanwhile, may apply to other circumstances, such as returning to school.

Sallie Mae could approve up to 12 months of forbearance in three-month increments and up to 60 months of deferment in 12-month increments. Interest continues to accumulate, and your long-term costs may increase, but forbearance or deferment are still better options than missing a payment or letting a loan go into default.

Extra perks. Many of Sallie Mae’s student loans also come with the Study Smarter benefit. With it, borrowers can get four months of free study tools or 30 minutes of live online tutoring through Chegg Tutors® or a combination of the two.

All of Sallie Mae’s loans also give borrowers and cosigners quarterly access to a FICO® credit score.

Drawbacks of Sallie Mae Student Loans

No additional interest rate discount. Sallie Mae’s 0.25% interest rate discount for auto debit is standard for most federal and private student loans. But other private lenders offer borrowers opportunities to get an additional 0.25% to 0.50% interest rate discount by having other financial products from the same lender or making auto debits from an account with the same lender.

Sallie Mae assigns loan terms. Many Sallie Mae student loans have a repayment term that ranges from five to 15 years. Most other lenders that offer a range of terms let borrowers choose their term, along with the corresponding monthly payment and interest rate. Sallie Mae, however, will assign you a term.

No loan pre-approval. Private student loans require a credit check. Some lenders will do a soft credit pull, which doesn’t hurt your score, to determine if you can qualify for a loan or need a cosigner and to show you estimated interest rates if you qualify. Sallie Mae will only show you rates after a hard credit inquiry, which could hurt your score slightly.

What it takes to qualify with Sallie Mae

All Sallie Mae student loans have the same basic requirements:

Minimum credit score: Sallie Mae doesn’t disclose a minimum credit score requirement. In 2016, applicants that were approved for a Sallie Mae student loan had, on average, a 748 FICO score at the time of approval.
Minimum age for borrowers: Borrowers must be the age of majority in their state (often 18 years old). Younger applicants will need an eligible and creditworthy cosigner.
State residency requirements: Sallie Mae student loans are available in every state.
Eligible schools: Sallie Mae doesn’t publish a list of eligible schools, but you can search for the name of a school at the beginning of the loan application to see if your school qualifies.

 K-12 loansParent loansCareer trainingUndergraduate loansGraduate loansMBA loans
Additional requirementsThe student you’re taking the loan out for has to be enrolled in a private school.The student you’re taking the loan out for has to be pursuing a certificate or an associate, bachelor’s or graduate degree at a degree-granting school.You must be enrolled at a non-degree-granting school and pursuing professional training or a certification.You must be a enrolled at a degree-granting school and pursuing a certification or an associate or bachelor’s degree.You must be enrolled at a degree-granting school and pursuing a master’s, doctorate or law degree.You must be enrolled at a degree-granting school and pursuing a masters of business administration degree.
 Health professionsDental schoolMedical schoolMedical residencyDental residencyBar studyLaw school
Additional requirementsYou must be enrolled at a degree-granting school and pursuing a degree in one of the eligible areas of study.You must be enrolled at a degree-granting school and pursuing a degree in one of the eligible areas of study.You must be enrolled at a degree-granting school and pursuing a degree in one of the eligible areas of study.You must either have a half-time course load and be in your last year at an eligible school, or graduated from an eligible school in the previous 12 months.

If you didn’t already earn your medical degree, you must expect to earn the degree in the current academic program year.
You must either have a half-time course load and be in your last year at an eligible school, or graduated from an eligible school in the previous 12 months.

If you didn’t already earn your dental degree, you must expect to earn the degree in the current academic program year.
You must either have a half-time course load and be in your last year at an eligible school, or graduated from an eligible school in the previous 12 months.

You must take the bar exam within 12 months of graduating.
You must be enrolled at a degree-granting school and pursuing a J.D. degree.

What borrower is Sallie Mae best for?

Sallie Mae offers a variety of student loan products that could be a good fit for parents or students. If you, or a student you’re supporting, can’t take out additional federal student loans but need more money for school, Sallie Mae’s lack of a predefined loan limit could make it a good option.

The medical and dental residency programs and the bar study loan do have a loan limit. But even then, it’s higher than the limit of some competitors who offer similar types of loans.

You also may want to consider Sallie Mae if you think you’ll need a cosigner and would like to release the cosigner later. Although you still may not qualify, depending on your creditworthiness, the 12 months of consecutive full payments is shorter than what some other lenders require.

Taking a closer look at the online platform

You can learn a lot of details about Sallie Mae’s student loans on its website. There are specific pages for each loan product that have a lot of the basic information you’ll want to know. And there are pages with generally helpful information, such as how to make a loan payment or options if you’re having trouble making payments.

Some of the informational pages, such as on the one about interest rates and interest capitalization, also have quick video explainers to help you understand the topic and why it’s important to student loan borrowers.

The actual loan application doesn’t have quite as nice of a design as the other parts of the Sallie Mae website, but it’s still relatively easy to navigate and fill out.

The fine print

The Sallie Mae product and informational pages give you a lot of the basic information you’ll want if you’re comparing student loans from several lenders. There are also loan application and solicitation disclosure forms for many of the loans online. In these, you can see fine-print items like the variable-rate loans’ interest-rate cap and late payment fees.

It’s more difficult to find fine-print information on some of the loans, though. The K-12, residency and bar loans don’t have application and disclosure forms on their pages, for example. We were only able to confirm these loans’ fees and interest rate caps by reaching out to a representative from Sallie Mae.

While you would have a chance to review your loan details after agreeing to a credit check but before signing the loan agreement, it would be nice to have that information up front.

We were also disappointed in how difficult it is to understand how loan terms work with Sallie Mae student loans.

Some private lenders only offer one term. Others offer a variety of terms and let borrowers choose their loan term. Most of Sallie Mae’s undergraduate and graduate student loans have a five- to 15-year term, but Sallie Mae chooses which term to offer you.

The loan-term range and the fact that Sallie Mae chooses the term rather than the borrower aren’t clearly disclosed on the loan’s main page.

What to expect during the application process

Sallie Mae has an online loan application system that makes the process fairly uniform for all its student loans. A few questions may differ, but you can expect the process to be similar to the following steps. Applicants with cosigners may need the cosigner’s personal information, including his or her Social Security number and date of birth.

Basic information

General information. Basic information about the student and borrower:

  • Your name, email address and phone number.
  • Your date of birth, citizenship status and Social Security number.
  • Your relationship to the student, if you’re taking out a loan for someone else.

Address. Your permanent address and a previous address if you moved in the last year. If you have a different mailing address you’ll have to fill that in, too.

Student and school information. If you’re taking out the loan for a student, you’ll need the student’s name, date of birth, citizenship status and Social Security number.

Enter the name of the school and your (or the student’s) academic information:

  • Degree type or certificate of study
  • Major or specialty
  • Enrollment status
  • Grade level
  • Academic period that the loan will cover
  • Anticipated graduation or certification graduate date

Loan application

Loan amount. The cost of attendance, which the application can help you estimate, as well as your estimated financial assistance.

You’ll automatically have a loan amount for the difference between your cost of attendance and financial assistance. You can choose to request less money, and even if you’re approved, Sallie Mae could offer you less than what you requested.

Employment info: Fill in information about your work, including:

  • Employment status
  • Employer’s name
  • Your occupation
  • Work phone number
  • Years with the current employer
  • Gross annual income

Financial info: You can list additional income and assets you have, such as:

  • Income from alimony, child support or a rental property
  • Investments
  • Disability
  • Social Security
  • Income from a household member, such as a spouse
  • Your current assets that could be in checking, savings, CD or money market accounts

You’ll also be asked about your expenses, including monthly housing payments (when applicable).

Personal contacts: Unless you’re taking out a loan for someone else, you’ll have to share two personal contacts that Sallie Mae can use as references. These could be a relative or family friends, and you’ll have to have their full name and phone number.

Submit application: Choose to apply on your own or add a cosigner. You’ll be prompted to read and agree to an electronic delivery consent form, and may then get a copy of the loan’s disclosure form and Sallie Mae’s privacy policy.

You’ll have to agree to let Sallie Mae review your credit history to submit your application.

Finalize the loan

Once you’ve completed an application, you may need to send verification information (such as pay stubs or tax returns). But generally, Sallie Mae will offer a quick response based on your credit.

If you’re approved, you can choose your type of interest rate and repayment plan before accepting the loan. Once you accept the loan offer, Sallie Mae will contact your school to verify that you’re eligible for the loan and loan amount.

The school certification process may take several weeks, and it could even be put on hold until about a month before your term begins. As long as everything checks out, Sallie Mae will send the loan to you or your school, depending on the type of loan.

Already have student loans and looking to refinance? Check out one of our top refinance lenders below.

Fixed APR

2.98% To 5.79%

Variable APR

1.99% To 5.64%

Terms

Up to 20

Years

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3 Mistakes People Make When They Need a Car Loan

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Car Loan

Does your heart drop into your stomach at the thought of buying a car? The stress of making such a major purchase and, dare I say, negotiating, can tire people out so much, they’re ready to say yes to anything at the dealership in order to get their new car and get out. Knowing the common mistakes people make can help you avoid them — the mistakes, not necessarily the salespeople. So here are the major ones.

Not doing your homework on vehicle value

Don’t just check out the closest place to you when searching for the car you want. Look around for prices, and don’t forget to look up what your trade-in is worth, if you have one. Here we’ll talk about the mistakes people make in not looking up prices for new, used and trade-in vehicles.

Not comparing price on new cars

While it might be tempting to go to that one dealership down the street instead of hopping online to check out the prices of a few dealerships around town, you could lose money doing so.

If you know the car you want, look up what dealers in your area are selling it for. Dealers everywhere advertise how far below MSRP they price their vehicles. MSRP stands for manufacturer suggested retail price, which is largely based on production costs.

The window stickers on cars have to show the MSRP and break down the costs that go into it, including all optional equipment (and how much it costs) that comes with the car. So if you find a model you really like, you can check out the window sticker to see the price variations on different trims for that model. The same type of car may be a few hundred dollars cheaper in a different color.

Once you find an ad for a low price on the vehicle you want in your area, you could either go to the dealership with the lowest price, or take the ad showing the lowest price to the dealership that’s most convenient for you, and ask them to meet or beat it.

Not checking auto guides on used cars

While used cars don’t have an MSRP, there are three industry standards you can use to determine their value: the automotive guides Kelley Blue Book (KBB), Edmunds and the National Automobile Dealers Association’s guide (NADA). Dealers and lenders use them to determine vehicle price and worth.

If the price listed in one of the guides is below the car’s sticker price, then the car is overpriced. Show the dealer or seller that you did your research. The car should be priced around what the guide states is the fair market price based on location and condition. If the seller doesn’t agree to offer you a price near that figure, find another vehicle or another seller.

Not looking up the value of your trade-in

Similar to a used car, you can find the value for your trade-in on an automotive guide. Most guides have a range of values that tell you what you can reasonably expect to get for the car depending on the car’s condition and to whom you sell it. You can usually get more for your trade-in if you sell it yourself.

If you’re up to selling it, you could post it for sale on sites like Facebook Marketplace, Craigslist and Autotrader. Of course, you then have the hassle of replying to prospective buyers and arranging times to meet so they can see and test-drive the vehicle.

Most people prefer to trade in their old vehicle at the dealership, which often offers you a price that is less than what the car is actually worth. In effect, you’re paying the dealership to handle the hassle of selling your car for you.

Just make sure you don’t pay them a whole lot. Look up the value of your trade-in before you go, so you’ll know what it’s worth and the person or dealer buying it won’t get away with underpricing it.

Focusing on the car over the car loan

As shiny and pretty and good-smelling as a new or new-to-you car may be, remember, you’re not just paying for the vehicle, you’re paying for the loan on it. Here are mistakes people make in financing their cars.

Only talking to one lender

Know what APR you can get before you go kick some tires. Having multiple loan offers before you shop around for a car has a couple of advantages.

The first advantage is that you’ll be able to pick your best loan offer. If you just get one loan offer and go with it, you won’t know if you could have received a much better APR with a different lender. Each lender has its own requirements. You may qualify for different APRs depending on the lender.

With an online marketplace like LendingTree you can fill out a short online form and compare rates from up to five auto lenders. It’s important to note that some lenders will do a hard pull on your credit and that this is normal in the auto lending space. Remember that multiple hard pulls will only count as one, so it is wise to have all of your hard pulls done at one time.

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LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.


Advertised rate is for new and used auto loans for an offered loan amount of $10,000 with a 36 month term.

By shopping around, you can easily avoid a major way dealerships make money. Dealers can often increase the APR on a loan you get through them. For example, the dealer might be able to charge you 7% APR, with 5% going to the lender and the 2% on top going to the dealer. If you don’t talk to multiple lenders and see what you can get, you won’t know you actually qualify for 5% APR and you’re likely to say yes to the 7% APR.The second advantage of comparing offers is that you’re able to plan your budget more accurately. With a loan offer in hand, you’ll know how much you can borrow, what your APR is and thus what price range you can consider when looking at vehicles.

If you do have poor credit, your APR will probably be a significant part of what it costs for you to get a car. There are ways to find a car loan with bad credit, so plan and budget for it, so it doesn’t surprise you. No matter what you think your credit is, you should check it before you apply for loans, which you can do for free on LendingTree.

Refusing to talk finance with the dealer

Some people will bring a loan offer to a dealership and refuse to talk with the dealership financing office. This is mistake. Not asking the dealership to beat a loan offer means you could be leaving money on the table.

The dealership wants you to finance through them. Lenders often give dealerships a finder’s fee for each customer who gets a loan from them through the dealership. Unlike the first way dealers can make money on a loan (by increasing your APR), this way works to your advantage, as the dealer will want to beat the loan offer you have, because the lender they partner with will often pay them for it.

Overall, the dealer might not be able to beat your loan offer. But whether they can or can’t, by asking them to beat it, you’ll know you got your best deal.

Focusing on monthly price

Many people’s main considerations when buying a vehicle is down payment and monthly payment. Those are the two biggest factors because it’s the easiest way to understand how the loan and the car impacts their financials directly. However, if you focus on monthly price instead of total price, you’re giving the dealer the opportunity to hide extra products in there.

For example, if you tell the dealer you want a monthly payment of $321, and it turns out the loan with the car you want comes to $290 a month, the dealer can turn around and say, ‘Hey, I have great news, you can have a $321 car payment that includes an extended warranty! Sign here.’

All of a sudden, you just spent $1,500 on an extended warranty, which you may not know much about or even want.

There are many “add-ons” available at dealerships, including extended warranties and insurances such as GAP, life and disability. All of these things can be useful depending on the person and the vehicle. But don’t simply accept them. A monthly payment increase of $20 might not sound like much, but over six years, plus the APR you’re paying to finance it, certainly adds up. You can negotiate these products prices, so talk about how much each costs overall, not monthly.

Rolling over negative equity

If you have a trade-in car, the first thing you should do after consulting an automotive guide to find how much the car is worth is to find out how much you owe. If the car is worth less than what you owe, you have negative equity.

The most popular way to handle this is to add the difference, or “roll over” the negative equity, to your new loan. Financially, this isn’t a great idea. You’re less likely to get a good deal on your new loan because the loan is for more money than what the new car is worth. This can also get you stuck in a trap in which every time you want a new car, you’re stuck with the negative equity from the car before it.

There are a few ways to take care of negative equity, and here are some recommendations on what to do if you’re trapped in a bad car loan.

Ignoring your budget or not having one

If you know you can only afford $321 a month in a car payment (not including car insurance), don’t let someone persuade you to take on a $400 a month payment. If the loan you qualify for on the car you like can only be as low as $400 a month, that means you need to find a different car to like. You don’t want to be skipping meals in order to pay for it, or not be able to make the payments and have it repossessed.

In order to confidently decide what you can afford, you first need to figure out your budget. A good rule is that all of your bills (rent, insurance, car payment, etc.) should be about 50% of your income. So look at your income and the bills you already have to see the margin between what all your bills add up to and the 50% amount of your income. That difference is a car payment you could comfortably afford.

The common rule of thumb about auto finance is that for every $1,000 you finance, your monthly payment goes up by $15, depending on your interest rate. Say the car you like costs $20,000, and taxes bring the cost up to $22,000 (taxes, tag and license fees can add up to 10% of sticker price, depending on the state). That rule of thumb would tell you to budget roughly $330 for a monthly payment ($15 x 22 = $330). Or you could do the longer math: Most car loans are for 72 months (6 years), and if you figure your loan APR will be 5%, then your monthly payment would be $355. Obviously, the rule of thumb is just that — a guideline. Doing the exact calculation or using a loan calculator can help you budget more precisely.

Doing things too quickly

Car buying can be a large and stressful event, so it’s understandable why you would want it over with quickly. However, you shouldn’t treat the process as you would ripping off a bandage.

Not walking away

If you’re unsure about a car or an auto loan and want time to think on it, take the time to think on it. Leave the dealership and take a break. Make sure you’re making the right decision for yourself, and don’t feel terribly pressured into making one quickly.

A salesperson might tell you the car want today could be gone tomorrow if you leave without buying it. That’s true, that specific car could be sold. Yet manufacturers make thousands of vehicles a day and people trade in used cars all the time. You can always find another to suit your needs, which would be better than getting stuck in something you don’t completely like or can’t afford.

Being rude to salespeople

Ultimately, the people at the dealership are the people you’re relying on to provide a service. This article has covered what some of the more unsavory people at dealerships can do, but it does not account for the hard work and true customer care many dealership employees do put into helping car buyers.

Many of the veteran salespeople in the car business are there because they enjoy and specialize in helping you make one of the largest financial decisions in your life. If you’re uncommonly rude to them, you might discover that it takes longer to do everything, and that it may be harder to negotiate on price — basically, it’s in everyone’s best interest to practice common courtesy. Take advantage of a good salesperson’s expertise, and don’t allow the others to take advantage of you.

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11 Things to Know About Leasing a Car Before You Buy Your Own Vehicle

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Nearly one quarter of new cars in America are sold under lease agreement, and low monthly payments entice buyers who want to drive new cars, but don’t want to deal with a large cash outlay.

Lessees don’t build equity in their vehicle, but for the right person, a lease can be a good option. These are things you need to know before you consider a lease.

1. The best way to think about a lease

It’s best to think of a lease as a pay for use contract. A lease allows you to pay for the depreciation you put onto a vehicle at a reasonable interest rate. You get to drive and depreciate a vehicle for a certain period of time then you can walk away.

Due to higher markups, higher interest rates and additional fees, leasing tends to be an unfavorable financing mechanism, but if you don’t care about owning the car, a lease may be a good option for you.

As a lessee, you will drive the car during its most rapid depreciation phase, so in the long run, continuously leasing a vehicle is the most expensive way to drive, but if you always want to drive a new car, leasing can be a low hassle way to make that happen.

2. Leasing affects your credit score

Taking on a lease affects your credit the same way that taking on a car loan affects your credit. Applying for a lease triggers a credit inquiry on your report, which has a small adverse effect on your credit score. Taking on a lease increases credit utilization which also adversely affects your credit score. Over time your credit utilization will fall, and timely payment history will cause your score to increase again.

Leases are considered installment loans, and having a high utilization rate on installment loans does not have as much of an adverse effect on your credit score as having high utilization on credit cards or other forms of revolving credit. As with any form of credit, late or skipped lease payments drag down your score

Further Reading: Credit Score Guide

3. Leasing terminology

Manufacturers and salespeople shroud leasing in complex jargon. To understand the terms of your lease, these are the definitions you need to know.

  • Capitalized Cost: The price of the vehicle. This could be MSRP (Manufacturer’s Suggested Retail Price), or it could be reduced based on your negotiations.
  • Capital Cost Reduction: This is a down payment. The most favorable leases (for those who don’t intend to purchase at the end of the lease) should not include a capital cost reduction unless it’s an incentive.
  • Residual Value: This is the estimated value of the car at the end of the lease. The higher this price is relative to the capitalized cost, the more favorable it is to lease a car. Cars.com keeps a database of residual values on file that you can use to understand if you’re getting a fair residual value.
  • Factor, Money Factor or Rate: This is the interest rate of your loan, but it’s not expressed as an annual percentage rate. The number expressed needs to be multiplied by 2.4 to get to an APR. For example a 1.35 money factor is a 3.24% interest rate. LeaseHackr.com keeps an up to date list of “official” factors (column entitled MF) that you can use in negotiations. Interest rates on leases range from 2-3 times as high as interest rates on traditional car loans, but it is possible to negotiate this rate.

4. You can negotiate a lease

Unlike car loans, leases come from car manufacturers rather than banks. However, this doesn’t mean that it’s impossible to negotiate a lease. Anyone who intends to lease should try to drive down the capitalized cost, and people with good credit should also look to reduce or even eliminate the money factor. Small fees like documents fees, tire fees and more can be waived completely if you take the time to negotiate.

Even if a dealership advertises a “Manufacturer’s Leasing Special”, you should negotiate the terms of the lease. Salespeople depend on getting you to drive away in a new car, so consumers hold upper hand in negotiations.

5. No money down

One advantage of leasing a vehicle is that it shifts depreciation risk from the customer to the manufacturer. A down payment (or a capital cost reduction) shifts the risk back onto the customer. In a lease, a down payment is a form of pre-payment. If you terminate the lease before the end of the lease period (if your car is totaled or stolen), you lose the benefit that the down payment purchased. Putting no money down is an important strategy for keeping the lease in the lessee’s favor.

6. Extra insurance costs

Leasing yields lower monthly payments compared to buying using traditional financing, but some of the monthly cash flow advantage is lost by increased insurance costs. To protect themselves financially, lessees should purchase “Gap Insurance” in addition to traditional car insurance.

Gap insurance covers the difference between the actual cash value and the amount owed on a lease. As soon as a lessee drives the car off the lot, the car is worth less than the lessee owes on their lease. If a car is totaled or stolen during a lease period, you need to be able to buyout the lease early, and gap insurance allows you to do that. Gap insurance should be purchased through a traditional insurer, and adds anywhere from 3-10% to the traditional cost of insurance.

7. Fees, fees, fees

Every lessee runs into at least three substantial fees during the course of their lease. The first fee is an acquisition fee (alternatively called a financing fee). This fee is not a down payment, but it runs anywhere from $500 for basic compact cars to nearly $1,000 for luxury vehicles.

Dealerships also charge a $300-$900 Delivery Charge which covers the cost of the vehicle being delivered to the dealership lot. Lessees need to be prepared to pay this fee upfront, but some companies try to sneak a second delivery fee into the contracts. The second delivery fee can be negotiated to zero.

The last fee every lessee will encounter is either a disposition fee or a purchase option fee. These fees run between $300-$400 depending on which option you choose. When a lease ends, you will pay a fee to the dealership unless you negotiate it away at the outset.

In addition to these larger fees, many lessees will run into mileage overage fees which range from $.15 per mile for basic vehicles to $.30 for luxury vehicles. Most people drive more than their lease allows, and these extra miles cause additional depreciation on the vehicle. Since a lease is a “pay for what you use agreement”, it’s fair to pay for those extra miles. Of course you can avoid overage fees by limiting the amount you drive or by purchasing the car at the end of the lease.

You should negotiate smaller fees like advertising fees, tire fees, document fees, vehicle preparation fees down to zero.

8. Repairs required

Lessees bear the financial burden of repairs and maintenance on their leased vehicles. Some dealerships offer free tire rotation and oil changes, but the lessee has to pay for other maintenance. New cars shouldn’t require much maintenance, but accidents, chipped paint and broken windshields need to be paid for, and longer lessees may need to buy new tires while they own the vehicles

9. Exit options

Turning in a leased vehicle early is akin to defaulting on a car loan. Your credit will take a hit, and you will still owe money. However, it is possible to “sublet” your car through websites like SwapALease and LeaseTrader.

If your lease is about to end, you’ll have to decide whether or not to purchase the car or return it. If you want to buy the vehicle, you may be able to negotiate the buyout price. If you have the cash on hand to pay for the vehicle, and the purchase price is lower than an equivalent used car, you can purchase the vehicle outright and sell it for instant equity. If you have to obtain financing, the additional fees may erase any favorable pricing you obtained.

If the vehicle is worth less than the purchase price at the end of your lease, you should probably walk away from the vehicle or attempt some strong negotiations. Of course, the beauty of a lease is that the termination of the lease means that you can hand the keys back to the dealer and move on. 

10. Consider leasing if…

Anyone with midterm vehicle needs (only needing a vehicle for a few years) may find that a lease is a good value and a good fit for their lifestyle. Likewise, anyone who loves driving new cars and doesn’t mind having a monthly payment may enjoy leasing long term.

Continuously leasing vehicles is more expensive than “driving a vehicle into the ground,” but many people don’t mind that they get what they pay for.  People who enjoy driving newer, fancier cars may find that leasing can be a reasonable lifestyle, especially if they can easily afford the payment.

11. Avoid leasing if… 

Avoid leasing if you’re trying to drive as inexpensively as possible. The low monthly payments are enticing, but leasing is the most expensive way to drive in the long run. Leasing has high interest rates and high fees. If you can’t afford the monthly payments associated with owning a new car, consider buying used or choosing a basic model. Both of these methods end up being cheaper than leasing.

If you drive a lot, or if you frequently drive in poor conditions, you’re a bad candidate for leasing. The additional depreciation may mean that you’re left paying extra fees at the end of your lease. Additionally, anyone seeking to own a vehicle should pursue paying cash or taking out a traditional loan rather than leasing.

If you decide to purchase your vehicle instead of leasing it, it is best practice to get pre-approved for your auto loan before heading over to the dealership. [Disclosure: LendingTree is the parent company of MagnifyMoney.]We recommend starting with LendingTree. There are hundreds of lenders on this platform. After filling out your application, you will be able to see real interest rates and approval information at once.

Keep in mind, some lenders will do a hard pull on your credit and this is normal within the auto lending space. Multiple hard pulls only count as one pull, so it is smart to have all your hard pulls done at once, which LendingTree’s tool can do for you.

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