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The Ultimate Layoff Survival Guide

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Paul Catala, a 53-year-old entertainment reporter in Lakeland, Fla., knows firsthand about the struggles of unemployment. He was the victim of massive layoffs at a Tampa-area newspaper in December 2012. The result? A severance package of about $1,500.

“I was pretty much financially panicked,” Catala told MagnifyMoney, who also lost his health insurance. “All I had was my severance and nothing more than a couple thousand dollars in savings.”

As a single guy, he didn’t have a spouse’s salary to fall back on, but he made it work. During the year and a half that followed, he patched together a steady income by picking up a string of odd jobs and side gigs (more on this in a bit) before eventually securing a full-time job.

In 2017 alone, at least 255,000 planned job cuts have been announced, according to a report put out by the firm Challenger, Gray & Christmas. (The bright spot, however, is that the report also found that job cuts are on the decline.)

If you’re newly unemployed and not sure how to move forward, this ultimate layoff survival kit is for you. Here’s everything you need to know about weathering the storm.

What to do when you lose your job

Step one: Don’t freak out

If the financial implications and the stress of having to find a new job have your head spinning, you’re not alone. The longer you’re unemployed, the more likely it is to take a toll on your psychological well-being. According to a 2013 Gallup survey, roughly 20 percent of Americans who’ve been unemployed for a year or more have been affected by depression.

But while it’s certainly wise to make a plan, don’t take such a long view that you’re overwhelmed by the enormity of unemployment. As the old saying goes: “Inch by inch, life’s a cinch. Yard by yard, life’s hard.”

Do one thing at a time to avoid “analysis paralysis” (aka feeling so overwhelmed that you take no action at all).

Step two: Exit your current job with grace

Getting laid off hurts, but think twice before storming out in a blaze of glory.

“Anything you can do to leave on a good note is a good idea,” career coach Angela Copeland tells MagnifyMoney. “Thank-you notes and goodbye lunches all help to give positive closure.”

The last thing you want to do is burn bridges on your way out. When applying for new jobs, Copeland says you’ll be asked for references the hiring manager can call, which will likely include your previous employer. It’s in your best interest to keep these relationships positive.
Negotiating your severance package before hitting the road may also be on your to-do list.

“Some people have been able to negotiate an extra month of severance because they’ve been there longer and can quantify what they’ve brought to the job,” said Shannah Compton Game, certified financial planner and host of the “Millennial Money” podcast.

“Try and correlate it to something positive, like revenue or growth you’ve been able to do for the company,” she said. “Keep good records of the successes you’ve had because you just never know when you’ll be able to use that.”

On a similar note, you might be able to use rumors of impending layoffs to your advantage. Game says that it’s usually the people in the early rounds of layoffs who get the better severance packages. If you’re likely to be on the chopping block, volunteering to be let go sooner rather than later could be used as a bargaining chip to secure a better severance package.

Step three: Get your finances in order

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Before you panic, sit down and do a thorough audit of your financial situation. List all your monthly expenses, from fixed costs like rent and utilities to discretionary spending like entertainment costs. Then factor in any income you still have, like unemployment benefits (we’ll dive into how to apply in a minute), a severance package, and any cash you have coming from side gigs or passive income streams.

Now for the obvious question: What does your savings account look like?

“The goal marker is to have three to six months’ worth of fixed expenses saved in your emergency fund,” said Game.

To help curb temptation, she recommends parking it in an interest-bearing savings account that’s separate from your regular bank. (We’ve rounded up the best online savings accounts here.) If you’ve got an emergency fund, getting laid off is as good a time as any to dip into it — that’s what it’s there for. Of course, the idea is to make your savings last as long as possible. This is why Game suggests retooling your budget right out the gate.

“Is there anything in there you can cut, or at least make better?” she asked. “Can you negotiate a better cellphone or internet plan? Are you overpaying in some areas? When you’re unemployed, every dollar helps.”

Another thing to think about is your 401(k). Getting laid off makes you ineligible to take out a 401(k) loan, according to Game, but you can withdraw from it — for a hefty price.

“If you pull out of your 401(k) and you’re under 59½, you’ll have a 10-percent penalty, plus whatever you take out is added to your taxable income, so it could shock people if they took out a sizeable amount,” warned Game, who also recognizes that sometimes you don’t have any other choice.

Tapping your nest egg should be an absolute last resort. If it comes to that, Roth IRAs are a little more appealing because you can pull out your contributions at any time without tax or penalty (It’s just the appreciation you can’t touch until you’re over 59½). If you’re financially stuck between a rock and a hard place, a Roth IRA could serve as an extra backup emergency fund.

As for a 401(k) from your old job, Game says you have a couple of options. Some companies will let you do a direct rollover, which is a hands-off option that’s way easier than rolling it over yourself. This way, you won’t get a check for that cash.

“If you do, you have to have it deposited into your new account in a short time period so you don’t get taxed on that amount, which is why it’s better to do these things electronically whenever possible,” said Game.

No emergency fund or Roth IRA to tap into? You’re not out of options. Read on for more ways to access cash during unemployment.

Step four: Rev up your job hunting efforts

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“One of the biggest mistakes I see from people who’ve been recently laid off is that the experience is so stressful that they want to take a break,” said Copeland. “They think, ‘I need a few months to take some time for myself.’ What they don’t understand is that the longer you wait, the harder it becomes.”

Begin by dusting off your resume and updating it with any relevant new skills, accomplishments, and/or trainings you’ve completed. Do the same for your LinkedIn profile, which includes adding keywords that potential employers may be searching for (To get an idea of what these are, Copeland suggests browsing job postings you’re interested in). You’ll also want to follow companies on LinkedIn and connect with influencers within those organizations.

When it comes to references, Copeland adds that asking folks to leave you a written, public recommendation on LinkedIn can do wonders. Future employers are going to be looking at your profile. Seeing that people you’ve worked with have positive things to say is going to make them much less suspicious that something negative happened at your old job.

One other thing: Fine tune your elevator pitch so you’re ready to comfortably, and confidently, talk about yourself at a moment’s notice. After that, step away from your computer and get yourself out there (literally).

“A lot of people are told to apply online — ‘If you’re a good fit, we’ll call you ‘— but very rarely is that true,” said Copeland.

“It’s one-on-one personal connections that are going to help you find a job, and those people will be most helpful and empathetic very soon after you’ve been laid off.”

Let your network know you’re actively looking for work, attend industry events, and reach out to people for informational interviews. In some cases, this might mean cold emailing a colleague of a colleague and asking to pick their brain over coffee. They could always say no, or even ignore you, but Copeland says that when up against unemployment, this isn’t the worst thing in the world.

Step five: Protect yourself against the worst-case scenario

If your job hunt stretches past the one-month mark, you could end up draining your emergency fund faster than anticipated. According to the U.S. Department of Labor, the number of long-term unemployed workers (i.e. people who’ve been out of work for at least 27 weeks) held steady at 1.5 million as of December 2017. This makes up 22.9 percent of the unemployed.
If you find yourself in this boat, you’ll need to go beyond cutting cable and scaling back your entertainment budget to make ends meet.

“Can you call your student loan servicer and defer your loans for a few months?” suggested Game. “Remember, you’ll still be accruing interest when you do this, but it might help you out for a few months.”

Looking for other high-impact ways to free up cash? Game also suggests considering:

  • Taking on a roommate or renting out a room on Airbnb.
  • Getting a part-time job.
  • Taking out a short-term loan from a family member.
  • Using balance transfer offers to lower your credit card interest rates by moving debt to a 0% APR card.
  • Researching a personal loan. Going into debt is never advised, but if your situation’s getting dire, it may be your best worst option (It’s sure better than getting evicted or defaulting on your car payment).

This is precisely why Game says it’s so important to get your financial house in order while your career is going well. Flash forward to being laid off: Having a solid credit score is what’s going to enable you to get the best rate on a personal loan. The same goes for locking down a low-interest credit card, if it comes to that.

4 tips to help stretch your finances when you’re unemployed

How to apply for unemployment

Taking advantage of unemployment insurance can help stretch your savings and soften the financial blow of a layoff. Whether you qualify depends on a number of factors, one of the top ones being where you live; every state is different.

As long as you’re looking for work — and meet the qualifying criteria below — most states allow participants to collect benefits for up to 26 weeks (about six months). Just keep in mind that a severance package could impact how much you qualify for, depending on the state you live in.

  • Losing your job was out of your control: Being laid off generally ticks this box, but if you were fired or quit voluntarily, you’ll be ineligible.
  • You worked long enough and earned enough wages to qualify in your state: Every state’s threshold is different, but applicants must meet requirements for wages earned or time worked during an established time period in order to collect unemployment. You can research your state’s rules here.
  • You were laid off from a W2 job: In other words, you weren’t a freelancer or independent contractor. Since employers don’t pay unemployment taxes for these folks, benefits are typically off the table.

That said, there isn’t a one-size-fits-all answer when it comes to how much money you’ll actually get. What you were earning, where you live, and whether or not you received a severance package may all come into play. Your best bet is to contact your state unemployment office to start untangling the details.

How to apply for food stamps

Applying for the Supplemental Nutrition Assistance Program (SNAP), aka food stamps, is also a state-specific process. In order to qualify, you must meet resource and income requirements (SNAP provides this handy pre-screening eligibility tool to help clarify whether or not you qualify). Eligibility varies from state to state but is largely determined by your:

  • Resources: Things like bank accounts and vehicles fall into this camp. Some resources are generally off limits, like retirement plans and your home.
  • Income: You have to meet the income requirements outlined here. Some exceptions — like having an elderly or disabled person in your household, for example — may make it easier to qualify. Just keep in mind that any unemployment benefits you’re collecting will be factored in here.
  • Employment status: If you’ve been recently laid off, this one’s a biggie since SNAP eligibility is hinged, in part, on meeting work requirements. They include:
    • Registering for work
    • Not voluntarily quitting a job or reducing your hours
    • Taking a job if one is offered
    • Participating in your state’s employment training programs
    • If you’re an able-bodied adult without kids, you’ll also be required to either work or participate in a work program for a minimum of 20 hours per week to receive SNAP benefits for longer than three months in a 36-month period.

Ready to apply? Find your state here to get the ball rolling.

How to get help with a job search

There are a number of federal government programs in place to help see you through a stint of unemployment. CareerOneStop (backed by the U.S. Department of Labor) is packed with free job search assistance and training resources. Here you’ll find everything from job openings and resume guides to salary data and interview and negotiation tips.

COBRA might also make sense for newly unemployed folks. The program allows you to keep your employer-sponsored health plan after getting laid off. Before pulling the trigger on enrolling in a new health plan, be sure to check if COBRA makes sense for your health care needs and budget.

Pick up part-time work

Another way to unlock cash is to think of out-of-the-box ways to make money. Before Catala secured a new full-time job, he picked up a ton of side hustles to fill in the missing income. This included everything from tutoring at a local community college to cutting lawns to booking music gigs (He happens to be a pianist.). The takeaway? Look beyond your 9-to-5 skill set to pay your bills.

“At one point, I was doing like five different things and just making money,” said Catala, who earned too much from the gigs to collect unemployment.

“If you’re creative and willing to hustle, you’ll be fine. Even if it’s just $50 a week, that’s better than nothing.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Marianne Hayes
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Marianne Hayes is a writer at MagnifyMoney. You can email Marianne here

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How Three Young Married Couples Manage Their Money

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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The age men and women decide to tie the knot has been on the rise for years. In 2018, the median age for first marriages is 30 for men and 28 for women. That gives individuals almost three decades to establish deep-seated opinions related to finances, including how to save and spend their hard-earned cash and how they want their career to play into their future lifestyle.

While one partner may prefer to sock away savings and establish a sound nest egg, the other may see the value in spending money on once-in-a-lifetime experiences. In other words, couples may not always see eye-to-eye when it comes to the big financial picture. To offer some real-life perspective on these real-life struggles, we spoke with three young couples to learn how they handle their finances, divvy up expenses and save for the future.

Splitting expenses — except on old debts

Courtney and Ryan Ples have been married for seven years and live in Baltimore, Maryland. Courtney is 31 and works in sales at an educational technology company; Ryan is 32 and works as a consultant for Verizon.

As the assistant director of the Maryland Fund for Excellence at the University of Maryland, Ryan was used to hearing “no” when he called to ask for donations. And the reason was almost always the same — the person on the phone needed to consult with their spouse because they didn’t personally handle the finances or they needed both parties to agree before committing.

“It was frustrating that members of a marriage didn’t have the ability to definitively say ‘yes’ or ‘no’ without discussing with their spouse,” said Ryan. When he married his then-girlfriend, Courtney, in April 2011, the couple decided not to let themselves be beholden to similar guidelines. “If Courtney wants to donate to a political campaign or fundraiser, I trust she won’t make an irresponsible decision that would challenge our household financially.”

From the very beginning, the couple knew that establishing some kind of financial independence was crucial for their marriage. Since they have similar incomes, the Ples’ each contribute 50% of their take-home pay to a joint checking account that takes care of their monthly expenses, including their mortgage payment, house-related expenses, groceries, and anything that involves their three-year-old daughter (including a 529 plan for her education).

However, the other 50% of their paycheck goes into their personal checking account. From that account, Courtney and Ryan each pay the personal expenses they accrued before getting married, including student loans, car payments, individual credit cards and cell phone bills. Unlike many couples their age, Courtney and Ryan did not live together while they dated, and, as a result, did not have many shared bills before marriage.

While their approach works for them now, Courtney wishes she had had a deeper discussion about finances with Ryan before getting married. The couple started married life on one income — Courtney had just quit her job to move across the country — so Ryan organically took the lead in financial planning. As a result, he initially handled the bills and budgeting. The couple adopted the 50/50 system once Courtney started earning money, but Ryan still handles the majority of the financial decisions.

Courtney admits that, at times, she gets frustrated if she doesn’t understand something specific about their shared finances, but acknowledges that she needs to ask more questions.

“I don’t want him to feel like he has to carry all the weight for our family,” she said.

Saving for the future: Courtney and Ryan have a joint savings account, a joint IRA account, and individual 401k plans through their work.

In order to save money, the couple uses apps like Qapital, which acts like a digital piggy bank by rounding up transactions to the nearest dollar (or however much you allow it to) and storing it in an FDIC insured savings account at one of the company’s partner banks. Users can attach a goal to the account, which makes it simple to save up for a vacation or a down payment for a car.

“A couple of dollars each week adds up quickly,” said Ryan, who once saved $2,500 with Courtney in four months through the app.

The couple also expects each other to save on their own. Both Courtney and Ryan have individual savings accounts they fund with leftover cash from their personal checking accounts.

Establishing common ground: When it comes to additional income, like performance bonuses, the two discuss exactly how the funds are being used.

“I never would be like, ‘This is my bonus, I’m going to get golf clubs or go on a boys trip,’” said Ryan.

To make sure they are on the same page, the couple came up with three top goals for extra income: lowering debt, enjoying life experiences and increasing their savings.

“We’ve lived in debt our whole lives and we want the only debt left to be our mortgage,” Courtney said. “That’s where the majority of extra income goes. However, we also prioritize us a lot, even if that means lessening debt payments, because life is short and we want to experience as much as we can while we physically can.”

Soon, the couple will have additional income: Courtney will start earning a commission on top of her salary. Their plan is to have 85% of the commission check go into their savings account to help finance a future move, and the remaining 15% will go into their joint checking account.

Separate accounts, but an even split on expenses

Nichole and Cole Huber have been married since September 2018 and live in Tucker, Georgia. Nicole is 32 and works as an IT recruiter; Cole is 30 and works as a welder.

Even though Nichole and Cole Huber have separate bank accounts and credit cards, the couple makes a point to split joint expenses evenly. Through cash-transfer apps like Venmo, the two can make sure their contributions are 50/50, and they take turn paying whenever they dine out.

While the couple has discussed having a joint account when they have children or are saving up for a big expense, like home renovations, past experience has taught them to be cautious. Nichole was previously married and said her past marriage ended with a lot of “money attachments.”

“My ex-husband and I pulled our money together and lived a lifestyle that required both our incomes,” Nichole said. “He made substantially more than me so when it came to separating, I had to trust he would follow through on paying for things until we fully separated all our financial obligations.”

“I felt stuck because I didn’t have an account of money on my own and money was used to have power over me,” she said. “[My ex] would reiterate that he was still paying for me — rent on a house we had, the mortgage we had together, cars we bought based on our dual income lifestyle — so part of my mentality now is to live a lifestyle I can afford on my own and to have my own money saved up for the future.”

Although Nichole earns about 30% to 40% more in annual income than Cole, the couple decided together that they would split expenses 50/50 because their joint expenses don’t total up to much.

“It all comes down to being fair,” explained Cole, who said that when expenses are split evenly, “there’s nothing to argue about and there’s nothing to discuss.”

“If she wants to go buy something, that’s great,” he continued. “Same for me. The thought of asking for permission … it creates animosity around finances.”

Saving for the future: Right now, the couple maintains individual savings accounts. However, they each know how much their spouse contributes to their 401k plans and have agreed to start individual IRA plans in 2019.

“We just have an open conversation about what we’re doing,” said Nichole. “I don’t know exactly how much is in Cole’s banking account and he doesn’t know exactly how much is in mine, but we know each other’s credit scores.”

Establishing common ground: Before Nichole and Cole were engaged, the couple sat down to identify common financial goals. One was to purchase a house, and since Cole had enough savings at the time, he agreed to cover the down payment for the home.

“Most importantly, setting joint goals gives us confidence that we are both looking to follow the same path financially,” Cole said. “Gaining an understanding of how you both view and value money allows you to then segway into a conversation about financial goals.”

Cole explains that “discussing” and “compromising” is what led the two to understand their financial goals as a couple and in turn, the big financial decisions become “much easier because we are both shooting for the same thing and we understand what is important to one another.”

Splitting costs in proportion to their income

Tara and Jon Sims have been married nearly three years and live in Matthews, North Carolina. Tara is 34 and works as a probations/parole officer; Jon is 32 and is in a director role in the admissions office at a local university.

Although Tara and Jon Sims have been together for a decade and married nearly three years, the two have yet to open a joint bank account. While they aren’t opposed to it, their banks of choice aren’t the same — Tara banks with Wells Fargo and John is a loyal PNC Bank customer — and they haven’t felt a need to make any transitions.

The couple handles their money in much the same way they did at the start of their relationship. The Sims moved in together after eight months of dating — mostly because Jon moved from Virginia to North Carolina for work and Tara decided to leave her job to start a new life with him.

In those early days, the couple was living paycheck to paycheck. Although Tara had some savings, Jon wanted her to go back to school and finish her degree. The couple was a one-income household and money was tight. But once Tara got a job, they decided to split the bills in proportion to their income.

Tara is responsible for budgeting and managing the couple’s money. Every month, she adds up their expenses — a mortgage payment for the home they purchased together in 2016, utilities, joint credit cards — and comes up with an amount for Jon to contribute, which is usually about 75% to 80% of his paycheck. Jon’s contribution covers the majority of the couple’s joint expenses. He will deposit this amount into Tara’s personal checking account every month since the two never opened an account together.

After paying their bills, Tara budgets for groceries and moves the rest of the money into a savings account that, while technically in her name, is understood to belong to both of them. Jon has access to the account.

Jon earns about 25% more income annually than Tara does, so he feels that it’s fair that he contributes more. The money that he keeps in his personal account is his spending money, and he said whatever is left in her account after paying the bills is her spending money, as long as they’re able to put away $200 to $300 every month into their savings.

Each person’s spending money or “allowance” is used to pay for their personal expenses, which includes their cell phones, car payments, and the personal loans they both took out to pay off the debt they racked up when they first started dating.

Saving for the future: The money that’s in Tara’s savings account belongs to the couple. “I don’t really ask questions,” said Jon. “I just let her transfer it over. Even though it’s in her name, it’s our savings.”

The couple has 401k plans through their work. Jon said he would like to start investing once the couple has a little more money saved up, but won’t make any major moves unless Tara agrees to it.

Establishing common ground: The percentage that Jon contributes each month feels fair to the both of them. “It never felt like a 50/50 or 80/20 thing, but more of ‘We’re trying to get the bills taken care of,’” Jon said.

Key takeaways

Here’s the truth about personal finance: it’s personal. In order to have a successful financial partnership, couples have to communicate to make sure they see eye-to-eye. No matter what your financial situation is, identifying what is important to both people and establishing common ground is critical for a lasting happy and healthy union. The couples above have very different ideas on how to handle their finances, but there some areas that they have in common:

They believe the division is equitable. No matter what your financial situation is, each person needs to believe that the system is fair. In order for this to happen, communication is key, which sounds easy enough but can be quite tough when you’re balancing modern life’s busy schedules.

They have a system for bill paying. Whether each person contributes to an agreed upon percentage and/or dollar amount that goes into an account that pays the bills, like the Ples’ and Sims’, or each pay their share from individual accounts, like the Hubers, it’s important to have a system to make sure bills are taken care of. Additionally, designating one person to handle all joint payments may make life less complicated, but make sure the person taking on the extra responsibility doesn’t feel burdened.

They have financial independence. Each couple said it’s important to have access to spending money that they feel is their own. The amount of this “allowance” should be determined by both parties ahead of time and can be a percentage proportional to income. This can also release tension in a marriage, especially if the people in the marriage have very different ideas on how to spend and save money.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Vivian Giang
Vivian Giang |

Vivian Giang is a writer at MagnifyMoney. You can email Vivian here

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What Credit Score Is Needed to Buy a Car?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

Credit score to buy a car
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If you want to buy a car, you can probably find someone willing to sell you one and give you a loan, regardless of your credit score. But you might be shocked when you see what it will cost you. Car buyers who need a loan and don’t have a good credit score often end up paying more — a lot more.

Even if you have an average or better credit score, exactly how good it is can dramatically affect how much you pay to finance your car.

Fortunately, by learning about credit scores and how they affect your car loan, you can take steps to make sure you always get your best deal. Read on to learn how.

Buying a car? What’s your credit score?

The better your score, the better the auto loan deal you can get. That’s because if you have a proven track record of borrowing money and paying it as promised, lenders aren’t taking a big chance giving you a loan. They might even compete for your business by offering you low interest rate loans.

If your payment history is sketchier, you’re a riskier bet in the eyes of prospective lenders. You may quit paying, and they’ll have to take steps to collect. Lenders expect compensation for extra risk in the form of higher interest rates.

This chart shows how much your credit score can affect the amount you pay to finance your car.

Average Car Loan Rates by Credit Score, Third Quarter, 2018

Credit Score RangeNew Car LoanUsed Car Loan
781 to 8503.68%4.34%
661 to 7804.56%5.97%
601 to 6607.52%10.34%
501 to 60011.89%16.14%
300 to 50014.41%18.98%
Source: Experian

Do auto lenders use the same credit score as other lenders?

Credit bureaus offer a wide variety of credit scores to help meet lenders’ needs. Because auto lenders place more importance on certain credit information, such as your history of making car payments, the credit score an auto lender sees may be slightly different from the score pulled by other lenders.

What else do auto lenders look at besides my credit score?

Auto lenders look at several factors in addition to your credit history and credit score. According to the Consumer Financial Protection Bureau (CFPB), they’ll also consider how much income you have, your existing debt load, the amount of the loan you are applying for, the loan term (how long it will take you to pay it back), your down payment as a percentage of the vehicle value, and the type and age of the vehicle you are purchasing.

The most important things car lenders consider when you apply for a loan, however, are your credit score and credit history. “You can even get a car loan when you are unemployed, provided you have a down payment and money in the bank,” said Nishank Khanna, chief marketing officer at Clarify Capital, a business lending firm in New York City.

How can I increase my odds of getting a low-interest car loan?

If you want to get the best deal on a loan, follow these steps before you go to the dealership:

  1. Check your credit report before you look for a car. According to Experian, you should check your credit report at least three to six months before you make a major purchase. This gives you time to correct any mistakes on your report, if needed.
  2. Try to improve your score, if needed. One quick way to pump up your credit score is to lower your utilization rate, preferably by paying down your consumer debt. Even if you’ve never missed a payment, your credit score suffers if you’re using too much of your available credit when lenders report to the credit bureaus. Alternatively, you can ask for a credit limit increase, and instantly improve your utilization rate. (Just don’t use that available credit, or you’ll be worse off than before.)
  3. Avoid making major purchases or applying for other new credit right before you want a car loan. Applying for credit creates “hard inquiries” on your credit report, which can temporarily ding your score. In addition, new debt can change your debt-to-available-credit ratio, or increase your debt load.
  4. Know what you can afford. “Always get a car that you can realistically afford in terms of the car payments, not necessarily what you would like to have,” Khanna said. Stick to your decision, no matter how persuasive the salesperson can be.
  5. Find a cosigner, if necessary. If you have just entered the workforce, for example, you may not have a significant credit history. “You may need to have someone cosign your loan to get a decent interest rate,” Khanna said. A cosigner can be a parent, sibling or even a friend. The cosigner will be liable for the debt if you don’t pay, so make sure you can comfortably make the payments, and that you won’t put the cosigner’s finances at risk if something goes wrong.
  6. Shop around. Sure, it’s easy to apply for a car loan at the dealership. But you probably don’t buy cars without shopping around. Why would you sign up for a car loan at the first place you go? You can even find a good deal and get preapproved for a car loan. As a car buyer, it is wise to make sure that you are getting the best deal that you can qualify for. Consider starting your search with LendingTree, our parent company.  On LendingTree, you can fill out an online form and receive up to five potential auto loan offers from lenders at once, instead of filling out five different lender applications.

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24 To 84

months

Fees

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

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.

Avoid dealerships that advertise “no credit check” or “buy here, pay here.” These dealerships specialize in sales to buyers with poor or no credit and make their own in-house loans. According to the CFPB, you may not only pay high interest rates to places that specialize in buyers with poor credit, but you may pay thousands of dollars more for your car than you would elsewhere. If these are the only dealerships where you can get a loan, consider walking away.

“If your credit score is less than 500, you may be better off getting a car you can afford to buy outright with cash,” Khanna said. You can always get a nicer car when your credit improves.

While you’re comparing car loans, remember to pay attention to the total cost of financing your car. Your interest rate is just one factor in determining your total interest expense. You can also reduce your interest cost by making a larger down payment, paying off your car sooner, and by purchasing a less expensive car.

You have plenty to think about when you’re shopping for a car. You shouldn’t have to worry about your loan at the same time you’re checking out features and searching car lots. Get a head start on financing, before you go shopping, and you’ll have one less thing to worry about while you test drive your next car.

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Sally Herigstad
Sally Herigstad |

Sally Herigstad is a writer at MagnifyMoney. You can email Sally here

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