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4 Ways to Make Owning a Car More Affordable in 2016

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Ah, to own a car. Let’s be honest — public transportation has its draws (the fact that we don’t have to worry about doing the actual driving, the environment, and all of that), but when it comes to convenience, nothing can beat your own set of wheels.

But can you afford your own set of wheels? This year we at MagnifyMoney want to make things as easy for you as possible, so we’ll walk you through the steps you should take prior to walking on that car lot to ensure that you’ll be driving away with the car that’s right (and affordable) for you.

1. Start with your budget

As with most financial decisions in life, the choice to buy a car should start with your current budget. Do you have leftover cash each month — or room to cut back on current expenses — so that you can make car payments each month? Starting with your monthly income will help you determine whether or not you can afford taking out a loan for a shiny new car (or even for a used one), or if buying something pre-owned and less expensive is the way to go. And remember — buying the car is just your first step. After you own it you’ll be in charge of paying for repairs, gas, insurance and more, all things you’ll need to factor into your current budget, as well.

If you need a little more help deciding whether an auto loan is right for you, check out this piece about where to find the best places to look for auto refinance companies..

2. Figure out your financing

If you’ll be going with a used car this year and paying for it in cash, in full, then you may need to figure out a timeline for when you’d like to purchase the car and try to break up your monthly savings to meet that monetary goal in time. If you’ll be purchasing a new car with a loan, though, you’ll want to do some shopping around. As with most loans, the better your credit score, the better your financing options will be. Online auto loans are a quick and popular way to get financing for your new car, but you’ll want to shop around. For example, check out this piece about the five best auto loans for a new car, or this one for the best loans for a used car. (P.S. You’ll also want to avoid the sub-prime auto trap at all costs … we can help you.)

Once you’ve figured out financing and know how much car you actually can afford, it’s time to head into step 3, the fun step …

3. Research your car

Are you interested in only American cars? Do you need all-wheel drive? What about those fancy add-ons like a sunroof, heated seats or satellite capabilities — how important are they to you? And safety reports — that’s got to factor in too, right? Start with the Kelley Blue Book to price out some of the vehicles you’re interested in, and then ask around for what people who have cars you’re interested in paid. A little research ahead of time will really help you when it comes time to head into step 4.

4. Negotiate like a pro

Once you’ve narrowed your list to a few car options and have a general idea of what you can (and should) pay, it’s time to shop. It should come as no surprise to you that negotiation is the name of the game when it comes to purchasing a car. Start with the fact that you’ve done your research and know how much the car is actually worth, be polite and don’t be afraid to walk away at first and come back if need be. Following up when the salesman is unlikely to make another sale for the day (and therefore would really appreciate yours!) is also a good idea, like on a weekend right before closing. If you can, you should also try purchasing your car at the end of the month or even the end of the year, when dealers are trying to move as much inventory as possible to make room for their new stock and are more likely to cut you a deal to do so. 

A lot goes into the decision of buying a new car, and a little research can really help a lot. If you’re still unsure of what your next move should be, check out this piece on what questions to ask yourself on how to score a car that you can afford and that you will love..

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.

Cheryl Lock
Cheryl Lock |

Cheryl Lock is a writer at MagnifyMoney. You can email Cheryl at [email protected]

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News

How Fed Rate Hikes Change Borrowing and Savings Rates

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Since late 2015, the Federal Reserve has raised the upper limit of its target federal funds rate by 2.25 percentage points, from 0.25% in December 2015, to 2.50% for much of 2019.

But the Fed is no longer raising rates. The question now is whether the Fed will continue to make cuts in the federal funds rate like the first two 0.25 percentage point reductions in July and September 2019, which lowered the federal funds target rate from 2.50% to 2.00%.

Previously MagnifyMoney analyzed Federal Reserve rate data to illustrate how the rates consumers pay for loans and earn on deposits have changed since the Fed started raising them two and a half years ago. Now, with the Federal Reserve embarking on a series of rate cuts, we’ll be tracking that effect on rates as well.

  • Credit card borrowers are currently paying $113 billion in interest annually, up $34 billion from the annual $79 billion they paid prior to the first Federal Reserve interest rate hike in December 2015, making introductory 0% APR deals all the more attractive.
  • Meanwhile, depositors earned significantly more from savings accounts. In the 12 months ending in June 2019, depositors earned $39.3 billion in interest on their savings accounts, up $29.3 billion from the $10 billion they earned in 2015.
  • According to our analysis, credit card rates are most sensitive to changes in the federal funds rate, almost directly matching the rate change with a 3 percentage point increase since December 2015. Credit card rates will continue to rise in line with the Fed’s rate increases, and if the Fed raises them again, the average household that carries credit card debt month to month will pay over $150 in extra interest per year compared with before the Fed rate hikes began. MagnifyMoney estimates 122 million Americans carry credit card debt month to month.
  • Student loan and auto loan rates have also risen — but by less than half as much as credit card rates — in part because they are long-term forms of lending that are less reliant on the short-term federal funds rate. Federal student loan rates are set based on the 10-year Treasury note rate each May.
  • Savers at big banks have seen little change, with the average savings and CD account passing through only a fraction of the rate increase. However, that masks a big opportunity for savers who shop around and move deposits to online banks. Online banks have aggressively raised rates, and now often offer rates of more than 2%, versus just 1% in 2015. That’s over 20 times what typical accounts pay.

In addition, MagnifyMoney also looked at the impact on consumer rates the last time the Fed reduced rates in 2007.

 

Generally, unsecured loans like credit cards and personal loans are more rate-change sensitive than secured loans like autos and home mortgage rates, no matter the direction of the rate change. However, savings products like Certificates of Deposit are a stark exception. Even after 3 years of fed funds rate increases, CD rates generally languished at rock-bottom rates until very recently, and then only increased modestly, relative to other financial products. Compare that to 2007, when it was the product most sensitive to interest rate cuts.

 

Let’s take a closer look at how the Fed rate hike impacts different financial products:

Credit cards

Most credit cards have a rate that’s directly based on the prime rate, for example, the prime rate plus 9.99%. As a result, card rates tend to move almost immediately in line with Fed rate changes. In the current cycle, the rates on all credit card accounts tracked by the Federal Reserve have increased 3 points, even more than the Fed’s increase of 2.25 points.

Although it’s too early to tell, we expect a similar decline in credit card APRs as the Fed continues to pare rates. And consumers can still find attractive introductory rate offers.

For example, introductory 0% balance transfer offers have continued to have long terms even as the Fed hiked rates, with offers still available for nearly two years at 0%.

Credit card issuers make up for the rate hike with the automatic rise in variable back-end rates, as well as the increasing spread between the prime rate and what consumers pay on new accounts. They can also increase other fees, like late payment fees or balance transfer fees to keep long 0% deals viable.

The Federal Reserve tends to hike up interest rates gradually over time. And people in credit card debt will barely notice the rate increase in their monthly statement. When rates are increased by 0.25%, the monthly minimum due on a credit card will increase $2 for every $10,000 of debt.

Similarly, monthly minimums may decline with rate reductions – though cards typically have monthly minimum payments of at least $20. But making minimum payments could mean years of paying off credit card debt and accumulating interest. The best ways to lock in lower rates are by leveraging long 0% balance transfer deals or by consolidating into fixed rate personal loans.

Savings accounts

On average, savings account rates haven’t changed much since the Fed started raising rates. That’s largely because big banks with the biggest deposits and large branch networks have less incentive to offer higher rates, and this skews national data on rates earned because most savers don’t shop around to find higher rates at online banks and credit unions.

Consumers who shop around can find much higher savings account rates than three years ago, and shopping around for a better rate on your deposits is one of the best ways to make the Fed’s rate hikes work in your favor.

Back in 2015, it was rare to see savings accounts pay 1% interest.

Today, many online banks are competing for deposits by offering savings account rates in excess of 2%, flowing through about half of the Fed’s rate hike into increased rates for depositors. These rates will continue to rise as the Fed hikes rates. The increases are already apparent in the data. Depositors are currently earning more than $39 billion in interest on their savings accounts annually, versus $10 billion in 2015.

CDs

CD rates have moved faster than savings rates, up 0.41 points for 12-month CDs since the Fed started raising rates. That’s in part because they are a more competitive product that forces consumers to rate shop when they expire at the end of their 6-month, 12-month or longer term.

But that rate rise doesn’t fully reflect what some smaller banks are passing through, as the banks with the largest deposits have been slow to raise rates.

Recently rates on 1- and 2-year CDs at online banks had been increasing rapidly to well over 2%, reflecting much of the Fed’s rate increases since 2015. The rates on 5-year CDs also began to increased, with some banks offering 60-month CDs with rates above 3.00%. Although rates have started to recede from those highs, CD rates are still well above their 2017 levels.

One reasonable strategy would be to invest in short-term (1- and 2-year) CDs. If competition on the short end continues, you can get the benefit in a year on renewal.

Student loans

Federal student loan rates are set based on a May auction of 10-year Treasury notes, plus a defined add-on to the rate. Today, rates for new undergraduate Stafford loans stand at 4.53%, up from 4.30% before the federal funds target rate began to rise.

Since student loan rates are determined by the 10-year Treasury rate, rather than a short-term rate, they are less directly related to changes in the federal funds rate than some shorter-term forms of borrowing like credit cards. Instead, future market views of inflation and economic growth play a role. Federal student loan rates are capped at 8.25% for undergraduates and 9.5% for graduate students.

For private refinancing options, rates depend on secondary markets that tend to follow longer-term rates, rather than the current federal funds rate, but in general, a rising rate environment could mean less attractive refinancing options.

Personal loans

Personal loan rates tend to be driven by many factors, including an individual lender’s view of the lifetime value of a customer, funding availability and credit appetite. Most personal loans offer fixed rates, and in a rising rate environment overall, we expect these rates will go up, making new loans more expensive, so consumers on the fence should consider shopping for a good rate sooner rather than later. Since the end of 2015, rates on 2-year personal loans tracked by the Federal Reserve have increased by 0.24 basis points.

Auto loans

Prime consumers who shop around for an auto loan can still find very low rates, especially when manufacturers are offering special financing deals to move certain car models.

But the overall rates across the credit spectrum have gone up since the Fed raised rates, in part due to the rate hikes and because of recent greater than expected delinquencies in some parts of the auto lending market.

Mortgages

Since the Fed started raising rates in late 2015, the average 30-year fixed mortgage is now sightly lower than the 3.90% rate in December 2015. The mortgage market tends to follow trends in longer term bond markets, like the 10-year Treasury, since mortgages are a longer-term form of borrowing. That shields them from the impact of Fed rate hikes, and it’s not unusual for mortgage rates to decline during some periods when the Fed is raising rates.

What can consumers do

Even if rates are no longer going up, life is still expensive for debtors, and more rewarding for savers than in recent years.

If you are in debt, now is the time to lock in the lowest rate possible. There are still plenty of options at this point in the credit cycle for people to lock in lower interest rates.

If you are a saver, ignore your traditional bank and look online. Take advantage of online savings accounts and CDs to earn 20 times the rate of typical big bank rates.

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.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at [email protected]

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News

Survey: Most Millennials Believe They’ll Become Wealthy Some Day

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

It seems like everyone has an opinion about millennials these days, but perhaps what they should be saying is that they are confident and optimistic. MagnifyMoney has surveyed more than 1,000 Americans on their views about wealth, and we found that millennials have a remarkably positive outlook when it comes to the subject.

Compared to the other generations surveyed, millennials are much more likely than older generations to believe that they’ll become wealthy someday. Whether this comes from youthful exuberance, wishful thinking or a healthy attitude toward building wealth is not entirely clear. But what is clear are the striking generational perspectives on wealth revealed by our study.

Key findings:

  • Just over half (51%) of respondents believe they will one day become wealthy, despite only 15% saying that they already are. Millennials are even more confident, with 66% saying they think they will become wealthy in the future.

  • Of those surveyed, 28% think acquiring real estate is the best wealth-building strategy. The stock market came in as the second most popular effective strategy at 19%, while only 4% think investing in cryptocurrency was a good way to build wealth.

  • There were generational differences of opinion on the best wealth-building strategy. Baby boomers are most likely to think real estate is the best way to build wealth, while millennials are more likely than any other generation to say investing in a business is the best wealth-building strategy. Generation X are the most likely to consider the stock market as their top strategy.
  • Unfortunately, 23% of Americans currently are not doing anything to build wealth. On the bright side, 36% are saving for retirement and 29% are investing in the stock market.

  • Millennials prefer to do things digitally. They are the generation most likely to utilize an online savings account. About 30% of millennials use one, compared to only 17% of baby boomers.
  • About 55% of Americans reported believing that being wealthy ultimately means having the ability to live comfortably without concern for their finances. Meanwhile, 43% defined it as feeling financially secure.

What are millennials doing to build wealth?

The two most popular strategies for wealth building among millennials are investing in real estate and in the stock market, but they’re hardly the only generation to take that approach. Across the board, real estate investing and the stock market were named as the two most popular investment strategies.

Still, both the real estate and stock market are subject to fluctuations, such as those seen during the Great Recession. According to a Gallup poll published in May 2019, during the Great Recession of 2008 to 2010, Americans were just as likely to name savings accounts or CDs as the best long-term investments, on par with stocks and real estate. As of 2019, the poll found that Americans currently view stocks and real estate as the best long-term investments.

Of course, this mindset could change quickly if another economic downturn hits. But for now, property owners have cause to celebrate. In 2018, home values were the highest on record, according to Gallup.

That same Gallup poll found that those who actually invest in stocks were more confident in the value of stocks as an investment, though stock ownership remains below pre-recession levels. Note that the S&P 500, which is considered a proxy for the stock market as a whole, has gained 9% per year on an annualized basis over the last decade — that return rises to an annualized gain of more than 11% per year when dividends are reinvested.

Hurdles to wealth building

But even if stock and real estate strategies can be effective, debt may still stand in the way of some millennials’ wealth-building efforts. Due to rising student debt burdens, it’s not uncommon for millennials to carry large amounts of debt.

According to Misty Lynch, a Boston-based resident certified financial planner (CFP) with the savings and investing app Twine, millennials may be too accustomed to debt. “Millennials are used to having debt and feel like it is just part of life,” Lynch said. “This sometimes hurts them if they continue to add to their debt without considering the long term impact.”

Lynch also noted that the glitz of social media can affect millennial finances: “Social media has changed the definition of wealth. It is easier to appear wealthy in this Instagram-era even if your bank account doesn’t back that up.”

Plus, although 66% of millennials believe they’ll someday become wealthy, the survey also revealed that 18% of millennials currently aren’t doing anything to build wealth. For millennials looking to start the process, saving for retirement is a great launching point. One suggestion from Cynthia Loh, vice president of Digital Advice and Innovation at Charles Schwab in Denver, is that if your employer offers a 401(k) plan, you should set up recurring contributions that deposit money from your paycheck. Plus, you should max out annual contributions if you can afford to. The potential match from an employer is an added bonus worth taking advantage of.

For those without access to a 401(k), consider checking out a robo-advisor, which can be great for newer investors. Most robo-advisors have low investment minimums, which makes it easy to start investing your money.

What does wealth mean for millennials?

More than other generations, millennials believe they can become wealthy some day. The survey found that 66% of millennials believe that they will become wealthy compared to only 25% of baby boomers.

As baby boomers are in the 54-72 year age range, their different perspectives make sense. Baby boomers are in the phase of their life where they either have already retired or are nearing the end of their career. They know their potential for wealth building is slowing down.

In general, younger generations seemed to be more optimistic. For instance, Gen Xers are more optimistic than baby boomers, and Generation Z seems to be even more hopeful than millennials.

Youthful optimism aside, perhaps millennials simply have a different definition of wealth than older generations. Across all generations surveyed, 55% said they thought the definition of being wealthy was being able to live comfortably without worrying about their finances. If you’re looking to quantify wealth, 20% of millennials (more so than any other generation) reported that they define being wealthy as having $500,000 or more; only 8 percent of baby boomers feel this way. Networth finds more common ground between millennials and baby boomers — almost 18 percent of both generations feel a networth of at least $1 million signifies wealth.

Andrea Woroch, a money saving expert from Bakersfield, California, thinks that mindset may just be the key to millennial’s future financial success.

“Thinking positively about your money is key toward building better financial habits,” Woroch said. “Ultimately, your thoughts influence your behavior which will lead to a desired outcome, so if you think you will be wealthy then you can start acting in accordance with this vision.”

Methodology

MagnifyMoney by LendingTree commissioned Qualtrics to conduct an online survey of 1,029 Americans, with the sample base proportioned to represent the general population. The survey was fielded June 24-27, 2019.

In the survey, generations are defined as:

  • Millennials are ages 22-37
  • Generation Xers are ages 38-53
  • Baby boomers are ages 54-72

Members of Generation Z (ages 18-21) and the Silent Generation (ages 73 and older) were also surveyed, and their responses are included within the total percentages among all respondents. However, their responses are excluded from the charts and age breakdowns due to the smaller population size among our survey sample.

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.

Jacqueline DeMarco
Jacqueline DeMarco |

Jacqueline DeMarco is a writer at MagnifyMoney. You can email Jacqueline here