Second-chance auto loans, sometimes called subprime car loans, are exactly what they sound like: auto loans for car buyers with rough credit histories.

Maybe it’s a past bankruptcy or loan default that’s hurting your credit profile. Whatever the case, if you’re in the market for a car and searching for a second-chance auto loan, you’ll want to keep a few things in mind.

Second-chance loans often come with higher interest rates than auto loans for people with stronger credit. Some lenders offering second-chance loans might also require having auto-tracking software or a mechanism to disable the starter in the car you buy, just in case you fail to make payments.

Read on to learn if a second-chance auto loan is right for you.

• Can I get an auto loan with ‘bad’ credit?
• How can I get a second-chance auto loan?
• Cons of a second-chance auto loan
• Watch out for ‘yo-yo financing’
• Should I get a second chance auto loan?

Can I get an auto loan with ‘bad’ credit?

What would your credit look like to land you in the second-chance or subprime category? It can be subjective. What one lender or dealer sees as “bad” credit might qualify as the lower end of “average” credit for another.

That’s one reason shopping for auto financing and comparing options from a few different lenders is a smart move.

The Consumer Financial Protection Bureau provides five levels of credit scoring.

• Deep subprime (below 580)
• Subprime (580 to 619)
• Near-prime (620 to 659)
• Prime (660 to 719)
• Super-prime (720 or higher)

Another good thing to know: If you get financing through a dealer, the interest rate may be higher to include the dealer’s fee for handling the financing. Remember, the higher your interest rate, the more money the lender stands to make on the loan. You might feel like you can’t be picky because of your credit situation — but that’s actually even more reason to look at a number of options to see if one might give you better terms than another.

You’ll also want to ask if your loan has precomputed interest or simple interest. With precomputed interest, you’ll be charged interest on the original length of the loan, no matter how quickly you pay it off. For example, a seven-year loan comes with seven years of interest, even if you pay it off in five years. With simple interest, you can save on interest if you make extra payments toward your principal or pay the loan off early — assuming your loan has no prepayment penalty.

How can I get a second-chance auto loan?

Before you visit a dealer, see if you can get car financing through a bank or credit union.

You can start with the financial institution you already bank with and branch out from there. Comparing options from several lenders — you can even try to get prequalified — can give you a better idea of the loan terms available to you. Prequalifying doesn’t guarantee loan approval, but it can tell you how much you might be able to borrow, and what your interest rate and payments might be.

If your bank or credit union doesn’t preapprove you for a loan, it may be able to recommend steps for credit repair to help you get a loan in the near future.

Just like a car buyer with good credit, once you’ve compared loan offerings from banks and credit unions, it’s also a good idea to see what kind of terms a dealer may offer.

Cons of a second-chance auto loan

Second-chance auto loans often come at a cost. Here are a few things to look out for.

• Higher interest rates: Your second-chance loan will likely come with a higher interest rate than an auto loan for someone with stronger credit. Along with some other factors, credit scores help lenders measure the likelihood you’ll repay your loan. For riskier borrowers, lenders often charge higher interest.
• Down payments: Since lower credit scores can be a factor marking you as a riskier borrower, the lender might want a larger car down payment.
• Extra fees: Car dealerships may add fees or increase the price of the car if your credit is shaky. One way to get ahead of this: Research car values so you’ll have a handle on what the vehicle is really worth and what others are charging.

Watch out for ‘yo-yo financing’

Another thing to look out for when the car and loan come from the same place is “yo-yo financing.”

How it works: You sign a contract with the dealer and drive home in the car. A few days later, you get a call: The dealer couldn’t get the loan at the negotiated terms. You may have to pay a higher interest rate, make a bigger down payment or both — and if you can’t, you’ll have to return the car.

Your best bet is to leave the car on the lot until your financing is finalized and all of the terms are in writing.

Consumers with good credit can encounter dealer loan snags, too, Borné says.

“But the stakes can be higher for subprime borrowers,” who can end up being more vulnerable, she adds.

Should I get a second chance auto loan?

Even if you can qualify for a second-chance auto loan, should you apply for one?

Here are a few things to ask yourself to help you with your decision.

• Is the loan affordable? Given your present income and obligations, can you make the monthly payments easily?
• Does the loan length fit the expected lifespan of the car? A seven-year loan on a five-year-old car that doesn’t normally last 12 years could spell trouble, Borné says.
• Does the deal seem fair? Never assume this is the only lender who’ll work with you or the only loan you’ll ever get, Borné advises.
• Can you do without buying for a little longer? In some cases, waiting to build or rebuild your credit can be an option — as long as you can get by using other transportation without endangering your job or safety, or creating some other emergency situation.

Bottom line

A second-chance auto loan can be a lifesaver — but it can also be a financial burden in the long run. Doing some research on loan options and car values, taking a clear-eyed view of your current finances and comparing your options will help you make a better choice for you and your wallet.

Maybe you’ve fallen in love with a used car and want to buy it — or maybe you’re plotting to get rid of your own vehicle. In either case, your next move should probably be figuring out what those wheels might be worth.

If you’re buying, selling or trading a car, an auto appraisal can give you an idea of what the vehicle is worth. Learn more about your appraisal options so you can decide which best fits your needs.

• What is a car appraisal?
• Factors affecting a car appraisal
• Where can I get a car appraisal?

What is a car appraisal?

Also referred to as a valuation, a car appraisal assigns an estimated dollar value to a vehicle. There are a few situations where you might consider an appraisal:

• When you plan to buy, sell or trade in a car and want to estimate the car’s fair market value
• To put a dollar value on a car when it’s considered an asset in a divorce, bankruptcy or estate
• If you’re planning to buy or sell a collectible car

Factors affecting a car appraisal

Many factors can affect a car’s value, including make, model, age, wear and tear, body damage and optional features. Here are some other additional factors that can affect a car appraisal.

1. How the buyer plans to use your car

“A buyer’s plans for your car could play a big role in determining your car’s value,” says Matt DeLorenzo, senior managing editor for Kelley Blue Book. “There are varying value levels depending on what you want to do with the car.”

“A dealer who can shine up your trade-in and sell it on his lot will likely pay more than the one who’s going to unload it at the next auto auction,” says Mel Yu, automotive analyst for Consumer Reports.

And selling to private buyers might fetch the biggest offers because they typically don’t plan to turn around and sell for profit.

This is why valuation guides will give you different values for different types of sales. “Trade-in value is completely different from sale value,” says Matt Jones, senior consumer advice editor for Edmunds.com.

2. Mileage

“The average driver covers 12,000 to 15,000 miles each year with the vehicle,” says DeLorenzo. If your odometer’s racking up much more than that, your car value could take a hit.

3. Your location

As with real estate, location matters. For example, your convertible might have a higher value in Miami than in Montpelier, Vermont.

4. Maintenance

“A dealer will often check your service records to verify that the vehicle’s been maintained,” says DeLorenzo. Similarly, private buyers might ask for service records as proof that you’ve had all scheduled maintenance performed.

Where can I get a car appraisal?

If you’re buying, selling or trading in your vehicle for a new car, you might want to use more than one appraisal method to make sure you’re getting an accurate assessment. There are several ways you can go about getting a car appraisal,

Guide books/valuation websites

Websites like Edmunds, Kelley Blue Book or NADA Guides allow you to enter your auto’s make, model, trim level and year and factor in upgrades, mileage, your location and the car’s estimated condition. Once you provide all the information, you can instantly get an idea of the book value in various situations, such as trading it in at a dealership or selling to a private party.

Why you might choose this option: You’re buying or selling a car and want to do research on the car’s fair market value before you visit the dealership or list it privately.

How you can use the appraisal: Once you have an idea of what buyers in your area are paying for the same car in a similar condition, you can use that information during negotiations with the car dealer. If you’re selling, you can also use this information for car pricing. But keep in mind that these appraisals are estimates.

“An online appraisal is helpful, but it’s not the gospel,” says Jones.

Since these guides provide an estimate, it’s smart to supplement this pricing information with dealer estimates.

Cost to you: Free

Dealership appraisal

With a dealership valuation, someone at the dealership will look over your car and tell you what they’ll pay for it.

And yes, you can negotiate. “Never take the first offer,” says Jones. “It’s unlikely that the dealership will give you the most value for your car on the first offer.”

Jones also suggests being prepared to explain why. “But frame it in terms of the research you’ve done on the car value, not the amount you need to recoup,” he says.

Why you might choose this option: You’re considering selling your car to another dealer or trading it in and want to get an idea of what dealers in your area are paying. Or you might want to sell it to this dealer — if the price is right.

How you can use the appraisal: “Compare the appraisal against other dealers’ valuations. Take it to more than one dealer,” says DeLorenzo. If you only visit one dealer, “you’re negotiating against yourself.” It’s also smart to check these appraisals against valuation guides, too, to help confirm you’re getting accurate estimates.

Lender appraisal

If you’re considering applying for financing a car outside the dealership, your lender can provide an estimate of its value. Typically, banks and credit unions include a car’s value in their loan calculations, says Yu.

Why you might choose this option: You’re buying a car and getting financing through your bank or credit union. You want to know if the value your lender estimates matches the car price. “If the lender says the car is worth less than the asking price, that’s a red flag,” Yu says.

How you can use the appraisal: This information can be a negotiating tool, especially if the seller’s price is too high — or a reason to walk away from the deal.

Cost to you: Some lenders provide the estimate for free as part of the loan application process, because your approved loan amount might be determined, in part, by the car’s value.

Independent professional appraisal

With an independent appraisal, a professional independent appraiser examines the car from bumper to bumper, researches sales of similar vehicles and places a value on your car. But this option is only for a few specific situations, says Jones.

Why you might choose this option: You’re buying or selling a collectible car or need a value assigned to the car because it’s considered a legal asset in a divorce, bankruptcy or estate.

How you can use the appraisal: If you’re buying a collectible car, you can use the appraisal to drive a better deal on the car — or just make sure it’s worth what you’re paying. If you’re selling, an independent appraiser can certify their valuation of the car’s worth.

Cost to you: It varies, but the general range is from $100 up to $750, says Roy Theophilus Bent Jr., CEO of the Bureau of Certified Auto Appraisers and a certified appraiser and president of Houston Auto Appraisers.

Bottom line

Doing some homework on a car’s value can help make you a savvier seller or buyer — and a better judge of whether a particular car deal is the right one for you. The information you get from a car appraisal can also come in handy during negotiations. And if you don’t feel comfortable with the final offer from a seller or buyer, remember that you can always walk away.

Fallen in love with a boat? Compared with auto loans, financing a boat can be a much heftier investment.

Boats can be more expensive than a car, which means loan amounts can be higher and terms can be much longer.

Just how much you pay to finance a boat depends on a number of factors, including the type of boat loan you choose, the loan terms, your down payment and your credit.

Let’s take a look at the different types of boat loans, your financing options and how to apply for a boat loan.

• Types of boat loans
• How boat loans work: Typical boat loan terms
• Where to get a boat loan
• What to consider before applying for a boat loan
• How to apply for a boat loan

Types of boat loans

Whether you plan to get a new- or used-boat loan, financing options include secured and unsecured loans. Each type of loan has benefits and drawbacks.

Secured loans

A secured personal loan is backed by collateral. If you default on the loan, the lender can take the collateral as a form of repayment.

In many states, if you stop making payments on your car loan, the lender can repossess it. Similarly, with a secured boat loan the boat acts as the collateral, which means the lender may be able to take it back if you go into default.

Unsecured loans

An unsecured personal loan doesn’t use the boat — or any other asset or property — as collateral. Since unsecured loans aren’t anchored to a specific asset, lenders view them as riskier and typically charge higher interest rates than with a secured loan. But you might have more options in how you use an unsecured boat loan compared with a secured boat loan.

Second mortgage

If you prefer not to take out a personal loan, a home equity loan, which is a type of second mortgage, could be another option. This type of loan would use your home as collateral for your boat loan. Interest rates for secured loans tend to be lower than those for unsecured loans. That said, home equity loans can be particularly risky because the stakes are so high: If you default on the loan, the lender may be able to take your home.

How boat loans work: Typical boat loan terms

If you’ve had a car loan before, you already have a basic understanding of how a boat loan works. You can apply for a loan amount — minus any down payment — and a repayment term. If approved, the lender may offer competitive rates, depending on how strong your credit is.

Boat loan repayment terms

You can generally apply for up to a 20-year loan term for a secured boat loan, depending on the loan amount and lender. Unsecured boat loans — which are personal loans — tend to come with shorter terms (typically no more than five to seven years). The longer your loan term, the more you’ll pay in total interest on the loan.

Down payment may be required

Boat loan lenders often want to see a down payment, generally between 10% and 20%, depending on factors including the lender and the cost of the boat. Some lenders offer 0%-down loans — but keep in mind that making a down payment can hedge against the boat’s depreciation, or loss of value over time, and help prevent a situation where you owe more on your boat loan than the boat is worth. A down payment may also lower your monthly payment and reduce the total amount of interest you pay on the boat loan.

Interest rate

Interest rates on boat loans are typically fixed and can vary widely based on the lender and your credit profile. As of April 2023, some lenders offer starting annual percentage rates, or APRs, of about 7% to nearly 10% on secured boat loans. But factors such as the boat type and model year, your credit history, loan term and loan amount will affect your rate.

Where to get a boat loan

If you want to apply for a boat loan, you have a range of lender options — some banks, credit unions and boat dealers offer boat loans. Additionally, marine finance companies specialize in these types of loans. Here are some banks and credit unions that offer boat loans.

Truist

Truist, formerly SunTrust, offers unsecured marine loans. The bank’s online lending division, LightStream, provides loans ranging from $5,000 to $100,000, with terms of 24 to 144 months — but the lender says you’ll need excellent credit for its lowest rates.

U.S. Bank

U.S. Bank provides loans of up to $150,000 for new or used boats, as well as refinancing. To qualify for the bank’s best rate, you’ll need to finance a new boat with a loan greater than $25,000 (no more than 100% of the boat’s value) and a term of 48 months or less. You’ll also need to set up automatic payments from a U.S. Bank personal checking or savings account.

Bank of the West

Bank of the West offers loans for new and used boats and personal watercraft. The minimum loan amount is $10,000.

Navy Federal Credit Union

Navy Federal Credit Union offers loans for new and used boats and personal watercraft, with terms of up to 180 months. Military members with direct deposit may qualify for a rate discount. Service members in all branches of the armed forces, along with their families and household members, are eligible for credit union membership.

USAA

USAA offers loans for both boat purchases and refinancing, with up to 180-month terms. The company also finances jet skis and personal watercraft. To apply for a boat loan, you must be a member of USAA. Current and former military members and their spouses and children may be eligible for membership.

What to consider before applying for a boat loan

Before you begin making plans to set sail on your new boat, here are some things to consider.

Your credit

Some lenders will offer a boat loan to borrowers with subprime credit, but they may still require a down payment and low debt-to-income ratio. Keep in mind that if you have lower credit scores, you’ll probably be offered a higher interest rate than if you have excellent credit.

The total cost of owning a boat

When determining your boat budget, don’t forget to factor in the costs beyond the monthly payments for your boat loan. These ongoing expenses might include slip fees, winterizing, towing, land storage, fuel, boat insurance, repairs, maintenance, registration and taxes.

Whether you’ll need a marine survey

When you apply for a secured boat loan, the boat’s value will be a factor in how much you can borrow.

If you’re not getting a new boat, you should get a marine survey. During a marine survey, an inspector will examine the vessel, engine and trailer, detail the boat’s condition, note any repairs needed and determine whether it’s safe to take on the water.

How to apply for a boat loan

Applying for a boat loan is similar to applying for a personal loan or auto loan. You’ll need to find a lender first. In some cases, you can apply online. Otherwise you may be able to apply in person at a bank or credit union.

Next, you’ll typically need to provide information such as the loan amount, purchase price of the boat, type of boat and age of the boat — along with employment information and other personal info about your assets and debts. As with personal loans and auto loans, this could result in a hard credit inquiry to check your credit profile (note that this may lower your credit scores by a few points).

Then you’ll wait for approval, which could be available as soon as the next business day, or may take a few business days, depending on the lender you’re working with.

Next steps

Experienced boaters do everything possible to be prepared on the water — so it’s good to take the same approach with a boat loan. Here are some suggestions to find the financing you want.

1. Shop around and compare offers from multiple lenders to find one that fits your financial needs.
2. Apply for your boat loan.
3. Review the terms carefully before deciding to sign. If it’s a go, get ready to sail the seas.

If you’re not able to find a boat loan after getting a few estimates and comparing your options, consider taking some time to build your credit, pay down your debt and save for a down payment. And remember to consider ownership costs in your overall boat budget to help avoid choppy financial waters in the future.

If you can’t resist the allure of a shiny new car or simply don’t want to be tied to a car contract for more than a couple years, a short-term car lease might be worth exploring.

Short-term car leasing is exactly what it sounds like — a lease agreement for a relatively short period of time.

Short-term leases can offer some advantages, like being able to drive a brand-new car with less of a commitment — but there are a few big drawbacks, too. Let’s take a look at what a short-term lease is, and the potential pros and cons.

• What is a short-term car lease?
• Drawbacks of short-term car leases
• Possible advantages of short-term car leases
• Where can you get a short-term car lease?

What is a short-term car lease?

When you lease a vehicle, you agree to use the car for a specific number of months and miles. After the lease ends, you must return the car to the dealership or, if the option is available, buy it.

There’s no official guideline for what length of car lease is “short” term — some auto industry experts consider any lease 24 months or less short term. Others define it as less than 36 months. Leasing terms at dealerships typically range from 24 to 60 months.

Drawbacks of short-term car leases

Before you jump into a short-term car lease, consider these potential negatives.

Depreciation

If you lease a brand new car, depreciation can take a big bite out of your wallet. Here’s why: The car’s estimated depreciation is built into your lease payments. And cars lose the most value — usually around 20% — during the first year on the road. If you’re leasing during that period, you’re picking up the bill for that depreciation — and with a short-term lease you’re spreading it across a smaller number of payments.

Taxes and fees

Many states charge sales taxes, which you may need to pay on a car lease. In addition, you might need to pay title, registration and inspection fees, along with potential county or municipal sales taxes. Depending on the state and area you live in, these taxes and fees could add thousands of dollars to the cost of a short-term lease. Be sure to do some research and understand all of the potential costs before you sign a lease contract.

Mileage limits

If you get a shorter-term lease through a dealership, you can generally get 10,000 to 15,000 miles per year. But if you take over someone else’s lease, you might have fewer miles to use.

As with longer leases, if you exceed the agreed-on mileage, you could end up owing more. Standard mileage penalties range from 15 to 25 cents a mile.

Possible advantages of short-term car leases

A short-term car lease can be an attractive option if …

You want to drive the latest and greatest

Addicted to that new-car smell? A shorter-term new car lease means your lease will be up not long after that smell wears off, freeing you up to lease another new car.

You need temporary wheels

If you only need a car for a little while, a short-term lease might be a good option. Maybe you’re relocating for your job for a year and your new commute would benefit from a more fuel-efficient vehicle. A short-term lease could work if you need a car that fits your situation for a couple years or so — or less.

Where can you get a short-term car lease?

You have two main options for getting a short-term lease.

Head to a car dealership

If you’re looking for a term of 24 months, many car dealerships offer this option. Just be aware that this might be the shortest term available, and you might not be able to get such a short term at all dealerships.  Lease programs at dealerships vary by location but generally range from 24 to 60 months.

Take over someone else’s car lease

Sites like SwapALease.com or LeaseTrader.com can put you in touch with drivers who want to exit their lease contracts early. If you’re looking for a term shorter than 24 months, you might find some options this way. It’s important to note that both of these sites require a credit check to be eligible to take over a lease, and so applying may generate a hard inquiry and lower your credit score.

As you research your lease takeover options for each car, be sure to note the monthly payment the original lessee had, because you’ll be inheriting it. Pay attention to all the terms, including the remaining miles on the lease, too — you may be left with fewer miles than you need. When you take over someone else’s car lease, you are responsible for all of the obligations included in the lease, so review everything carefully before jumping in.

Bottom line

Short-term car leasing can be an option if you don’t want to commit to one car for a long time — and if you don’t mind paying for that flexibility.

If you aren’t sure whether a short-term lease is right for you, compare the costs associated with those of other options such as a short-term rental or even purchasing a new or used vehicle. Doing all your homework to understand the potential benefits and drawbacks of a short-term car lease will help you decide which route may be right for you.

There are multiple versions of the FICO® credit-scoring model, and each is based on a unique formula. The most widely used is FICO® Score 8, which is generally consistent with previous versions but differs in several key ways.

As we explain in our rundown of FICO® scores, a FICO® credit score is a three-digit number ranging from 300 to 850 (and 250 to 900 for industry-specific scores). Your scores are largely based on your credit reports and can help lenders assess how likely you are to repay debt.

Though FICO® Score 9 debuted in 2014, many lenders still rely on FICO® Score 8 when making lending decisions. That’s why it’s important to know what goes into the FICO® Score 8 credit-scoring model.

• What affects your FICO® Score 8 credit scores?
• What makes FICO® Score 8 different from previous FICO® scoring models?
• How do FICO® Score 8 credit scores differ from the scores you see on Credit Karma?
• Does the FICO® Score 8 credit-scoring model really matter?
• Major differences between FICO® Score 8 and FICO® Score 9 credit-scoring models

What affects your FICO® Score 8 credit scores?

FICO® credit scores depend on the information in your consumer credit reports, so knowing what’s in those reports is a good place to start.

Your credit reports contain information such as how often you make payments on time and how many credit accounts you have open. This information can directly affect your FICO® Score 8 credit scores (as well as scores using many other credit-scoring models). For example, keeping your credit utilization low can help your FICO® Score 8 credit scores, while repeatedly neglecting to pay your credit card bills on time can hurt them.

Here’s a quick look at what goes into your FICO® scores and a few ways that the FICO® Score 8 scoring model differs from some of the other versions.

• Payment history (35%): Your history of paying credit accounts is a big factor in determining your FICO® scores. Lenders understandably want to know whether you’ve paid your bills on time.
• Amounts owed (30%): This refers to how much you owe on credit accounts, such as installment loans and credit cards, and the percentage of your available credit that you’re using (known as your credit utilization rate).
• Length of credit history (15%): FICO® scores take into account how long you’ve had your oldest and your newest accounts. Also considered are the average age of all your accounts and how long it’s been since you’ve used certain accounts. Generally speaking, the longer the better.
• Credit mix (10%): FICO® scores consider your mix of different credit accounts, though it’s not a key factor. These may include credit card accounts, mortgage loans and auto loans.
• New credit (10%): New credit inquiries and recently opened accounts can influence your FICO® scores. For more information, check out our article on hard and soft credit inquiries.

What makes FICO® Score 8 different from previous FICO® scoring models?

Though FICO didn’t reinvent the wheel with FICO® Score 8, it does differ from previous versions in several key ways.

• Isolated late payments matter less. FICO® Score 8 is a little more forgiving of a one-time late payment than previous versions. “Late” generally means at least 30 days after the due date.
• Multiple late payments matter more. FICO® Score 8 may punish numerous late payments more severely than previous versions.
• Small-balance collection accounts matter less. If the original balance on the account was less than $100, FICO® Score 8 ignores collection actions for the account. That’s a good thing, because a collection account can have a significant negative impact on your credit.
• High credit card utilization matters more. According to FICO, FICO® Score 8 is “more sensitive” to higher card usage. Most experts recommend keeping your overall credit card utilization rate below 30%.
• Credit card piggybacking matters less. Credit card piggybacking refers to the practice of being added to someone else’s credit account as an authorized user in order to help you boost your own credit. FICO claims that FICO® Score 8 “substantially reduces any benefit” of this practice.

How do FICO® Score 8 credit scores differ from the scores you see on Credit Karma?

FICO® scores aren’t the only credit scores you’ll see. Another popular credit-scoring model is VantageScore.

On Credit Karma, you can get your free VantageScore® 3.0 credit scores from TransUnion and Equifax. These scores may not match up exactly with credit scores based on the FICO® Score 8 credit-scoring model, but they rely on many similar factors. For example, your credit card utilization rate is considered a high-impact factor in both the VantageScore® 3.0 and FICO® Score 8 credit-scoring models.

Here are some other key similarities and differences among the most popular VantageScore® and FICO® score models.

Does the FICO® Score 8 credit-scoring model really matter?

That all depends on what you want to do.

In general, if you’re trying to get a new credit card, car loan or consumer loan, then your FICO® Score 8 credit scores can matter. Since FICO® Score 8 credit scores are the most widely used FICO® scores, there’s a good chance a potential lender may use it.

On the other hand, if you’re working with a lender who’s using a different credit-scoring model — VantageScore® 3.0, for example — then that’s may be the one that matters most.

Remember: While FICO and VantageScore Solutions create the formulas, it’s the lenders who ultimately use your credit scores. And it’s the lenders who select which model and version to use. So even when FICO releases a new version of its credit-scoring model, a credit card issuer or auto lender might stick with whichever FICO® version it is already using.

“They can use whatever version they want,” says Joe Ridout, spokesman for the national consumer rights nonprofit Consumer Action.

Major differences between FICO® Score 8 and FICO® Score 9 credit-scoring models

Change takes time. Many lenders are still using FICO® Score 8 even though FICO released a newer, potentially more predictive model, FICO® Score 9.

As long as both credit-scoring models are in use, it’s a good idea to know how they differ. FICO® Score 9 isn’t a dramatic departure from its predecessor, but it does account for certain factors differently.

Here are the highlights.

• Paid collection accounts matter less. If you’ve paid off a collection account in full, it no longer counts against you with FICO® Score 9. With FICO® Score 8, paying off a collection account doesn’t necessarily help your scores. That’s can be an issue, because collections can stay on your credit reports for a long time.
• Medical collections matter less. Until recently, there wasn’t a significant distinction between medical collections accounts and other types of collections accounts — at least in terms of their impact on your credit. But newer credit-scoring models, such as FICO® Score 9, deemphasize the impact of unpaid medical collections accounts.
• Rental payments matter more. FICO® Score 9 cares if you pay rent on time, including rental payment history as a factor in your scores — provided your landlord reports it to at least one of the three consumer credit bureaus. This can be a boon to those who have just started building credit from scratch and don’t have much lender information on their credit reports.

Bottom line

If you’re shopping for a new loan or credit card, it’s smart to find out which credit-scoring model (or models) may be used to evaluate your credit.

“If it were me, I would ask direct questions,” says Bruce McClary, vice president of communications for the National Foundation for Credit Counseling. “Which scores are you using? Which version are you using?”

One credit-scoring model might factor in medical collections, while another might give you the proverbial gold star for years of timely rent payments. The more you know about what goes on behind the scenes, the better you can try to position yourself in the eyes of a prospective lender.

Not sure where to go from here? Consider getting your free VantageScore® 3.0 credit scores from TransUnion and Equifax on Credit Karma. You can also read the Credit Karma Guide to Building Credit for general tips on building and maintaining healthy credit.

You’ve probably heard of refinancing a mortgage. But did you know you can also refinance an auto loan? In fact, the process of refinancing an auto loan can be a lot more simple and straightforward than refinancing many mortgages.

Refinancing your auto loan can save you money in a number of ways. It can lower your interest rate, reduce your monthly payments and leave you with terms that make sense for you.

But as with anything involving money and credit, it pays to understand what you’re getting into. It’s easy to look at a lower monthly payment and get excited, but you should also look at the interest rate and fees, and consider them within the context of your long-term financial plans.

If you’re still not sure whether refinancing your auto loan makes sense, don’t worry. In this guide, we’ll go through some key elements of the process, from how to apply to where you should shop for the best deal.

Worried about paying your auto loan because of the coronavirus? Check out our resources.

Why refinance your auto loan? 

There are a few reasons you might want to consider refinancing your current auto loan.

Your current loan has a high interest rate

This could be because you took a bad deal on financing or couldn’t qualify for a cheaper loan at the time.

You’d benefit from lower monthly payments

Budgets change, and a lower monthly payment could help free up cash for other financial necessities. Even if you keep the same interest rate but extend the period of your loan, you could have a lower monthly payment. Just be aware that this can put you at risk of eventually owing more on your loan than your car is worth (also known as being upside down on your loan).

You want a different loan term

Maybe you’d prefer to make lower monthly payments over a longer term, or maybe you want a new loan with a shorter term and lower interest rate. Whatever the case may be, you may be able to shop terms that make better sense for you. 

When does refinancing not make sense?

Refinancing may seem like a good idea for anyone.

That’s because your car’s value decreases over time — often referred to as depreciation.

Refinancing could help you avoid a situation in which you owe more on your car than it’s worth. But it can also make the situation worse if you’re not careful.

For example, a loan with a lower monthly payment may also come with a longer term. The longer you spend paying off your car, the more likely the car will depreciate in value and the more at-risk you are of going upside down on your loan.

Related Read

How car depreciation affects your vehicle’s value

Where can you go to refinance your auto loan?

If you want to refinance your auto loan, start with the financial institutions you know and trust, like your credit union or bank.

You can also compare auto loans with Credit Karma Auto.

Here are some questions you may want to ask while shopping around.

• What’s the interest rate or range of rates for refinancing auto loans?
• What requirements do you have for borrowers or vehicles?
• What are the fees or other out-of-pocket expenses?
• What loan lengths are available?
• Are there prepayment penalties?
• What’s the total cost of refinancing, including fees, interest and principal?

Shopping around is shopping smart

Comparison shopping doesn’t stop after you get a quote or two. Once you have a few offers, you can go back to other lenders and negotiate.

Don’t forget to compare your existing loan, too. You may find that it’s not so bad, considering what else is available.

When weighing different options side-by-side, focus on how much you’re paying in total — not just each month. Remember to account for the fees, the interest rate and any down payment.

Before agreeing to refinance your auto loan with a lender, ask if it offers additional ways to reduce the interest rate. For instance, some lenders may cut the interest rate on your loan if you set up automatic payments.

How important is your credit for refinancing an auto loan?

Whether you’re applying for a credit card or buying a home, your credit scores can go a long way in determining whether a lender will do business with you. So how important is your credit if you want to refinance an auto loan?

Most experts agree it can be crucial. Lenders use a number of factors to decide your auto loan rate, but two of the most important factors are your credit and debt-to-income ratio, which is calculated by dividing your monthly debt payments by your monthly income.

Related Read

Understanding your debt to income ratio

Generally speaking, the better your credit, the more likely you are to secure a lower interest rate. To get an idea of where you stand, you can check your VantageScore 3.0® credit scores from TransUnion and Equifax for free on Credit Karma. These may not be the same scores your lender uses to decide your rate, but they can help you better understand your overall credit health.

Nailing down the right credit score

As far as the exact credit you’ll need for the loan you want, those requirements vary depending on the lender.

If you’re confused about how to build your credit, check out our article on credit score factors and how they’re used to calculate your credit scores.

Does the current value of your car matter?

In short, yes. Just like when you refinance a mortgage, the value of the asset (your car, in this case) can be a factor in the loan.

Related Read

How to get out of a car loan when you’re upside down

To get a general idea of what your vehicle is worth, log into Credit Karma Auto. There, you’ll be able to see the value of your vehicle as estimated by the National Automobile Dealers Association.

Lenders often won’t allow financing for cars of a certain age and condition. Individual requirements vary by the lender, but it can be much more difficult to refinance a loan if your odometer reads higher than 100,000 or your car is more than a decade old.

Even so, just because you have an old car doesn’t mean refinancing isn’t worth a try. If you think refinancing could help you financially, investigate the option.

How does auto loan refinancing compare to mortgage refinancing?

Auto loan refinancing can be a bit simpler than mortgage refinancing. That makes sense, given the size of the asset involved. But there are still some similarities between the two processes.

Similar: Debt-to-income and loan-to-value ratios

Just like mortgage lenders, auto lenders will often look at your other obligations. This is where debt-to-income ratio comes into play. They may also compare the value of the asset to the amount of the loan (this is known as the loan-to-value ratio).

Let’s dig into each of those figures a bit more.

• Debt-to-income ratio: As far as your debt-to-income ratio is concerned, the standard rule of thumb is that your DTI ratio should be less than 36%. The Consumer Financial Protection Bureau highlights 43% as another important number, because it’s generally the highest DTI ratio a consumer can have while still being eligible for a Qualified Mortgage.
• Loan-to-value ratio: When it comes to loan-to-value ratio (also known as LTV), the ideal varies widely among lenders — much like a mortgage loan.

Similar: Hard inquiries when shopping around

Another similarity between home and auto loan refinancing has to do with hard inquiries. If you keep all your loan applications within a set time period — generally around 14 days — they may only count as a single hard inquiry on your credit reports. Since you can’t get a loan without an inquiry, staying within that 14-day window helps you shop around for loan deals and lowers the risk of hurting your credit scores.

Related Read

Hard and soft credit inquiries: What they are and why they matter

Different: Changes in valuation over time

One of the biggest differences between home and auto loan refinancing comes down to valuation. Cars almost always decline in value as they’re driven, whereas homes don’t necessarily lose value simply from people living in them. Other factors can impact the value of your home, like the local real estate market, but are not likely to impact the valuation of your car.

Looking after your original car loan

It’s important to keep your original loan in mind during the refinancing process.

Generally, during an auto loan refinance, collateral of the car is transferred from the old lender to the new lender. If that’s the case, make sure you understand every aspect of that transaction.

And make sure you do your research before accepting a refinance offer. For that, you can either check the loan’s paperwork or call your original lender.

When you refinance, you should also receive a confirmation that the original loan has or will be paid. Don’t forget about your original loan until you have that confirmation.

What’s next?

If you think you might want to refinance, ask plenty of questions and get plenty of estimates from different lenders.

Money isn’t the only factor to consider when refinancing an auto loan. Sometimes you may also want to consider the time and effort it takes.

Start by asking yourself two questions.

1. How much can I save?
2. How many hoops do I have to jump through to save that money?

Worried about paying your auto loan because of COVID-19?

If you’re worried about making payments on your auto loan because of the coronavirus and economic downturn, you’re not alone. There may be relief measures from your lender that can help. Check out our guide on what some auto lenders are doing.

Tips for budgeting and paying down debt

If you’re looking for general tips on how to budget or pay down debt, we’re here to help with that too. Check out some of our advice articles below.

• Credit Karma guide to budgeting
• How to get out of debt in five steps

A first-time homebuyer can easily get lost in the weeds when applying for a home loan, which is why we recommend starting with the basics: the five C’s of credit.

“Wait a second,” you might be asking yourself. “The what?”

The five C’s of credit are character, capacity, capital, collateral and conditions. Lenders may use all or some of these characteristics to determine your creditworthiness before approving a loan.

Learning these five characteristics can help prepare you for one of the biggest investments you’ll ever make. How? Because looking at them side-by-side can help you fill in the blanks on everything from your credit history to how big a down payment you’ll need to get the mortgage you want.

Let’s check out the five C’s of credit and see how they can help make you a smarter first-time homebuyer.

The 5 C’s of credit

1. Character
2. Capacity
3. Capital
4. Collateral
5. Conditions

Character

In the days of Model T’s and ice-cream socials, it was easier for everyone in a community to know who was — and who wasn’t — a high-risk customer for a loan. Basically, it was easier to know who had character.

Today, “character is often measured by your credit,” says Benjamin Keys, assistant professor of real estate at the Wharton School of the University of Pennsylvania. “And credit scores are a key metric.”

Your credit reports contain information about your credit accounts and transactions. A lender can look at your credit reports to learn how often you make payments on time and how many accounts (credit cards, auto loans, student loans, etc.) you have in good standing.

A credit score is a three-digit number that reflects the information in the corresponding credit report. Knowing what goes into your credit scores and reports can be the first step to improving them so that you can make a good impression on potential lenders.

Keep in mind that there are multiple providers, each of which may use different scoring models to generate scores. That means that your scores might differ depending on the model and provider. Also, during the underwriting process a mortgage lender will probably use a different scoring model than the ones available on Credit Karma.

Action steps:

• Check your credit reports and verify that all the information is accurate and current. Credit Karma offers free credit reports from two of the major consumer credit bureaus, TransUnion and Equifax. You may also be able to dispute any errors you find on your TransUnion® credit report through Credit Karma’s Direct Dispute™ tool. You’ll have to file a dispute with Equifax directly if you see an error on your Equifax® credit report. Don’t forget that your lender may use a different report than the ones available on Credit Karma, but you should still check for errors to get a baseline idea of what sort of problems might be lurking on other reports.
• Check your credit scores. On Credit Karma, you can get your free VantageScore 3.0 credit scores from TransUnion and Equifax. Remember, your lender may use a different score than the ones available on Credit Karma. Nonetheless, checking your scores on Credit Karma can help you get a directionally accurate view of your credit.
• Find out how lenders might categorize your scores. Some lenders group scores into ranges, explains Keys. If your scores are within sneezing distance of a higher (read: less expensive) mortgage rate category, it could pay to wait and work on improving your credit health, says Keys. In the eyes of lenders, better credit could mean that you’re less likely to default on a loan. Being seen as less risky could result in a more favorable interest rate.

Capacity

Your capacity is based on your financial ability to repay the mortgage.

“Capacity is usually measured by income and employment,” says Keys.

Lenders may review your most recent federal tax return, along with several pay stubs and a few months of bank statements, to verify your income.

The other factor they’ll likely assess in relation to your income and employment is your stability. Part of that relates to how long you’ve had your job, says Barry Zigas, director of housing policy for the Consumer Federation of America.

That bit of information may seem a bit irrelevant, but most lenders want to see proof that your income is stable and consistent.

Lenders may also look at your debt to income ratio (also known as your DTI ratio). This metric helps them evaluate how much additional debt you can handle and how much of a credit risk you pose. Though your DTI ratio isn’t one of the key factors used to calculate your credit scores, it can still have a significant impact on your ability to get credit.

To figure out your DTI ratio, first add up all your monthly debt obligations. (These may include your monthly credit card payments, loan repayments and other financial obligations, such as alimony.) Then divide the sum by your monthly pretax income.

Action steps

• If your DTI ratio is higher than you’d like, try to lower it. The two ways to do so are to pay off your debt or increase your income. Consider asking for a raise or refinancing your loans. For some, taking on a side job might be an option.
• Build a healthy savings account. A large amount of money or liquid assets can compensate for a less attractive DTI, says Zigas.
• Limit your search to homes that fit your circumstances and abilities, rather than the maximum amount you can afford to pay.
• Before you commit to a house, calculate the specific expenses associated with it. This may include everything from repairs and upkeep to property taxes, utilities and insurance, says Zigas.

Capital

Capital is the money you have left after you buy a home, along with any investments, properties and other assets you could liquidate fairly quickly.

Why it’s important: Even though a home is likely the largest purchase you’ll ever make, lenders generally don’t want you to clean out your bank accounts to buy a home.

“If you don’t have cash in the bank after you’ve bought a house, you could be vulnerable,” explains Zigas. Even if it’s not required by your lender, a cash cushion can act as a shock absorber for everything from home repairs to a job loss.

Oftentimes, mortgage lenders will frame your savings in terms of a certain number of mortgage payments you have in the bank, says Keys. But the specific number they like to see varies.

Action steps

• Recognize that a down payment is only part of buying a home. It’s smart to save as much money as you can so you can comfortably make future mortgage payments and cope with the regular costs of homeownership, like repairs and taxes.
• Ask about the expected cash reserve. When you interview potential mortgage lenders, ask each how much money in your bank accounts they want to see.

Collateral

Collateral is something of value that secures a loan. When you get a mortgage, the collateral is typically the home itself.

“The collateral is basically what the lender is depending on in the event the borrower can’t repay the loan,” says Zigas.

One reason lenders usually require a home appraisal (and sometimes an inspection) is that they want to be sure that the house’s value “supports the mortgage,” he adds.

Action step

• Shop collateral requirements when you compare mortgage terms. “The myth that a lot of homeowners believe is that they have to put 20%” down, says Keys. But the Federal Housing Administration, Fannie Mae and Freddie Mac have home loan programs for borrowers who want to put down less than 4%. But note that there are requirements and qualifications for these programs based on the loan amount, down payment and property conditions. And the U.S. Department of Veterans Affairs backs a portion of the home loans to veterans and their families that don’t require a down payment. Be aware, however, that mortgages with less than a 20% down payment are often accompanied by private mortgage insurance, which is an extra monthly expense added to your mortgage.

Conditions

The fifth C looks at the market conditions that serve as the background music to your home purchase. While the other four C’s are personal to you, this fifth C is the “big picture” stuff.

“Conditions” can include everything from interest rates and mortgage rates to cost of living and how many homes are on the market in your area.

The real estate market is very local. So it can help to understand the supply-and-demand situation in the areas and price ranges you’re targeting. In a “buyer’s market,” where supply exceeds demand, you often have more leverage to bargain because there are a lot of houses available, so it can become more difficult for sellers. In a “seller’s market,” where demand exceeds supply, the seller may have the upper hand.

Action steps

• Get preapproved for a mortgage. One rookie mistake: Shopping for a home and then applying for financing. Instead, try to shop for financing first. The lender will fully vet you for a mortgage and give you a preapproval letter for a specific loan amount. Preapproval can help you move faster when you do find the home you want. And with preapproval already in hand, you’ll likely be viewed as a more attractive buyer.
• Comparison shop for the best mortgage deal. About 77% of homebuyers apply to only one lender, according to data from the Consumer Financial Protection Bureau. With an often six-figure purchase, says Keys, “it’s worth doing some shopping to make sure you’re getting the best possible value.”

If you want to really shop around, investigate a variety of lending sources, including large and independent banks, credit unions and mortgage companies. Then ask what types of mortgages they can offer. And have a shopping list for the talking points that are important to you — like rates, collateral, capital reserves, DTIs and credit score requirements.

Bottom line

Ultimately, the five C’s of credit boil down to a sixth C: confidence. Namely, a lender’s confidence “that you can pay your debt,” says Zigas.

But knowing the five C’s of credit can also give you confidence at a crucial time. (Sort of like having the exam questions in advance for the big test.) You can use them to help you prepare, shop smart, and select the home and mortgage that will best fit your life and your finances.

Want to learn more? Check out some of our top mortgage lenders for first-time homebuyers.

• Homebridge Mortgage: Homebridge offers resources that specifically cater to first-time homebuyers.
• Rocket Mortgage: Consider Rocket Mortgage if you’d prefer an online-first experience.
• PennyMac Mortgage: PennyMac offers a wide variety of home loans and shares current rates on its site, which can be helpful for people looking to buy their first home.
• USAA Mortgage: USAA is a good option for military members and their families. 

Compare the cost of living in two cities

Our cost-of-living calculator can help you see how much it’ll cost to live somewhere new compared to your current city so you can make an informed decision about your finances.

“Car depreciation” is a phrase that should be familiar to anyone who’s ever tried to buy or sell a car.

“It’s the rate at which a vehicle loses its value over time,” explains Ron Montoya, senior consumer advice editor for Edmunds.com.

Ever hear the familiar expression that the minute you drive a new car off the lot, it drops in value? No lie. A car can lose 20% or more of its original value within the first year.

The good news? After the first year, the depreciation rate typically “levels out,” Montoya says.

Even so, fast-forward five years down the line and you’re still looking at an average loss in value of about 60% from the original sticker price.

We say “average” because the exact rate of your car’s depreciation depends on the make, model and other factors. Let’s look at the major factors that affect car depreciation and see if there’s anything you can do to help your car retain its value.

• Age and mileage: The 800-pound gorillas of car depreciation
• Decoding depreciation
• Does depreciation make used cars a better value?
• Can you slow depreciation? Not really.
• Gap insurance can help protect from depreciation
• Ask an expert about trading in a car with an outstanding loan

Image: aaupdatecardepreciation

Age and mileage: The 800-pound gorillas of car depreciation

The two biggest factors that affect car depreciation are your vehicle’s age and mileage.

Automakers release new models every year, “so older versions are regarded as less valuable,” says Eric Ibara, director of residual value consulting for Kelley Blue Book.

And the more miles on a car, the less it’s worth.

To fight depreciation, “the biggest thing an owner can do is not put on a lot of miles,” Ibara says. “That’s not always realistic,” he concedes, and in some cases “it defeats the purpose of owning a vehicle.”

Think about all the tasks you rely on your car for, whether it’s getting to work, picking the kids up from school or running daily errands. Trying to keep your mileage down may not be possible, but it’s still worth understanding how higher mileage can affect your car’s rate of depreciation.

The average driver covers 13,476 miles annually, according to the U.S. Department of Transportation’s Federal Highway Administration. That’s the equivalent of driving from Miami to San Francisco and back — twice!

It’s also worth noting that what constitutes “high mileage” is relative.

For a high-performance sports car, like a Porsche 911, 15,000 miles in a year might be considered “high mileage,” Ibara says. “Most of the people who drive that car don’t drive it every day,” he adds. And when a car logs more miles than average for its make and model, the risk of an accelerated rate of depreciation rises.

Decoding depreciation

If you want to understand the finer points of depreciation, consider dusting off your college textbooks. “Ultimately, it comes down to what you learned in your Econ 101 class,” Ibara says.

“It’s supply and demand,” he adds. “The vehicles that hold their value best are the ones that have a strong demand when the vehicles are new.”

Besides age and mileage, Ibara and Montoya cite several other major factors that may help determine the rate of a car’s depreciation.

• Supply — If consumer demand for a car outpaces supply, that will slow depreciation. Similarly, when fleets of rental cars are sold at auction, “it creates a bubble of supply, which tends to bring used-car rates down” for those models, Ibara says. “The vehicles that hold their value best are typically not vehicles you see in quantity at a daily rental [agency].”
• Current auction prices — Remember: A car is worth only what people are willing to pay for it. “Transaction prices at auction will establish what your trade-in value will be when you sell your car,” Ibara says.
• Incentives offered on newer models of your car — Big dealership incentives can be good news for your wallet when you buy new. But they may be bad news when you’re trying to sell your used car.
• Location — In warmer weather states, cars tend to be in better shape, so they tend to be worth a little more, Montoya says.
• Perception — Consumers perceive some vehicle makes and models as more reliable, desirable and valuable. And those perceptions can have a very real impact on depreciation, Montoya says.

Luxury cars: First-class depreciators

Luxury cars with a high manufacturer’s suggested retail price, or MSRP, tend to depreciate more rapidly than moderately priced, non-luxury models, Montoya says.

It makes sense. Luxury-inclined drivers are likely willing to pay a premium and want to drive new cars, while many used-car buyers simply want affordable, dependable transportation.

For example, the estimated depreciation for a 2019 BMW 7 Series M760i xDrive sedan over five years is $109,591 — or roughly 67% of the $162,954 MSRP — according to Edmunds.com’s True Cost to Own® tool.

A 2019 Toyota Avalon sedan has an MSRP of $40,979. But its estimated depreciation after five years is only $22,773, or roughly 55% of the MSRP.

If you’re dreaming of owning a luxury car, depreciation could play to your advantage. Luxury cars tend to get much less expensive at the four- to five-year mark, which could be a good time to pounce. Unfortunately, that’s also when they’re typically out of warranty and may require significant maintenance services.

“These services tend to cost more than your typical oil change and are something to keep in mind when planning out your budget,” Montoya says.

Does depreciation make used cars a better value?

If a new vehicle’s value drops so dramatically in the first year, does that mean used cars are a smarter buy?

That depends on you — and how long you plan to keep the car.

If you replace your car with a newer model every few years, depreciation could become a very important factor in your decision to buy new versus used. But if you “buy and hold” — driving a car 10 years or longer — then depreciation probably won’t affect your decision as much.

But that doesn’t necessarily mean used cars always give you the most for the money. The interest rates on auto loans could be significantly higher for used cars, so the decision is far from a slam dunk, Montoya says.

The trick is to make a smart choice based on your needs. “Homework is the key,” Dixon says. Sites like Edmunds.com, KBB.com and NADAguides.com can help you determine the ownership costs of a particular vehicle — including depreciation.

How does car depreciation affect my lease?

If you lease, your monthly payment will likely be affected by the car’s estimated value at the end of the lease (its residual value). As a general rule, the more quickly a vehicle depreciates, the higher your monthly payments could be.

Can you slow depreciation? Not really.

“Market forces and other factors out of your control will be the primary drivers over time,” Dixon says. And those factors will set a fixed value range for your car.

Want to move your car to the top of that range? That you can do.

Start by trying to limit the mileage you put on your car. Regular maintenance, keeping it clean (inside and out) and a fresh coat of wax should also help. “Vehicles in good condition will bring more money than vehicles that aren’t,” Dixon says.

Another factor that can amp up depreciation: accidents. Vehicle history reports (like those provided by Carfax) can play a role in consumer choice, so “a car that has been in an accident could be worth less,” Ibara says.

Worrying about an oddball color choice? Don’t. “Colors that fall outside the usual white, black, silver or gray can be harder to sell, but it shouldn’t have a significant impact on depreciation,” Montoya says.

Ibara agrees. “Generally speaking, manufacturers assign paint colors to their vehicles that are appropriate for that vehicle’s segment, and they have learned which colors to avoid,” he explains. “Should a consumer purchase a vehicle and custom-paint it an offensive color, it could significantly reduce the value of that vehicle at resale — but these exceptions are rare.”

Gap insurance can help protect from depreciation

Until you actually sell your car, depreciation is just a loss on paper. But an accident can change all that.

As we noted above, a new car can lose 20% or more of its value in the first year. If you don’t put at least 20% or 25% down, you could quickly end up owing more than your car is worth.

Have an accident while you’re upside down, and your insurance will typically cover the value of your car — not the amount of your auto loan. And you may have to pay the difference out of pocket, Ibara says.

That’s where guaranteed asset protection, gap insurance, comes into play. Meant to cover the “gap” between the loan amount and the vehicle’s actual value if your car is stolen, damaged or totaled, gap insurance can keep you from having to make payments on a car that no longer exists.

Buyers and some lessees may have to buy gap insurance themselves, but it’s sometimes included in lease contracts.

Ask an expert about trading in a car with an outstanding loan

Meet the expert: Brian Moody, executive editor for Autotrader and spokesperson for Kelley Blue Book, has more than 12 years of experience as an automotive journalist.

Which types of cars best retain their value

“Popular models and reliable models maintain their value well over time. These are cars and trucks with a reputation for lasting a long time. Vehicles like the Chevrolet Tahoe, Honda Accord and Civic, Subaru Outback, Toyota RAV4 and Corolla. These are sought after, and people will pay for them whether new or used.”

Which types of cars depreciate the quickest?

“Luxury vehicles usually depreciate quickly. This is mainly because the audience for those cars is always looking for the newest and latest and can afford to get a new car every few years. Some electric cars also depreciate quickly as the average buyer is still a little worried about expensive batteries going bad.”

Given how quickly a car depreciates when it’s driven off the lot, would you ever recommend someone buy a new car?

“Buying a new car is really for those people who just love the idea that they’re the first one to own that car. Buying a used car saves you money almost every time. Buying a new car also works for those who have a preset allowance — say from your employer — for personal transportation. Also, buying a new car can work for those who keep their car for a very long time before getting their next new car.”

Bottom line

Making a car-buying decision based on what a model is worth now — or has been worth in the past — can feel like trying to time the stock market. Recalls, redesigns, changes in consumer taste and fuel prices could all scuttle even the most carefully planned buying decision.

“Ultimately, the value is predicated on the market,” concedes Dixon. And those factors are always in flux.

Our recommendation? Focus on choosing the vehicle that’s right for you — right down to the color.

You want a vehicle that fits your lifestyle, Dixon says. “Don’t go buy an SUV because it has the potential to hold on to its value over time.”

If you already own a vehicle, Credit Karma can show you estimates of how the car depreciates, along with its current value.

Calculate your mileage

Estimate how many miles per gallon you got on a recent trip, commute or any kind of drive you took with our mileage calculator.

At a glance: 2 credit cards with low fees

While a no-fee credit card would certainly be nice, you’ll find more options if you set your sights on credit cards with low fees.

“Finding a credit card with absolutely no fees at all is like spotting a unicorn — you’re going to have a tough time,” says Bruce McClary, spokesperson for the National Foundation for Credit Counseling.

That’s why McClary recommends finding a great low-fee credit card and then thinking about how you’re going to use that card.

By using your card responsibly and paying off your balance in full each month, you should be able to avoid the most common credit card fees.

Of course, one no-brainer fee you’ll want to look for right off the bat is the annual fee. If avoiding fees ranks among your highest priorities, consider narrowing your search to cards that don’t charge an annual fee.

This may cut out a few of the highest rewards earners, but what you lose in points or miles you’ll gain in peace of mind.

From there, you can specifically target cards with more forgiving late fees, balance transfer fees, cash advance fees … the list goes on. Just make sure you consider your spending habits and lifestyle before settling on a card.

The fact that a card has no foreign transaction fee, for example, likely won’t matter if you rarely travel abroad or make purchases in foreign currencies.

With that in mind, we’ve picked out five cards you may want to consider if you’re looking for credit cards with low fees.

Navy Federal Credit Union cashRewards Credit Card

Who’s it for?

To qualify for this card, you need to be a Navy Federal Credit Union member.

You’re eligible if you’re an active duty member of any branch of the armed forces or National Guard, a military veteran or retiree, a U.S. Department of Defense employee or affiliate or an immediate family member.

Why we like it

This card has no annual fee, no balance transfer fee and no foreign transaction fee. It also has a simple, easy-to-navigate rewards program that earns you 1.5% cash back on eligible purchases.

While this card does have a penalty APR of 18%, it doesn’t kick in unless your payment is more than 60 days past due or if you make a payment that’s returned and causes your account to be over 60 days past due — things you’ll always want to avoid anyway.

The regular purchase and balance transfer variable APR is a reasonable 11.15% to 18% based on your creditworthiness and other factors.

Watch out for

Rewards cards like this one will typically only benefit you in the long run if you can pay off your balance in full every month. Otherwise, you risk spending more on interest than you collect in rewards.

How to use it

To get the most out of this rewards card, use it for everyday purchases and pay off your balance in full and on time. Since you’ll earn a flat rate of 1.5% cash back on eligible purchases, you don’t need to plan your spending around specific rewards categories.

Discover it® Cash Back

Who’s it for?

This one’s for the savvy shopper who wants to earn cash back on everything.

Why we like it

There’s a lot to like here, including a $0 annual fee, no penalty rate and no fee for your first late payment (after that, you could be charged up to $40). And foreign transaction fees? None.

If you can put some extra legwork into your rewards, this card can pay dividends. It offers 5% cash back on up to $1,500 in purchases each quarter you activate in rotating categories like restaurants, gas stations and sites like Amazon.com. Once you hit that quarterly cap, you’ll earn 1% back.

You’ll also earn 1% for purchases outside of the bonus categories. You’ll have to activate each category to benefit from the 5% cash back; otherwise, you’ll earn a flat rate of 1% cash back on every purchase.

Watch out for

Discover it® Cash Back doesn’t have a penalty APR, and you’ll get a free pass on your first late payment. Just don’t make a habit out of paying late, because after the first time, late payments may cost up to $40. They may also hurt your credit.

How to use it

It’s a great around-town card to use for gas, groceries, shopping and restaurants — just be sure to activate your bonus category for each quarter.

Discover automatically matches all the cash back you’ve earned at the end of your first year, so this can be a great card to use if you have some large purchases in the right categories coming up within the next 12 months.

With no foreign transaction fee, Discover it® Cash Back is also good for travel. But if you’re using it outside the U.S., do a little research to make sure it’s accepted at the locations and venues where you plan to use it.

Bottom line

There’s a lot to consider when you’re searching for credit cards with low fees.

One tip to make it easier: If you pay off your balance in full and on time every month, you can avoid paying interest.

And if you already have a credit card you like, you may be able to negotiate the fees that are most important to you, McClary says.

But, just like shopping for a new card, it all comes down to the quality of your credit. “The [better] your credit,” he says, “the better position you’re in to be successful in negotiating a better deal.”

EMV chips — those little, square computer chips on credit and debit cards — can be a big help in preventing credit card fraud. But there are other steps you can take to use your cards securely.

“The shift to chips was designed to prevent a very specific kind of fraud — counterfeit card fraud,” says Eva Velasquez, president and CEO of the Identity Theft Resource Center.

Velasquez is referring, of course, to the EMV liability shift that occurred in October 2015, when the U.S. joined Canada and Europe in switching from “swipe-and-sign” cards to “chip-and-signature” cards equipped with EMV chips.

The introduction of EMV chips (Europay, Mastercard and Visa chips) has certainly helped. According to Visa, the total number of dollars stolen through counterfeit fraud was down 76% in December 2018 compared to September 2015, just before the introduction of the chip. This improvement was for merchants who completed the upgrade to EMV chip technology.

But card theft and credit card fraud are still around, so it pays to stay vigilant even if you have an EMV card. With that in mind, let’s run through some easy but effective ways to beef up your security against fraudsters and help prevent credit card fraud.

• What is credit card fraud?
• Use credit cards, not debit cards for online purchases
• Keep your credit card and CVV numbers safe
• If your phone is your wallet, treat it like one
• Avoid entering sensitive information on public computers and Wi-Fi
• Set up alerts

What is credit card fraud?

According to the FBI, credit card fraud describes any instance where personal information related to your credit card is used without your consent to purchase items or receive money. Take note that these fraudulent charges can happen whether identity thieves steal your physical credit card or — as it may be more likely — they steal your card numbers online.

Use credit cards, not debit cards for online purchases

While EMV chips are a good start toward preventing credit card fraud by protecting you from skimmers, they’re just the beginning. If your credit card issuer or favorite online retailer offers two-factor authentication for purchases, definitely use it, Velasquez says. Two-factor authentication requires you to provide two types of identification proof, often a phone number confirmation or fingerprint.

The other mistake some online shoppers make: Shopping with a debit card. When you buy online, it’s generally a good idea to use a credit card.

That way, if your account is hacked, you’re merely waiting for the card issuer to restore a line of credit — and not missing much-needed cash, as you would from a checking account. (Federal law says you can’t be held liable for unauthorized transactions that occur after you report the loss of your ATM or debit card.)

Understanding your liability for fraudulent credit card charges

The Fair Credit Billing Act limits your liability for unauthorized charges on your credit card in the event of credit card fraud. Under FCBA, your liability maxes out at $50. But if you’re able to report the loss before your credit card is used, you won’t be held responsible for any charges you didn’t authorize.

Some more good news: If your credit card number is stolen, but not the card itself, you’ll have zero liability for unauthorized use.

Keep your credit card and CVV numbers safe

Skip storing card numbers on your online retail accounts. Not only will it help you protect yourself against credit card fraud, but it’s also a smart budgeting strategy because you can’t purchase with just the touch of a “Buy” button.

“It makes you think about your purchases,” Velasquez says.

Another key aspect of online credit card security is your card’s CVV (card verification value) number.

CVV numbers help limit fraud, and most online merchants require you to enter one along with your card number and expiration date.

But not all merchants use them. You may be risking your own security by shopping with a merchant that doesn’t ask for your card’s CVV number if that merchant stores your credit card information.

If your phone is your wallet, treat it like one

If you’re using your phone as a mobile wallet, then give it the security any wallet deserves by taking advantage of the security features your phone maker offers. This may take some time upfront, but it’ll help you prevent credit card fraud in the long run.

These features range from iPhone’s touch ID to PIN codes that can keep your phone locked and secure when you’re not using it.

You may also consider getting a mobile security app that will allow you to put an extra password on the apps you use for shopping and banking.

You might find the option included in the security program you’ve installed on your mobile device, like the App Lock feature in McAfee Mobile Security. Or as a free, stand-alone app, like Norton’s App Lock.

Avoid entering sensitive information on public computers and Wi-Fi

Public retail and coffee shop Wi-Fi is super convenient, but that doesn’t mean it’s super secure. Our advice? Skip it if you’re engaged in any kind of online activity that involves money, banking or credit cards.

If you insist on shopping and banking when you’re out and about, invest in a quality virtual private network, or VPN, service to protect against unwanted data collection and potential credit card fraud.

Even if your Wi-Fi connection is password-protected, that password can be easy for thieves to get their hands on. (Hint: It’s usually at the counter or pasted to the wall.)

Better to go with a VPN that keeps your sensitive information safe from prying eyes.

Additionally, some sites exist solely to collect data and card numbers for criminals, so before you buy, make sure you trust the source.

Set up alerts

Most card issuers allow you to set alerts that will text or email when your card is used in certain ways. “Every time there’s a ‘card not present’ transaction, I want a notification,” Velasquez says.

Remember: The faster you report loss or theft, the better. Your liability for unauthorized use tops out at $50 thanks to the FCBA, but If you can report the loss before your card is used, you won’t be responsible for any charges.

Next steps

First, a disclaimer: While heeding the above points may boost your credit security, there’s no such thing as “fraud-proof.” As technology becomes smarter, so do the criminals. The good news? Consumers are getting more streetwise in the ways of card fraud, too.

Consider using credit instead of debit cards online, skipping auto-reload options on merchant accounts, setting up mobile alerts for credit card activity, and putting a few extra locks on banking and shopping apps.

Velasquez’s advice: Just like dressing for uncertain weather, think of credit card security in terms of layers. Pile on as many as you can without significantly hampering what you need to do.

And remember, if you do find yourself a victim of credit card fraud, there are some clear steps you can take to report the fraud to the credit bureaus, creditors and law enforcement.