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Auto Loans

How Coronavirus (COVID-19) Affects Auto Loans

By Choncé Maddox

Expert contributor for Credit Knocks

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The spreading of Covid-19 has affected so many areas of our lives. One particular area where people are getting hit the hardest is with their finances and loans.

Specifically, the auto loan industry took a huge hit back in March where stay-at-home orders were being executed and most of the calls dealers received were worried borrowers wondering how they’d pay their car note the following month.

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According to Experian, the average monthly car payment ranges from $381 to $530. Staying afloat has been tough for the auto loan industry while more people have either been putting off their car purchase or struggling to make payments on an existing loan.

Plus, many automakers had to shut down production for 1-2 months. However, auto financing is bouncing back resiliently as businesses and industries open back up. 

Wondering if you should get a car loan or refinance an existing loan right now? Here’s what you need to know.

Lenders Offer Relief And Extensions

According to a Lightico survey conducted back in March, at least 49% of consumers were less likely to take out a loan if it required going into a physical branch. This survey also found that at least 56% of people were concerned about their ability to pay back their mortgage, car loan, and other loans. 

Concerns are high due to all the uncertainty right now including record levels of unemployment. If you have a car loan and are struggling to make payments, it’s important to realize that your lender may be willing to work with you through a relief program. Some states have even temporarily forbidden car repossessions so it’s in their best interest to attempt to work with you.

covid auto loans

While millions of Americans have skipped out on paying their car loans, they didn’t just drop all contact with auto lenders. Rather, they are reaching out to their loan servicers and getting in a deferment or relief program.

If you simply stop paying your car loan, it could negatively affect your credit or even lead to a repossession in the future. 

Luckily, Edmunds has shared a list of car dealers that are offering relief and determent programs to borrowers. If you lease a vehicle, you may be able to extend your lease and you can learn more about who’s offering extensions and relief here. Hyundai, in particular, is offering up to 6 months of payments for anyone who financed or leased a vehicle between March 14th and May 17th, 2020 and lost their job due to Covid-19 through December 31, 2020.

Title loans should only be considered as a last resort because they tend to have high interest rates that rollover every month. 

It’s important to realize that while loan deferment can be helpful during tough times, it will likely stretch out your repayment term and cause you to end up paying more money over time.

Is Now A Good Time To Buy A Car?

The biggest question you have to answer before purchasing a car is whether you can afford it. In most cases you’ll need: 

  • A downpayment
  • Proof of employment/income
  • Insurance

On top of that, you’ll need to adjust your own personal budget to ensure you can make monthly payments on-time. If you can’t afford to spend an extra $200 - $500+ on a car payment each month, it’s not the best time to buy despite being in the middle of a pandemic.

Quick Tip:

Get pre-approved for a auto loan online before you go shopping for your new car. 

Even if you have bad credit, you can still obtain a car loan. The most important factor right now is your income and how stable it is so you can keep up with payments.

If you need to buy a new car, can afford a monthly car note, and your employment status and income have not been affected so far, you may want to consider shopping around and weighing the options.

Car dealers are pulling out all the stops right now to entice customers. Some companies are offering up to $5,000 cash back on your vehicle when you lease, your first payment delayed for 90 days, or 0% APR for 48 months - up to 72 months for select vehicles.

There are also additional offers and incentives for first responders.

Quick Note:

Car dealerships make most of their profit off of their auto loan financing. 

As an alternative, you can shop for a car being sold by the owner then get a loan from your bank. Navy Federal Credit Union is offering low auto loan rates for new vehicles (1.79%) and used vehicles (3.89%).

Due to the U.S. Federal Reserve lowering interest rates, other institutions are able to provide similar rates. Still, I’m sure these rates are reserved for borrowers with exceptional credit. If your credit is poor you may be stuck paying a higher interest rate around 12% to 15%+.

Online Lending Solutions

Health and safety concerns are high right now as many states are reopening but still need to follow guidelines laid out by health professionals and the CDC. 

With more states opening back up, more car lots are doing the same but online lending is still extremely popular and preferred. Some people simply can’t get out or prefer not to go looking for a car in person.

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As an alternative, car dealers have had to really upgrade their websites and online forms to screen applications and service customers online. Some have even opted to provide a home delivery service once you purchase your vehicle.

Popular online vehicle marketplaces like Carvana, OnStar, and CarMax are also alternatives to consider. If you’re looking for an auto loan right now, try to get pre-approved online first before going to a dealership. See if there’s an online form where you can securely upload verification documents so you won’t have to take care of this step in person if possible.

The Auto Loan Industry Is Slowly Bouncing Back

Auto lenders were hit hard during the onset of Covid-19, but they are slowly bouncing back. In April, auto sales plummeted but they have been slowing rising each month since then.

While vehicle production has stalled, this has also matched the demand but there are still plenty of new and used cars to choose from.

covid auto loans

So much that there are quite a few generous financing deals and incentives to take advantage of.

Covid-19 poses unique challenges for each person so determine whether you feel comfortable buying a new car right now and if you can truly afford it.

There is no harm in waiting or saving up more money. However, if you feel you’re ready to finance a vehicle, take your time and do your research.

Start shopping around by comparing our top 3 auto lender recommendations and compare interest rate offers to see what works best for you.

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