Student Loan Limits: What You Should Know

When looking for student loans, there are a number of things to compare, and loan limits is just one example. Because of low loan limits, students often have to get multiple loans to cover all of their expenses. We suggest getting a federal loan first, if eligible, because they offer better borrower benefits, such as deferment and income based repayment plans. However, if you’ve hit your federal limit and still come up short on funds, private loans can be a good way to fill the gap.

Federal loan limits change depending on year of school, as well as whether a student is dependent or independent. Check out the table below for the complete loan limit information.

Loan TypeAnnual Loan LimitLifetime Limit$5,500 Undergrad.
$8,000 Grad.$27,500 Undergrad.
$60,000 Undergrad. & Grad.Year 1: $3,500
Year 2: $4,500
Year 3+: $5,500Year 1: $3,500
Year 2: $4,500
Year 3+: $5,500
Grad: $6,500Year 1: $6,000
Year 2: $6,000
Year 3+: $7,000
Grad: $12,000

While federal loans have some stricter limits, most private loans allow students to take out up to the cost of attendance, minus whatever other aid the student receives (though this can be flexible). Private loans can be used for just about any school-related expense, such as housing, computers, tuition, and even food. If your federal aid did not cover all school expenses, then private loans can be a great way to pick up the slack.

Compare your private loan options today!

ScholarshipPoints members, login to ScholarshipPoints now to redeem the code LIMITS for 15 scholarship points. Code expires on Wednesday, June 22nd, 2011.

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Online Banking for College Students

Many college students will open their first bank account just as they leave for campus.  Others have had bank accounts since they were kids.  Student banking may be a new concept to you, or you may have had a bank account for quite a while. Either way a student bank account is essential for managing your money and for the transfer of your grant or student loans funds. There are a number of key aspects to think about when choosing your bank and how to use it effectively. Read more for all you need to know about banking.

What are the typical considerations for Student Banking or when opening a new account?  There are many.  The first place to start would be by asking an adult, counselor or financial aid officer.  Otherwise, visit a number of websites offering online banking services.  Once you have some general information, walk into your local bank and ask for advice from there team.

In general, most student simply need a checking account.  If you have savings or additional cash, you may consider a savngs account which will earn you interest on the amount deposited.  A CD or Money Market account might pay you more interest on your savings but may also have some string attached.

For more information, visit: Student Banking from StudentPlatinum.com

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The ScholarshipPoints $10,000 Scholarship Winner Has Been Posted!

Calling all ScholarshipPoints members! The $10,000 scholarship winner has just been posted on the winner’s page, so head on over to ScholarshipPoints.com to see if you’re the lucky student who’s won! Don’t forget, if the winner doesn’t claim the prize within 3 days, a new winner will be drawn!

For those of you who haven’t heard, ScholarshipPoints.com is a program developed to give back to students and help with rising education costs. They give away thousands of dollars each year through monthly scholarship drawings, and they even give away a whopping $10,000 to one lucky student quarterly! It’s free to join and easy to use. Just sign up, earn points by completing activities, then enter those points into drawings for scholarships! You can even enter the HowToGetIn Sponsored drawing

Not a ScholarshipPoints member? Join now and start earning scholarship points!

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Beware of Hidden Textbook Costs!

When you are preparing for college and creating a budget, do not neglect the high cost of textbooks and supplies. Some consider these costs to be “hidden” as they are not listed in the college brochure or website and are not usually seen until you are actually enrolled in a college course. College-level textbooks can be as much as 150-200+ dollars, and another hidden cost, lab fees can range from 80-200 dollars for some courses.

How do you deal with hidden costs when paying for college? If you have secured federal aid and scholarships, but still need to fill this gap, you can turn to private student loans. Private loans can take as little as one week to apply for and obtain, making them a sure fire way to pay for these hidden costs as they arise.

Before you secure a loan, or dish out the extra cash, however, you should check out ways you can save by buying used books, or by renting your textbooks! Yes, textbook rental has become a hugely popular, and I think is a very eco-friendly, alternative to buying new textbooks. If you are interested in learning more about renting check out: BookRenter.com, or find cheap textbooks on CampusX.com.

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F Stands for FUN!!!!!?

F stands for FUN!!!!?
By Marcia Y. Cantarella, Author, I CAN Finish College: The Overcome Any Obstacle and Get Your Degree Guide.

Fun

Especially if you go away to college it is like all the blocks to fun are removed. No more parents watching and nagging about when you get home, no one checking how many beers you had or if you used a condom. Whoo whoo—college is a party! That is why there are those lists of the best party schools. And if your school is not on the list then you will fix that!

Truth is fun is fun. It is a good thing. We all need some of it in our lives. A good belly laugh or pick-up basketball game can even extend your life and keep you healthy. Relationships are supposed to be fun (not that they always are) and it is healthy to have strong social ties and networks for both professional and personal gratification. So hanging out is fun and good for you. I am all for fun. Do it myself a lot. But there is this other word—BALANCE. That is key when you think of fun. You cannot succeed in college and have all fun all the time. You need to work some, sleep some, eat some, and play—some. Balance it all out.

The worst case scenarios for college students are the ones that began as fun and ended badly. The drunken car accident that takes a life is not fun anymore. The fight that escalates to someone getting really hurt and hospitalized is not fun. Date rape is not fun. Throwing up is not fun. Being expelled is not fun. Falling off the campus monument and breaking a leg is not fun. Failing your courses because you were too hung over to get to class or do the work is not fun. Failing classes because you were in your room gaming is not fun. Explaining to your family that scraped and saved to send you to college why you are coming home because you were too busy having fun is not fun. Losing your financial aid because you failed classes having fun is not fun.

There is something in the hormonal make-up of those under 30 that, it is suggested, lead to feelings of invulnerability. The bad stuff happens to other people, but won’t happen to you. There is a reason young folks go to war. That invulnerability allows them to take risks that those of us older and wiser would call nuts. But bad stuff does happen. There are whole websites devoted to that bad stuff like hazing deaths and drunk driving outcomes and ugliness resulting from substance abuse. Things that start as fun when taken to extremes are not fun in the end.

So there is another word you need to learn in college and it is NO. That is no, thanks, no more beer. Or no thanks I can’t go out tonight. Or no that is nuts and I am not doing it. Or no that is wrong and I am not doing it. Or no this is not fun anymore. This is not to suggest that you have No fun. But that you have sane fun, balanced fun. Fun that won’t make you fail.

( For more on this topic in detail see I CAN Finish College chapters 6, 8 and 9. www.icanfinishcollege.com)

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“What Are Your Summer Plans?” Results

Thanks to all of you who voted in our recent poll, “What are your summer plans?” We’re back to bring you the results! Not surprisingly, it looks like the majority of voters (roughly 37%), plan to work this summer, while taking classes came in second at 24%. It’s awesome to see so many students making the most of their summers, but I’m glad 21% of students are also taking some time to relax.

It’s interesting to see that travel (11%) beats out getting an internship (7%), especially considering the growing importance of internships. In this economy, getting ahead through internships is a great alternative for those who can’t find jobs, though instead of money, you’d be getting college credit. This seems counterintuitive, but getting real world experience can helps students land jobs faster and may even open a lot of doors in the process.

To all of those students who plan on working, if by the fall you still come up short on tuition money, don’t forget, private loans are available year round to cover any additional expenses you may have! Just don’t forget to have fun this summer too, and take some time to relax; after all, college is stressful enough, paying for it shouldn’t have to be!

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What are your summer plans?

Do you have a job lined up for the summer? Are you planning a great vacation? Taking a summer class? Whatever you’re up to, we want to know about it! Take our poll to let us know what you’re plans are this summer…

ScholarshipPoints members, login to ScholarshipPoints now to redeem the code SUMMERPLANS for 15 scholarship points. Code expires on Wednesday, June 1st, 2011.

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Tools to Negotiate Car Deals in a Tough Market

Courtesy Edmunds.com

As you may have read, this isn’t expected to be a great summer to buy a car, whether you’re looking to buy new or used.

Price increases from Japanese manufacturers due to the tsunami and the subsequent nuclear disaster, combined with tight supplies and higher prices of used cars, are making steals hard to find. (The average price of a new Honda Civic has risen more than $1,600 since March, according to the auto site Edmunds.com.)

But there are some online tools that can help you calculate what your estimated costs will be, so that you’re in the strongest position possible to negotiate with a seller. EBay, for instance, recently introduced an auction app for the iPhone.

Now, Edmunds.com is making available a simplified “foursquare” calculator, which mimics the process dealers use to crunch sales numbers.

As its name suggests, the calculator has four components: the estimated cost of the car you want to buy; the estimated cost of your trade-in; the impact of your down payment; and the cost of your loan if you’re financing.

You enter your ZIP code, the kind of car your want to buy, the kind you have to trade in (which might be worth more than you think because used cars are commanding premium prices) and the amount of your down payment. Then, it spits back numbers including what your monthly payment would be at a given interest rate. You can print out the one-page summary and take it with you to refer to as you negotiate.

Along with the calculator, Edumnds offers these summer car-shopping tips:

If you don’t absolutely need a car right now, wait until the fall and re-evaluate the market.If your lease is expiring this summer, ask about extending it for a few months.Consider buying out someone else’s lease as a bridge until inventories improve. One place to do this is LeaseTrader.com.Used cars aren’t always the best deal. Many one-year-old cars are almost as expensive as new ones, especially if you finance the purchase.

Are you in the market for a car? What kind of pricing have you encountered?

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Saving for College

There are a lot of ways to save for college, and some can be better than others. In this blog I’ll describe some of the best college savings options and what the advantages and disadvantages are.

529 Plans are education savings plans based on state. Each state has different requirements and fees so it’s important to check your states restrictions before opening a 529. There are 2 types of 529 savings plans- Prepaid tuition and College Savings plans.

Prepaid Tuition Plan- Prepaid tuition plans allow parents to lock in a tuition rate and save for a particular school’s tuition.

Advantages:

Lock in a tuition rate before inflationDoes not cover expenses

Disadvantages:

Applicable for one schoolResidency restrictions

College savings plans- These plans allow tax advantaged money to be deposited into an investment account for the beneficiary. Investment choices include stock mutual funds, bond mutual funds, and money market funds among others.

Advantages:

If you invest wisely, 529 plan can grow without making further depositsCovers any school expenses

Disadvantages:

Will reflect the stock market, so you can end up losing money

With savings bonds, the owner must be at least 24 years old (will not transfer like other savings plans) and any interest is tax free if used on qualified education expenses. The bonds must be cashed in the year you are paying tuition.

Advantages:

Disadvantages:

Interest exclusion can be gradually reducedCan have complicated rules

These are a type of custodial account created on behalf of a beneficiary for qualified education expenses. Like 529 plans, you have the option to invest you money, but unlike the 529, Coverdell Education Savings Accounts allow you to invest in almost anything.

Advantages:

Nearly unlimited investing optionsCan make tax-free withdrawals to cover private elementary and secondary education expenses

Disadvantages:

Annual contribution limitsExcise tax on excess contributions

Custodial accounts are accounts made by an adult (could be parent, grandparent, guardian, etc.) With these accounts the holder can deposit assets, money, antiquities and other income into an account for the minor to receive when he or she turns 18.

Advantages:

No penalty for education withdrawalsFirst $950 is tax-freeAnyone can contribute and there are no income or contribution limitations

Disadvantages:

Money can be used for anything (not just education) when the child reaches age of majorityYou can’t switch the account to another family member

Now that you know about the basic savings plans, here’s a tool that can help you decide which one is best. The college savings calculator can provide estimates based on interest, expected tuition cost and the number of years you want to save.

Additionally, we’ve put together a chart to help you compare college savings plans.

View the original article here

Poll Results: Student Loan Debt

Now that graduation season is upon us, we asked students to share with us the amount of debt they have accumulated (and will soon need to repay). Here are the results of our poll:

It’s awesome, albeit surprising, to see the number of students graduating debt free- conGRADulations! For everyone else, loan repayment might be a growing concern as that 6 month date draws nearer. If you’re concerned about making payments for whatever reason, there are some steps you can take to either lower or postpone your repayment.

First, I would suggest consolidating your loans. Consolidation offers a number of benefits including lower monthly payments; Plus, it makes keeping track of multiple loans easier. To defer federal loans, you will need to contact the Department of Education Direct Consolidation department. To consolidate private loans, grads will need to contact a consolidation lender. Interested? Read more about consolidation in our blog, From our Archives: Consolidation.

If you are unemployed or do not make enough money to repay loans, I suggest looking into an Unemployment Deferment or Economic Hardship Deferment. Deferments allow you to postpone payment for a certain amount of time, allowing grads a little extra time to get on their feet financially. While available for most federal loans, deferment options vary by private lender, so make sure to ask if this option is available for you!

Here is a link to the Poll – Click Here and Show us your Debt!

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NACAC Elist and Other Options

Questions about college? 1-866-944-2648 Select Category Applying to College  (54)    College Applications  (32)    FAFSA  (9) College Admissions  (214)    Graduate Admissions  (2) College Life  (48) College Rankings  (11) Community Colleges  (2) For-Profit Colleges  (1) High School  (5) Online Education  (7)    online classes  (4)    online degrees  (3) Paying for College  (100)    College Costs  (8)    Federal Student Aid  (3)    Financial Aid  (55)    Pell Grants  (2)    Private Student Loans  (7)    Scholarships  (28)    Stafford Loans  (3) Preparing for College  (43)    ACT  (5)    College Counselors  (9)    SAT  (5)    Test Prep  (14) Selective Colleges  (3) Uncategorized  (1) Select Month May 2011  (6) April 2011  (8) March 2011  (7) February 2011  (7) January 2011  (6) December 2010  (6) November 2010  (7) October 2010  (6) September 2010  (10) August 2010  (4) July 2010  (2) June 2010  (5) May 2010  (6) April 2010  (8) March 2010  (7) February 2010  (8) January 2010  (5) December 2009  (10) November 2009  (10) October 2009  (8) September 2009  (2) August 2009  (5) July 2009  (3) June 2009  (11) May 2009  (11) April 2009  (10) March 2009  (17) February 2009  (2) January 2009  (14) December 2008  (10) November 2008  (10) October 2008  (9) September 2008  (5) August 2008  (3) July 2008  (4) June 2008  (6) May 2008  (3) April 2008  (4) March 2008  (7) February 2008  (8) January 2008  (8) December 2007  (11) November 2007  (7) October 2007  (10) September 2007  (28) August 2007  (2) July 2007  (7) June 2007  (6) May 2007  (6) April 2007  (1) Below are a list of options for network in the College Counseling, Admissions and Financial Aid Field.

http://www.linkedin.com/groups?mostPopular=&gid=1771062  - "College Counselors : Admissions and Financial Aid" https://groups.google.com/group/admissions-professionals?hl=en
http://groupspaces.com/NACAC/ Feel free to list others in the comments section below.

This blog is sponsored in part by:

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Seniors, graduating with debt?

For seniors, graduation is quickly approaching! Unfortunately, so are those pesky loan repayments, yikes! Take a few seconds to vote on our most recent poll to let us (and all those soon-to-be-graduates out there) know how much debt you’ll be graduating with, and see where you fall on the scale!

View Student Loan Debt Survey Results summarizing the results (as of May, 15)

If you’re graduating with loans, make sure to look into loan consolidation to help with repayment!  Still in school?  Find a better way to pay search for scholarships or compare student loans.

View the original article here

Poll Results: Student Loan Debt

Now that graduation season is upon us, we asked students to share with us the amount of debt they have accumulated (and will soon need to repay). Here are the results of our poll:

It’s awesome, albeit surprising, to see the number of students graduating debt free- conGRADulations! For everyone else, loan repayment might be a growing concern as that 6 month date draws nearer. If you’re concerned about making payments for whatever reason, there are some steps you can take to either lower or postpone your repayment.

First, I would suggest consolidating your loans. Consolidation offers a number of benefits including lower monthly payments; Plus, it makes keeping track of multiple loans easier. To defer federal loans, you will need to contact the Department of Education Direct Consolidation department. To consolidate private loans, grads will need to contact a consolidation lender. Interested? Read more about consolidation in our blog, From our Archives: Consolidation.

If you are unemployed or do not make enough money to repay loans, I suggest looking into an Unemployment Deferment or Economic Hardship Deferment. Deferments allow you to postpone payment for a certain amount of time, allowing grads a little extra time to get on their feet financially. While available for most federal loans, deferment options vary by private lender, so make sure to ask if this option is available for you!

Here is a link to the Poll – Click Here and Show us your Debt!

View the original article here

Income Based Repayment: Can It Work For You?

If you’re like many students, then paying off your loans might be an overwhelming burden. This is when Income Based Repayment can help. In this blog I will outline what income based repayment is, who is eligible, and how to apply.

IBR is a repayment plan offered for most federal loans. The standard 10 year repayment plan calculates monthly payments based on the amount of your loans, but IBR is different because it is determined based on your income. If you have a high debt to income ratio, then IBR can help to lower your monthly payment amounts.

IBR is available for all federal loans except for Parent PLUS, and Parent PLUS consolidation loans. Eligibility is determined by income, and family size. Below is a chart for determining monthly payments. The amounts shown are the maximums, and an individual’s monthly payment could potentially be lower.

Source: U.S. Department of Education

If your IBR repayment amount is lower than if you were on the 10 year plan, then you are eligible. But if you notice the bottom left of the chart, numbers can start to get high. In these situations, a standard repayment plan would have lower monthly payments, and therefore, a person would be ineligible for IBR.

While some of the benefits are obvious (like lower monthly payments) others might not be. Here are some other perks you may not be aware of.

Interest Payment- If your loan payments do not cover interest accrued, the government will pay any unpaid interest for up to 3 years.Cancellation- After 25 years of repayment, the remainder of the loan can be cancelled.Forgiveness- Like most federal loans, public service employees can have their loans forgiven after 120 consecutive payments (about 10 years).

While IBR can initially seem like a great option, there are a couple of downsides I should mention. Because your monthly payments would be lower, the overall term of the loan would be longer. This is an issue because a longer term means more interest accruing, and therefore, you will pay more money in the long run.

Another downside is that IBR requires yearly documentation to be provided to your lender. Each year your loan is adjusted based on your income, so if you get a raise, this will be reflected in your monthly payments.

To apply for income based repayment, you need to contact the servicer of your federal loan. For Direct loans, this would be the Department of Education’s Direct Loan Center.  If you do not know who services your loan, go to www.nslds.ed.gov and complete a “financial aid review.”

If your loans are private student loans, you are not eligible for the federal IBR program, but if you are interested in lowering your monthly payments, you can look into Student Loan Consolidation.

View the original article here

Financial Aid Discussions and Forums

So now most of you are getting your acceptance letters and your financial aid award letters.  Hopefully, it is good news all around.  However, if you have questions about financial aid and how you are going to pay that hefty tuition bill, here are some resources:

Let us know if you find other useful websites...

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A Frightening "F" Word is also FINANCE

A Frightening “F” word is also FINANCE
By Marcia Y. Cantarella, Author, I CAN Finish College: The Overcome Any Obstacle and Get Your Degree Guide.
In the last posting we talked about “ F” as in Failure also being tied to three other “F” words including fear, finances and fun. Finances are a huge reason so many students fail to complete college. And fear is also part of that financial reason because again so many do not ask for help with finances because they are afraid of looking dumb or because they just don’t know that help is there or who to ask. As a stranger in this new place called college, a good first question is to ask would be who the money folks are. The financial aid office carries the same scary aura that we attach to most institutions that deal with money. Money is such a huge taboo topic and few know enough about it and fewer still seek the kind of education that they need to make good choices about money. Financial aid is called aid because aid means help. So think of this as the financial help office. This is the office that can help you with the money to pay for college. Sadly they cannot print money. But they can help you find the ways that you can reduce the amount that comes out of your pocket to pay for your education.

Fear also plays into the fact that some parents are afraid to reveal too much about their financial situations—tax returns and such and so do not take advantage of tax breaks that could save literally thousands of dollars from school costs. Interestingly it is the more affluent, financially savvy—who need the funds least who take advantage of the tax breaks that are actually meant for the more needy. This is not $mart.

Money and work go together. You get paid for working in most cases. Well that also applies to getting your out-of-pocket expenses for college reduced. You may have to do some work to research scholarships that you could be eligible for. Websites like www.edvisors.com are a goldmine of information on financial aid and strategies. You certainly have to work hard to get the kinds of grades that will get you the best scholarships. You have to work to fill out the applications for various funds including the federal form called the FAFSA which enables you to access federal college funding through programs like Pell grants.

Some of you will work while you are in college to make up the difference between what you get in financial aid and what you have to pay yourself. The best is work on campus where they will be more understanding of your need to leave work to attend a class or to take off during exams. But most will be working full or part time in places ranging from Starbucks to corporations. Working while at school may be necessary but it can also be a trap. If your job results in your taking too long to get your degree you may lose in several ways. You may not have time to study and so fail courses which then puts you behind and impacts your GPA and then that can impact your scholarships including federal aid. If you take more than 4 years to get your degree then you lose your eligibility for federal and sometimes state aid. And if you keep deferring getting the degree you are also deferring the shot at higher paying jobs. You could be taking one step forward and two back! So it is best, if you can, to reduce the hours you work so as to expedite getting through school with the best grades you possibly can. Again your financial aid (help) office can maybe find enough if you are a good student to enable you to take that change in jobs.
Money and math also go together. Do the math. Figure out how much you will need to live on while in college and begin to save now—maybe fewer movies out and more Netflix in. Figure out how much working is costing you in deferred wages or in money you will end up having to pay out once you have timed out of federal aid eligibility. Someone in your financial aid office can help you do this math—just ask for help—that is what they are there for. When you see the numbers you may be motivated to do things a bit differently. Finances are about dollars and sense. Use yours well.
( For more on this topic in detail see I CAN Finish College chapter 2) www.icanfinishcollege.com)

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Compare Private Student Loans

There are a lot of private student loans out there, so finding the best one for you can be a difficult and confusing experience. Taking out a student loan is a big decision, and like all big financial decisions, you must be well informed before applying.

A tool that could prove very helpful to you in your search for a good deal is our private loan comparison tool. It allows you to compare some of the most popular lenders and review what benefits their loans offer. Plus, if you find a good option, you can apply for a private loan right there, making it a much simpler process. While the comparison tool is a great help, you also have to know what to look for. To help with this, make of list of what loan benefits are most important to you, that way, you can more easily narrow down your choices.

Some things to consider include:

FeesInterest RatesRepayment OptionsDeferment optionsCosigner requirements and release options

If you’re worried about taking out private loans because of your credit score, then a good option is to apply with a cosigner. While not always required, apply with a cosigner can do two things. First, it can help to qualify you for a loan as most first-time students haven’t built up enough credit yet. Second, it can potentially lower your loan interest rate, giving you a better deal over the term of the loan.

Shopping for student loans can be confusing, but it doesn’t have to be. Comparing private student loans is easier than ever with this tool, so hopefully, everyone the loan they need!

ScholarshipPoints members, login to ScholarshipPoints now to redeem the code COMPARETOOL for 15 scholarship points. Code expires on Tuesday, May 24th, 2011.

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Getting the Best Rate on a Car Loan

Jim R. Bounds/Bloomberg News

When it comes to buying a car, you’re often far better off seeking a loan directly from a bank or credit union than going through the dealership, because dealers often add hidden finance charges.

That’s the conclusion of a report on car dealer financing from the Center for Responsible Lending.

The group examined data from bonds backed by car loans and survey information from 25 auto finance companies with a combined 1.7 million accounts and found that dealers often marked up interest rates but didn’t disclose the markups. In 2009, the average markup was 2.47 percentage points, and the average extra payment was $714 per consumer over the life of the loan.

As car sales dipped in the slow economy, dealers felt pressured to make more money on the “back end,” as it’s known in the industry — that is, through making car loans and selling extras like accessories and service contracts to car buyers. Car sales dropped 20 percent from 2007 to 2009, but markup volume grew 24 percent during that period — to $25.8 billion from $20.8 billion — mostly due to increased markups on used cars, the report found.

While the markups can raise the cost of new car loans, used car loans usually get higher markups, as do borrowers with less than stellar credit histories. Say, for example, a borrower’s credit score qualifies him for a 60-month used car loan of $17,500 at 8 percent interest, but the dealer adds a markup of 2.5 percent. At 10.5 percent, the loan costs $1,278 more. (That amount is much higher than the average $714 because the average includes loans with no markups. Such loans are probably made to borrowers with very good credit, or those savvy enough to know what sort of rate they would qualify for based on their credit score, said Kathleen Day, spokeswoman for the Center for Responsible Lending.)

The extra charges are often particularly burdensome for less credit-worthy borrowers, and can increase the likelihood that such consumers will default on the loan or have the car repossessed, the report said.

Yet most consumers aren’t aware that dealers can mark up rates without their consent and often don’t know what the interest rate is on their car loan. Dealer finance staff members may tell buyers the rate quoted is “the rate that is available,” rather than the “best rate they qualify for,” to avoid legal challenges over deceptive practices, the report said. Consumers who said they believed their dealer gave them the “best” loan possible actually paid rates 1.9 to 2.1 percentage points higher than others with similar credit standing.

The report proposes having finance companies pay dealerships a flat fee for arranging loans, which would compensate them for their time but reduce the potential for abuse. A federal requirement for an interest rate disclosure, like those used for mortgage loans, is also warranted, the report said. (Sounds like yet another job for the new Consumer Financial Protection Bureau)

Meantime, what can consumers do? The report makes the following suggestions:

Consider seeking preapproval for financing from a bank or credit union before visiting the dealership. At the very least, it will provide a point of comparison if the dealer makes a loan offer.If you do obtain financing from the dealer, realize that everything in the loan is negotiable — including the interest rate.Check your credit scores ahead of time to help estimate what sort of interest rate you should be able to obtain.

Have you tried negotiating finance rates with a car dealer? What was the result?

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Annual Percentage Rates vs. Annual Percentage Yield

For loans (including private student loans), student credit cards or investments that involve compounding interest, there are two popular interest rate related terms.

Annual Percentage Rate, or APR, is a measure of how much interest will be on an annual basis without taking into account compound interest.

Annual Percentage Yield, or APY, is the same interest rate measure, but accounts for compound interest – a better measure of how much you will actually pay in interest. Banks and credit card issuers often express credit card interest rates in APR, in order to better hide just how much interest would cost.

Learn more, Read:

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Getting the Best Rate on a Car Loan

Jim R. Bounds/Bloomberg News

When it comes to buying a car, you’re often far better off seeking a loan directly from a bank or credit union than going through the dealership, because dealers often add hidden finance charges.

That’s the conclusion of a report on car dealer financing from the Center for Responsible Lending.

The group examined data from bonds backed by car loans and survey information from 25 auto finance companies with a combined 1.7 million accounts and found that dealers often marked up interest rates but didn’t disclose the markups. In 2009, the average markup was 2.47 percentage points, and the average extra payment was $714 per consumer over the life of the loan.

As car sales dipped in the slow economy, dealers felt pressured to make more money on the “back end,” as it’s known in the industry — that is, through making car loans and selling extras like accessories and service contracts to car buyers. Car sales dropped 20 percent from 2007 to 2009, but markup volume grew 24 percent during that period — to $25.8 billion from $20.8 billion — mostly due to increased markups on used cars, the report found.

While the markups can raise the cost of new car loans, used car loans usually get higher markups, as do borrowers with less than stellar credit histories. Say, for example, a borrower’s credit score qualifies him for a 60-month used car loan of $17,500 at 8 percent interest, but the dealer adds a markup of 2.5 percent. At 10.5 percent, the loan costs $1,278 more. (That amount is much higher than the average $714 because the average includes loans with no markups. Such loans are probably made to borrowers with very good credit, or those savvy enough to know what sort of rate they would qualify for based on their credit score, said Kathleen Day, spokeswoman for the Center for Responsible Lending.)

The extra charges are often particularly burdensome for less credit-worthy borrowers, and can increase the likelihood that such consumers will default on the loan or have the car repossessed, the report said.

Yet most consumers aren’t aware that dealers can mark up rates without their consent and often don’t know what the interest rate is on their car loan. Dealer finance staff members may tell buyers the rate quoted is “the rate that is available,” rather than the “best rate they qualify for,” to avoid legal challenges over deceptive practices, the report said. Consumers who said they believed their dealer gave them the “best” loan possible actually paid rates 1.9 to 2.1 percentage points higher than others with similar credit standing.

The report proposes having finance companies pay dealerships a flat fee for arranging loans, which would compensate them for their time but reduce the potential for abuse. A federal requirement for an interest rate disclosure, like those used for mortgage loans, is also warranted, the report said. (Sounds like yet another job for the new Consumer Financial Protection Bureau)

Meantime, what can consumers do? The report makes the following suggestions:

Consider seeking preapproval for financing from a bank or credit union before visiting the dealership. At the very least, it will provide a point of comparison if the dealer makes a loan offer.If you do obtain financing from the dealer, realize that everything in the loan is negotiable — including the interest rate.Check your credit scores ahead of time to help estimate what sort of interest rate you should be able to obtain.

Have you tried negotiating finance rates with a car dealer? What was the result?

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