Paying for Business Expenses Applying for a business credit card is something a small business should seriously consider for itself. Business credit cards can provide a range of benefits to a business. They allow a company to build up credit for better borrowing conditions down the road. They’re also quite easy to apply for. In this article, we’ll go over how to apply for a business credit card and other important points to note. What Is a Business Credit Card? A business credit card is a credit card that is intended for business expenses. These cards are not meant for any individual’s personal use, but they are available to businesses of all sizes. What Is a Business Credit Card Used For? Business credit cards are meant for business expenses, and as such, they come with several perks that you wouldn’t get with a normal credit card. Business credit cards typically have far higher credit limits than normal cards, but they are also harder to qualify for. [youmaylike] As a business phenomenon, business credit cards vary their offers greatly, and certain cards are meant for certain businesses. They are also highly customizable when it comes to individual payment terms. Businesses don't always have consistent incomes like individuals do, and business credit cards handle this problem. These cards are used to gain access to a long line of credit, to control employee spending on business expenses and more. One of their other common uses is to make accounting easier, as putting all business expenses on one separate account makes reporting to the Internal Revenue Service easier. In the end, there are many uses for a business credit card. Why Would I Need a Business Credit Card? You might not need one, but if you run a business, you’ll be leaving money on the table by not at least looking into them. Business credit cards can solve many of the problems business owners face. If you need employees to make purchases for the business, a business credit card is the safest option. These cards can be given to authorized users, a status you can easily give to any of your employees. From here, these cards make it easy to monitor employee spending and spot any discrepancies. You can attach customized user privileges to each card to limit spending and place limits on where the card can be used. As mentioned, if you feel like your credit is too limited, business credit cards are a sure way around low credit. According to the American Bankers Association, the average monthly payment on a business credit card is twice as high as the average payment on a normal one. If you’ve found yourself annoyed with the Internal Revenue Service over the complicated reporting processes for business owners, you’re not alone. This is where a business credit card can solve another problem. Simply handing over your business credit card statements to your accountant will make them love you. It will also provide them with the information they need to predict future spending. Another great use for a business credit card is lifting your liability for debts. Liability for credit card debt is determined by the liability offered by the card. If you’re using a personal credit card for business expenses, you are liable for all debts. On the other hand, if you use a business credit card with commercial liability, your business is liable for any debts, which changes the game. Keep in mind that some cards offer joint liability, which leaves both you and your business liable for any debts. Make sure you know what you’re getting into before signing any paperwork. Lastly, just as personal credit cards offer rewards programs, so do business cards. The main difference here is that business credit card rewards are tailored to your business needs. How to Apply for a Business Credit Card Before you apply for a business credit card, you should make sure you’re eligible. For the most part, you only require the following to be able to apply for one: A legal name for your business. A business structure to apply with, such as a Limited Liability Corporation. An explanation of the nature of your business. You’ll typically be given a list of industry types to choose from. A tax ID number issued by the Internal Revenue Service Your roll in the business you’re representing Various business/financial information including: Annual revenue. Number of employees. Length of time in business. Estimated monthly expenses. If you have this information ready, you can apply for a business credit card. At this point, it would be wise to shop around and find the best option for your business. Your decision on the business credit card you choose will have larger ramifications than your choice of a personal credit card. Applying for a business credit card is much the same as applying for a personal one. There are a few differences, but the main thing to remember is that business credit cards are taken more seriously than normal ones, so you’ll have to face a higher bar of entry. This doesn’t mean getting a business credit card is hard, but it does mean you need to arrive more well-prepared than you normally would. To make things easier, you can prepare for certain obstacles in advance. You may need to sign a personal guarantee that you will pay off any debts. Also keep in mind that if you’re the one applying for a business credit card, and your business doesn’t already have one, they will conduct a personal credit check. It may be best to try to optimize your personal credit if you plan on applying for a business credit card in the future. Some Options at a Glance Here are some of the most popular options for small business credit cards: Chase Inc Business Preferred This is a great option for a few reasons. With the Business Preferred card from Chase Inc, you get 80,000 ultimate reward points when you spend $5,000 with the card in the first three months. The card also provides generic, but highly useful benefits for business owners. Business Platinum Card from American Express The Business Platinum is ideal for businesses that spend a lot on flights and travel. This card offers numerous rewards on flight and hotel expenses and makes sure you get something serious back if you use it for these expenses. Chase Inc Business Unlimited The Chase Inc Business Unlimited offers unlimited 1.5% cash back. While we’ve said enough already, they also offer several other perks that are overshadowed by their first one.
What Kind of Vehicle Can You Afford?
Welcome to My Finance Mastermind’s custom auto loan calculator. Are you considering purchasing a vehicle, but you can’t afford to pay for it in cash? There’s nothing wrong with taking out an auto loan. In fact, it can be a smart financial decision that can help you drive off the lot in your dream vehicle sooner.
By completing a few simple inputs in our auto loan calculator, such as the loan amount, the length of time and whether the vehicle is new or used, you can figure out how much your monthly auto loan amount would be to see if it’s affordable and makes sense.
In this article we’ll also look at refinancing your auto loan, gap insurance, how to avoid high interest, how to keep monthly payment down and more.
Basic Functions of the Custom Auto Loan Calculator
To get the most out of the custom auto loan calculator, you’ll need to fill in some basic information. Here are the fields.
- How much you are looking to borrow: This is the total amount of money you need to borrow to purchase the vehicle. It’s the purchase price of the vehicle minus your down payment. The difference between those two figures is how much you’ll need to borrow as an auto loan to purchase the vehicle.
- For how long: Auto loans are usually between two and eight years in length. However, try to limit yourself to a maximum of five years, otherwise you could end up in a situation of negative equity, where you owe money on a vehicle that no longer works.
- If your vehicle is new or used: This is self-explanatory. Select whether your vehicle is new or second hand.
- Your interest rate: This is the interest rate you’re being charged on the auto loan.
Once you enter the above information, the auto loan calculator will output the following helpful information.
- Estimated monthly payments: This is the estimated amount you’re required to pay for the auto loan on a monthly basis. Make sure the payments fit within your budget. If the payments are too high, you might consider making a larger down payment or buying a cheaper vehicle.
- Total principle paid: Each payment is made up of a portion of principal and interest. This is the total amount of principal you’ll pay over the life of the auto loan.
- Total interest paid: This is the portion of interest you’ll pay over the life of the auto loan. The longer the length of the car loan and the higher the interest rate, the more this will be. By limiting both, you can save yourself some interest.
Do you currently have an auto loan, but you feel that the monthly payments are too high? Or perhaps you feel that the interest rate is too high. Refinancing your auto loan could help you save money. When you refinance your auto loan, you replace your existing one with a new auto loan that has different terms. You do that by paying off your existing auto loan with a new auto loan
There are several reasons you might want to refinance your auto loan. For instance, let’s say when you were approved you had bad credit. For that reason, it comes with a higher interest rate. But if your credit has improved since then, you could refinance your auto loan and save on interest with a lower interest rate. Instead of accepting a lower monthly payment, you could choose to keep your monthly payment the same and pay down your auto loan even more aggressively.
Another common reason to refinance your auto loan is to lower your monthly payment. For example, if you find the payments are unaffordable or you’re looking to qualify for a mortgage, but the auto loan payments are hurting your ability to qualify, you might consider refinancing. You can lower your monthly payments in a couple ways: by lowering the auto loan’s interest rate or by stretching it over a longer period. Just keep in mind that by stretching your auto loan out over a longer period you’ll pay more by way of interest over the life of the auto loan.
If someone has co-signed on your auto loan and you want to remove them, you might consider refinancing your auto loan. However, in order to be able to refinance you’d need to be able to qualify for the auto loan on your own.
These are just a few of the most common reasons why you might choose to refinance.
Besides the auto loan amount, the interest rate has a major bearing on how much the auto loan will cost you over its lifetime. If you have a higher interest rate, you will end up paying more toward interest on your auto loan than toward the principal. Furthermore, having a higher interest rate on your auto loans means that you’ll qualify for a lesser auto loan amount.
The interest rate you pay on your auto loan depends on several factors, including your credit score, where interest rates are at and competition among lenders.
If you have a good credit score, you should have no problem getting an auto loan at the best interest rate available. However, if your credit score is damaged, you’ll likely have to pay a higher interest rate.
Likewise, where interest rates are at also has a bearing. For example, if interest rates are currently high, you’ll likely have to pay a higher interest rate on your auto loan than at a time when interest rates are low.
Competition can also influence the interest rates on your auto loan. All things considered equal, the more competition among auto loan lenders, the more likely the interest rate is to be lower.
Gap insurance is an optional type of auto insurance you may have heard of. Gap insurance, short for guaranteed auto/asset protection, protects you in case your vehicle is stolen or totaled. It’s also referred to as gap protection, because it covers the gap between what your car is worth and the amount you owe on your auto loan.
Gap insurance comes in handy in situations where your auto loan amount is greater than the market value of your vehicle. Auto dealerships usually offer it when you’re buying a new car.
Gap insurance is often an overlooked type of insurance coverage, but it can come in handy in certain instances. For example, when you buy a new car, it almost always loses value the moment you drive it off the lot. This creates a gap right off the bat between how much the car is worth and the amount of your auto loan.
Some vehicles don’t hold their value as well as others. If you own a vehicle that depreciates quickly, it can put you in a negative equity situation.
If you stretch your auto loan out over seven or eight years, this has the potential to create a gap between your auto loan and your vehicle’s value.
For the three reasons mentioned above, you might consider signing up for gap insurance to protect yourself.
Understanding the Break-even Point
It’s not a pleasant situation to be shopping for a new car when you owe more on your existing one than it’s worth. The break-even point of an auto loan refers to when your vehicle’s trade-in value is roughly the same as the amount that is currently outstanding on your auto loan.
If you trade in your car before the break-even point, you could end up having to fork over some of the money from your savings to cover the auto loan. Why? Because you might owe more on your loan than your car sold for.
If you’re financing a new vehicle, the break-even point usually occurs four or five years in with most auto loans. By knowing the break-even point, you can decide when is the best time to sell or trade in your vehicle.
How to Avoid High Interest
The simplest way to avoid high interest is to negotiate a lower interest rate, and to shop around for the best auto loan.
By negotiating a lower interest rate, more money of every auto loan payment will go toward principal and less toward interest. This in turn will help you pay off your auto loan sooner.
It’s also a good idea to shop around. Don’t simply go with a dealership or car company for your auto loan because it’s the most convenient. See what else is out there and try to negotiate a better deal.
If your credit score is an issue and you don’t plan to apply for an auto loan for a while, you can take steps to improve it. By doing that, your credit score can be better when you apply for an auto loan, helping you negotiate a lower interest rate.
How to Keep Monthly Payments Down
You can keep your monthly payments down on your auto loan in three simple ways: by making a larger down payment, negotiating a lower interest rate or by stretching your auto loan out over a longer period.
If you can afford to, you might consider making a larger down payment on your vehicle. When you do that the monthly payment on your auto loan will be lower since you’re borrowing a lower amount.
Another way to keep your monthly payment down is by negotiation a lower interest rate on your auto loan. By shopping around on your auto loan and negotiating, you can get a lower interest rate.
Last, but no least, you can stretch your auto loan over a longer period. This can make sense if you’re qualifying for a mortgage, but the high monthly payment on your auto loan is preventing you from qualifying for as much as you had hoped. Before doing this, be sure to consider how much more in total interest it will cost you by stretching out the auto loan over a longer period to make sure it makes sense.
Banks versus Dealerships
When it comes to taking out an auto loan, you can go through your bank or the dealership/car company. Whether it makes sense to go through one over the other depends on the auto loan terms being offered.
My best advice is to shop around. A dealership or car company is a good first stop for financing, but it shouldn’t be your only stop. By shopping around at banks, you can see what else is being offered.
If you’d prefer to take out your auto financing with your bank, but you’re being offered a better deal from the auto dealership, you might consider showing your bank the better deal you’re being offered. Your bank may in turn be willing to match it. The bottom line is that you have nothing to lose by shopping around.
Before shopping for a vehicle, it’s a good idea to get pre-qualified. Getting pre-qualified on a vehicle is a lot like getting pre-qualified on a home. When you get pre-qualified for a vehicle, the bank or dealership looks at your income, down payment, credit score and any other debt you might have (i.e. credit cards, student debt, mortgage, etc.). Based on this, you’ll find out how much you qualify to spend on a vehicle.
It’s important to keep in mind that just because you qualify to spend a certain amount on a vehicle, it doesn’t mean you should spend that much. Find out what the monthly payments would be and how much interest it would cost you over the life of the auto loan and see if you’re comfortable before taking out an auto loan for this amount.
Co-signing Tips and Considerations
If you’re having difficulty qualifying for an auto loan, you might consider getting a co-signer. A co-signer is someone who helps you qualify for an auto loan. The co-signer’s income, down payment and credit score are all considered when approving the auto loan.
As such, you’ll want to look for someone who is strong in all those areas. For example, if your uncle has a lower credit score than you, it probably doesn’t make sense for him to co-sign, but if he has a better credit score than you, that’s when it can help your auto loan application get approved.
If you’re thinking about co-signing for someone on an auto loan, before signing on the dotted line, make sure it’s someone you trust. If the individual you’re co-signing for were to miss any of the auto loan payments, it will be as if you missed the payments yourself.
Not only that, you’ll be responsible for making those payments. Being asked to co-sign on an auto loan isn’t a decision to be taken lightly. It’s important to sit down with the individual and make sure you both are on the same page and understand each other’s role and responsibilities. The last thing you’d want is the co-signing of an auto loan to ruin your relationship.
Factoring in Taxes and Fees
When buying a vehicle, it’s important not to overlook taxes and fees. Taxes and fees are the so-called hidden costs of buying a vehicle. Taxes and fees will depend on the state you’re in buying in, so it’s a good idea to ask about them ahead of time and do your homework.
You may be required to pay the taxes and fees out of pocket, or you may be able to roll them into the auto loan. If you’re required to pay them out of pocket, you’ll want to hold some money back from the down payment on your auto loan, so you have enough money to cover them.