How Auto Loans Work, and Some Mistakes to Avoid
Car Buying Tips...
Both new and used car sales continue to fluctuate, and so the demand for car loans does the same. As demand fluctuates, so do the shenanigans and other nonsense by dealership finance departments and other lenders.
This page will give you what you need to know about getting the best possible rate on your auto loan. Failing that, it will at least keep you from getting the worst.
How to Get a Car Loan
Clean Up Those Credit Reports
First thing you need to do is get copies of your credit reports. You are entitled to one free report a year from each of the three major reporting agencies. The most legitimate website to get them from is www.annualcreditreport.com. They will make you work for it by subjecting you to a bunch of sales pitches for their non-free products, but this is the site consumer groups and others recommend.
Review your reports. If you find any errors negatively impacting your credit score, you will have to jump through whatever hoops are necessary to get them fixed. Most loan officers don't even seriously bother to look at the reports; they just look at the credit score. Have the wrong credit score and you may not even be able to get an auto loan. Have an unfairly low credit score, and you will be paying hundreds and possibly even thousands more in interest over the course of your car loan, not to mention being subjected to higher monthly payments.
It is imperative your credit score be as high as possible. One doesn't have to be a rocket surgeon to know the higher your credit score, the lower the interest rate on your auto loan will be. In fact, reading this Credit Score Guide for Beginners would probably be a good idea.
Avoid Auto Dealer Financing
Seriously, you might as well go to one of those loan shark outfits you see at the mini-malls. The auto dealers will use every trick in the book against you. They make as much money on the financing as they do on the car sale itself. More often than not, whatever interest rate is initially promised invariably runs into a "problem"; and they will insist they can only do the financing at the higher interest rate and higher monthly payments. It's even been reported they will sometimes pull this stunt after the car is already sitting in your driveway.
As a side note, by all means ask about their zero financing they constantly advertise. Problem is, somehow nobody every seems to qualify for it... If you do happen to be one of the lucky few, well and good. But don't count on it.
Best Way to Get a Car Loan Is Your Financial Institution...
Your first resource should be your existing bank or credit union. Presumably you have been with them for awhile and are considered to be a good customer. What you would really like to accomplish is to get a pre-approved auto loan from them; succeed and your problem is solved.
Do not mention your pre-approved loan to the car dealer prior to closing the deal on your car purchase price. Otherwise they will raise the car price to offset the money they are not going to make from the financing.
If your financial institution seems somewhat reluctant about the pre-approval idea, don't push it. Stay lovable and don't burn that bridge just yet. Ask about and pave the way to apply for an auto loan with them after you have negotiated the price for the car.
Give www.bankrate.com your regards. Select "auto" from the menu at the top of the screen. Use their search feature to see what the best auto loan rates and conditions are, etc. Don't actually make an application just yet.
Check out your local banks and credit unions. Visit their websites. See what their rates, fees, and conditions are. Again, don't actually apply.
There are also some worthy exclusively-internet entities out there who do car loans. Just be sure to do your homework first, so you don't get tangled-up with the wrong one.
Network! By all means ask friends, neighbors, co-workers, etc. for recommendations as to where to get the best car loan. Applying for an auto loan at a place where you can use an existing good customer as a reference certainly won't hurt.
Also be attuned to what people say about auto loan places to avoid.
Apply for the Loan
Well, you've done your homework. Time to apply for the loan.
Pick and rank your best five candidates from your research. Work your way down the list.
In some cases you will have the option to apply in person or via their website. Put some thought into what would work best for you in that particular situation.
Do make all your applications within a 30-day time frame. Multiple loan application inquires will reduce your credit score. But if you make all your applications within a 30-day period, it will be categorized as only one inquiry by the credit reporting agencies.
The above information should work equally well as to getting the best motorcycle, boat, or even airplane loan rates. However, if the boat or airplane is over a 100K, then you can probably afford to get a financial adviser involved. Preferably one with lending institution connections.
Yes, getting the best auto, truck, or SUV loan rates can be a lot of work and a pain in general. The more effort you put in to it, the more money you can save. One thing you can do is to make the project an iterative process, i.e., don't try to do it all at once. Just do one or two aspects of it a day. It will be done before you know it.
Buying a New Car
A quick note/tip/trick.
There are reports saying buyers can get a better price through the website than through going to the car lot. There may even be a choice of websites, i.e., manufacturer website vs. dealership website.
Every manufacturer does things their own way. As an example, the manufacturer website may simply refer you to the appropriate dealership website. Or not. Things are always changing.
It should also be noted more and more dealerships are directly owned by the manufacturer.
Buying a Used Car
A quick note/tip/trick.
When a dealership takes a car in trade-in, one of two things happens to it...
- If the dealership thinks it's a good car which will outlast their warranty program, they will give it a tune-up, detail it, and put it in their used car section.
- If they don't think it's such a good car, they'll sell it off at a wholesaler's auction and it ends up in some used car lot.
What is the significance of this to the used car buyer?
- The better cared-for, more reliable cars are to be found in dealership used car sections.
- The more tired, riskier cars are generally at places exclusively selling used cars.