Getting A Loan

Arranging Your Auto Loan Financing
How are you going to pay for the car or truck you’re going to buy or lease?  This is always the big question.

 

If you’re fortunate enough to have thousands of dollars stashed away, you can always pay cash. If so, your job is greatly simplified. Be forewarned, however, that paying cash does not mean you’re going to get a better deal. On the contrary, the dealership wants you to finance with them since they often make more money from the financing than from the selling price of the vehicle. So, to them, paying cash is not necessarily a good thing.

Most likely, however, you’ll have to pay for your vehicle through some sort of financing.  Here you have four options:

  1. Your Credit Union. If you belong to a credit union, apply now for a pre-approved car loan or lease.  The advantage of financing through a credit union is that their interest rates are sometimes lower than those offered by the banks.  The possible disadvantage to credit union financing is that they sometimes don’t report car loans to credit reporting agencies so your credit records may not reflect that you’ve received this loan.  Be sure to ask them about this.
  1. Online Financing.  Thanks to the low overhead of doing business via the Internet, online financiers are able to offer auto loans at super low interest rates that often beat the banks’ and even the credit union rates.  Getting your financing arranged online is often quick and easy, only taking a few minutes to complete an application. Be sure to apply for auto loans at the major online financiers.  By applying online for auto loans now, you’ll gain more financing options from which to choose later.
  1. Your Bank. Regardless of your credit situation, you should apply first at your local bank for a pre-approved auto loan or lease, even if you think you won’t qualify. Visit your local bank (you don’t have to have an account there) and ask for the person in charge of auto loans. Discuss with this person the car you plan on buying or leasing. Play dumb and learn as much as you can. Ask about the interest rate, monthly payments and required down payment. Take detailed notes. Ask, too, about 100%-financed loans (which require no down payment) as well as shorter loan terms (financing for 48 months instead of 60 will save you hundreds, even thousands of dollars, in interest).

The advantage to talking with your bank about all this is that they’ll happily give you the honest and straightforward answers you need in a no-pressure and friendly atmosphere. If your bank approves your loan, you’re set. If they deny your loan, be sure to ask why.

  1. The Dealership. If you have utilized all of the above options and you are still denied a loan application, then you probably have little choice but to obtain your financing through the dealership.  Here’s where you need to be very careful. Dealerships often make more money from financing than from the actual sale of the vehicle.  The better organized you are going in, the better off you’ll be.

One of the most valuable pieces of information you can have to protect yourself is a copy of your “Credit Report,” also known as your “Credit Profile”.  That’s because the dealership may try to convince you that your credit is not as good as it really is as a way of getting you to agree to a higher interest rate.  That means you could end up paying hundreds or even thousands of dollars more in interest.

  1. Equity Line. This method is often overlooked. I personally buy my current vehicles using my home equity line of credit.  Some of the advantages include: Flexible payments, low interest rates, low minimum payments, you can sell the car at anytime, and interest is tax deductible.  You also own the vehicle and have a clear title in your hands allowing you to sell the vehicle at anytime.

Here’s the bottom line:

 To get the best possible financing deal, compare the interest rates and loan terms offered by every possible source – banks, credit unions, online financiers, dealerships and equity line– and choose the financing deal that’s best for you.