4 Tips to Save You Thousands of Dollars on Your Next Auto Loan.
There are a lot of ways to finance a vehicle, whether it be a pre-owned car or a new truck. Whether you buy it from a dealer or in a private party sale. Finding the right finance source for you can save you thousands over the years that you finance it. The right loan paid on time and in full can also raise your credit score. Not all banks report your good behavior, some only report bad payers.
Ways to finance a new or pre-owned car
Conventional financing
Financing that is initiated by the dealer. Normally the dealer will take a generic credit application and then have an assistant fax it over to a few different lender’s to “shop” for the lowest rate. Let me clear they are shopping for the lowest rate they can buy financing for you. Don’t confuse that meaning they are shopping to get you that rate. They aren’t. Most banks allow a dealership to “mark-up” the finance rate anywhere ranging from 3-5% over the “buy” rate. That’s some serious money if you take out a $20k loan for 5 years. They will make thousands in commission and you will spend thousands extra. Best part is the dealership and the bank normally split the profit 60/40 or 70/30 so that friendly bank isn’t so friendly. Beware of conventional financing and Finance and Insurance guys at a dealership. They are the sharpest employees in the dealership and it is their sole function to extract more profit from you.
Credit Union
Normal procedure is for you to go to your credit union, tell them the car you want to buy. They will work out terms of a loan on an approximate amount borrowed and then you go to the dealership, find the car you want and the dealership faxes over a buyer’s order to the Credit Union. The Credit Union cuts a check to the dealer, adds in a lien fee for the dealer if they are doing the title work and it is a wrap. Very clean deal with no shenanigans. Some Credit Unions don’t report to Credit agencies so you may not get credit and raise your credit score. Make sure to check to see if they do or don’t report.
Subvented Financing at the dealership
If Honda or any auto manufacturer is running a special interest rate on a car, that rate is available only through the dealer so you will go through them to get that financing. It is a pretty straightforward procedure but these programs are normally for only the best credit worthy people. Make sure you have plan B if you are rejected. Lots of dealerships convert these rejections to conventional financing and make a ton of money selling them the interest rate as I described earlier.
Your Own Bank
Check to see what your own bank is offering for terms on a car loan. Talk to the loan officer and see if they can pre-approve you for a particular amount. Lock that offer in and then see what the dealer can do for you. Just like they make money on finance, it is also a tool for them to move a car off the lot. They submit a lot of applications and can sometimes get a lower rate than you can at your own bank. With all the terms presented, you can choose the best one for you.
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