CAR LOAN TIPS
Car Loan Tips
Tips on Getting A Car Loan
The time has come for you to purchase a vehicle and you are both excited and nervous. The excitement comes from the opportunity to get behind the wheel of something new and different; and the nervousness comes from the process of actually negotiating the price and acquiring an auto loan.
Because of this, it is important to compare financing options and choose the one best suited for your personal situation. There are two primary ways individuals choose to finance a vehicle: direct lending and dealership financing.
OPTION 1: DIRECT LENDING
Direct lending is obtaining a loan directly through a finance company, such as a bank or credit union. When a person purchases a vehicle via direct lending, he or she agrees to pay the amount financed, along with an agreed-upon finance charge, over a specified period of time.
Dealer financing is an arrangement between a car buyer and dealership; the buyer agrees to pay the amount financed as well as a finance charge over a period of time. In some cases, the dealership might retain the contract, but in most cases, it sells the contract to an assignee, ie. a bank, finance company or credit union, that then services the account and collects the payments.
OPTION 2: DEALER FINANCING
Should I borrow from a car dealer or a bank to buy a car?
Consider the pros and cons:
DIRECT LENDING PROS AND CONS:
Straightforward borrowing: The lender is not trying to sell you a vehicle. Instead, it is making money on a loan, which means you avoid vehicle price manipulation
More leverage with the dealer: You are essentially paying for your vehicle in cash, which gives you more leverage with the dealer. Now you have the opportunity to name your price, which should be lower than the sticker value you see
Rates are sometimes lower than dealer-offer rates (where dealer does not offer financing from the manufacturer)
Bank can often tell you if you’re paying too much for a car.
Tougher lending criteria: Your credit score and history will likely need to be pretty good. They do not have the centive the dealer does to make the deal happen.
Lack of incentives: Banks and credit unions that offer auto loans usually do not participate in lending incentives like 0 percent financing or bonus cash offers, unless they’ve developed a relationship with a specific auto dealership.
May take more time to get an answer.
May turn you down.
May not offer convenient hours of service (for example, can't arrange to meet on a weekend).
CAR DEALER FINANCING PROS AND CONS:
Convenience: There is no need to visit an independent institution first, because the dealer makes contact with a bank for you. It is also the fastest, easiest way to get financing; one-stop shopping, open any time you buy a car.
Near-guaranteed approval: Dealerships have multiple financing relationships that ensure most applicants will receive a vehicle. It’s also beneficial to individuals who have better credit as they could have access to multiple financing options. You are likely to be approved for regular dealer financing even if a bank turns you down.
Incentives: Rates are usually competitive but you have to check; if the dealer offers financing from the manufacturer, you are more likely to get a good deal. Special offers like zero percent financing can be great deals too.
Subprime loans: Essentially high-rate loans issued to individuals with credit scores of 680 or lower.
Hidden fees: Dealerships undoubtedly have a vested interest in each vehicle they sell. It’s for this reason that some who are known as predatory lenders will take advantage of individuals who lack an understanding of the lending process by imposing unnecessary hidden fees.
Less room to negotiate: Because the dealer is determining what type of financing you’re eligible for, it’s easy for you to negotiate down and still end up paying more in interest and other fees tied to the financing deal. It can be a high-pressure atmosphere, with a big push to sell you extras.
Using the internet to apply for a car loan brings with it a number of advantages. For example, consumers can use a car loan calculator in order to figure out how much car they can afford. They can also do research on the pricing of the makes and models that they are interested in.
START ANY LOAN PROCESS WITH INFORMATION: KNOW HOW IT WORKS
When comparing financing, it is important to know your credit score. Your credit score affects the rate you will receive. Your credit score will help identify the type of financing best suited for your needs, as many lenders offer benefits for unique credit circumstances.
It is important to get financing with a low interest rate, practical down payment, and manageable payments, over a practical term.
Interest Rate: The rate at which lenders charge to borrow the money
Down Payment: A portion of the face value of a vehicle that buyers pay upfront to secure financing
Term: Period of time over which the loan must be repaid
Payments: Dollar value of the weekly, biweekly, or monthly payments
Learn the laws and regulations that govern auto financing. Knowing your rights will help you understand the terms in your agreement and avoid hidden fees and charges when applying for financing.
Financing exists to help people pay for a vehicle in a practical and convenient way. Ging iin with your eyes open will help you find the best deal on car loans. A new car is exciting, but it is wise to know your options to avoid being taken advantage of.
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