How are you going to pay for that new car?
Truth is, most of us can't cut a check for the average auto's whole sticker price, and many buyers are also learning that banks can be hard sells when it comes to loans for vehicles.
"In most cases, traditional banks are not geared for auto lending, in fact, they want out of it," says Joe Parker, president of New Car Buy Guy. "Most traditional banks are looking to loan money on appreciating assets such as residential and commercial real estate. They simply do not offer the most attractive rates for buyers."
With that in mind, let's look at dealership loans.
It's not always easy to get a car loan from a dealer. In fact it can be a hassle. The trick is to know what to look for in the fine print, what to ask at the showroom desk, and how to protect yourself from getting "bumped" by the lender-to-dealer process.
Dealer Secrets. Your Benefit
"Dealerships do have powerful relationships with multiple lenders and can yield some pretty attractive rates for buyers," Parker says. "Knowing your credit score and what you qualify for is a big part of the equation."
Beyond that, because dealers work with lenders on specific kinds of rates for car loans, the process can increase the interest rate of your loan — up to three points, in some cases. Since that's the kind of money you'd like to save over the life of a loan, here's how to watch out for the hikes.
"You can always ask to see the approval fax or printout from the bank," that offers you the loan, says Parker. "The key word to look for here is buy rate. Make sure the dealership offers you the same rate as the buy rate on the fax or printout to ensure you are not being 'bumped'."
Use These Strategies
1. If purchasing a new vehicle, be sure to ask the dealer if the respective manufacturer has a special incentive interest rate offer currently available. Ask what the credit score qualifications are. If purchasing a pre-owned model, consider a "certified pre-owned" car, since they also can carry a special interest rate offer.
2. Be sure to ask what the rebates are for the model you are purchasing, and then compare the rebate amount with the amount of finance charges of the offered loan.
3. Don't be afraid to ask the finance manager if they deal with credit unions. Many dealers have access to local credit unions' indirect lending programs, ones that the dealer can process inside the dealership. Ask about which programs offer the lowest rates based on your credit score.
Another Option? Credit Unions
"Credit unions … are getting more involved in the auto-loan industry and are offering some pretty attractive rates," says Parker. "And many of them do offer loans through the dealers and are a viable source for many dealerships."
It's all about knowing the rules of the lending road. So go in armed with knowledge, and then check the details that we've outlined above. You may just drive away with a lower interest loan that you expected, and that's always a happy way to buy a new car.