If you’re in the market for a new car and can’t purchase it outright, you literally owe it to yourself to explore a variety of car loan provider options, from national or local companies that specialize only in auto loans, to online-only banks, credit unions, traditional banks and auto dealerships—and these are just a few of the options to carefully research.
Dealing with a Dealer
When you’re considering financing options, it’s likely that you’ll want to look at what your car dealership is offering in terms of rates and features. After all, it can be quite convenient to get financing from the seller of the car; but you need to be certain that the loan terms and process are attractive and efficient. One of the very first factors to consider are the loan interest rates. How competitive are these rates compared to other loan providers? Also notice if you are being encouraged to take on a longer-term loan than you might need. And remember to check to see if there is an additional cost for paying off the loan early and what the penalties are for missing or making a late payment.
Keep in mind that dealerships typically do not provide the loans directly; they are provided by a third-party bank or other type of financial entity that will provide loan rates and qualification requirements. These dealer-relationship lenders may only interact with you via phone, mail and email, and the dealership will generally not be an active participant in the process after you arrange the loan with their lender.
Dealer financing should also be evaluated very carefully in terms of the services that potentially could be added as part of the loan package; dealers may strongly emphasize bundling a range of add-ons. Some of these additional services may not fit your needs, so it’s important to be aware of what they could include. Typically they could consist of extended-warranty options for transmissions or engines, wheel or tire damage protection insurance and other services.
Other lenders, including banks, credit unions and car loan firms, do offer similar services, so research and compare them. One additional service that is regularly offered by many lenders, not just dealerships, is Guaranteed Asset Protection (GAP) coverage, which, in the event your car is a complete loss due to an accident, will generally pay the difference between the estimated cash value of the car (which you’ll receive from your insurance company) and the amount remaining on your car loan—the financial “gap”.
Consider if these add-ons provide needed protection and value or create unnecessary cost for you by considering how you use your car and how long you intend to keep it. Many vehicle owners now keep their cars for more years, which increases wear on the vehicle; however, market research studies show car quality and reliability have gotten better, too.
Credit Union Membership Has Its Benefits
With a bank or car dealership you’re a customer, but with a credit union you’re a member, a very different status with some distinct and valuable benefits. As a credit union member you may receive better rates—and special discount promotions—that are not available at larger financial institutions. Some credit unions use lower credit score levels on their loan rates; this means a consumer whose less-than-top score may not qualify them for a loan at bank or dealership could get a favorable rate at the credit union. Credit unions are also not-for-profits, they are owned by their members, and earnings are returned to them in the form of better interest rates and lower fees on loans, and they might also give higher interest rates on some types of investments.
With some exceptions, credit unions are local and usually based in the state where they operate, with branches where you can meet with lending specialists to review your application and manage the loan process. These specialists strive to provide personalized care and objective advice on the different loan types and terms available, so members can select the loan that best serves their needs. Much of credit unions’ business comes from car loans, and they could be willing to work with you to overcome any challenges due to your credit history or planned payment schedule, and, potentially, offer flexibility on loan terms that you are unlikely to encounter with other types of institutions.
Buying a car is a big decision, one that can affect your life for many years. You want a vehicle you can depend on, that fits your lifestyle—and one that makes you happy. Before buying, thoroughly invest in research on financing choices, talk to friends and family, and make certain you know your options before finalizing your choice of a lender.