The average American buys nine vehicles in their lifetime. Many buyers still fail to research the best way to finance a car. Some get their loans from credit unions, while others finance through auto dealerships.
So, where should you get an auto loan? Consumer advocates agree, credit unions almost always offer the best financing for cars, motorcycles, RVs, and other vehicles. They tend to offer lower rates and fees, and will conveniently pre-approve your loan before you head to the dealer.
Dealer financing often involves higher rates and inflated fees. The Center for Responsible Lending looked at one year’s worth of auto loans. Data showed consumers who financed through dealers overpaid by nearly $26 billion over the life of those loans.
What to Watch Out For
Sometimes, car dealers make their offers sound great in the media or online. One tactic is to lump unwanted extended warranties and insurance products in with dealer financing costs. Another is to offer a low-interest rate to seal the deal and later claim that the initial financing “fell through.” The only way to buy the car is to agree to a higher rate.
In contrast, financial institutions mandate transparency and are eager to be upfront about borrowing costs. Many credit unions pre-approve your loan before you go car shopping. This way, you know exactly how much you have to spend before negotiations begin. Loan pre-approval also may spare you the possible embarrassment of a dealership rejecting your financing application.
Let’s look at some scenarios:
You want to pick a car and take it home that day. Why not just get the car and the loan from the same place?
What you make up in “convenience,” you pay for in high-interest rates with no other options or knowledge of what else is available.
It’s possible to achieve a quick transaction and still avoid dealer financing. Many credit unions have “preferred dealer” programs. With a quick call, you’ll find out what those preferred dealers are. When you buy from those dealers, mention you want to finance through your credit union’s program. Not only will the dealership handle the paperwork, but you’ll also get fair terms from a lender you can trust.
Dealerships are offering zero percent interest promotions.
If it sounds too good to be true, it’s because it is! These offers often are only available for specific car models or buyers with excellent credit scores. Even if you qualify, it may be better to accept another promotion regularly available and finance the vehicle at your credit union. You’re likely to score with both cash in hand, excellent loan terms, and a ride you love!
A car salesman mentions the financial institutions they work with and can “shop around” to get you the best deal.
The reality is, dealers aren’t often motivated to find the lowest interest rate to finance a car. One way dealers earn money is through commissions. That means they may be motivated to push you to accept a loan – knowing they’ll make a higher commission. A credit union will provide you with the best possible rate upfront, without you having to haggle for it.
A dealer advertises its willingness to loan money to consumers with poor credit scores.
Many credit unions offer specific loans – with more favorable terms – to first-time car buyers or buyers with lower credit scores. Credit unions have always followed the mantra “people helping people,” for us, it isn’t just a seasonal special!
When you’re ready to finance a car, we’re prepared to put you in the driver’s seat.
To learn more, apply online or give us a call at 406.651.AFCU (2328).