This BLOG On The Struggle Of Car Loans And How It Affects Home Loans Was UPDATED And PUBLISHED On March 18th, 2020
Looking to buy a new car? Like most of us, you’ll need financing, so, which is more beneficial, getting a loan from your local bank or your dealer?
- Eighty percent of loans are arranged by the dealers and for good reason
- The obvious is a convenience for one
- You drive to a dealer with your old car, find your new car, test drive it and a few hours later drive away with your new car and park it your driveway
- Sound good right?
- Ah, but such benefits all too often come with a price
- Dealers work with lenders who finance buyers with poor credit as well as those with good credit and rates vary
In this article, we will discuss and cover The Struggle Of Car Loans And How It Affects Home Loans.
How Auto Loans Financing Works At Dealerships
Dealers have what’s called F&I (finance and insurance) departments.
- They typically arrange loans with various banks and or other lenders and some states even allow the dealers to tack on an additional 2.5 percent for themselves (check your states bill of rights)
- Arranging your own financing from your bank, credit union or peer to peer lending may be more beneficial
- Still, it’s best to do your homework and weigh out your options
Below are some basic tips that can help you get the best rate and some insight in dealing with dealer financing.
The Struggle Of Car Loans And Financing A Vehicle
Make sure your credit is up to or above par, get a copy of your credit report.
- If you see any discrepancies or incorrect information dispute them with the reporting agencies immediately
- Your credit score is critical to a competitive and low-interest rate
- A dealer or lender of your choice will systemically run your credit and look for any negative information that could hinder your rate
- Typically scores of 700 and above qualify for good and competitive interest rates were as scores of 600 and below are a sign of higher rates and could be ugly
- Do your due diligence and compare rates, get quotes from banks and other lenders who don’t have a vested interest in whether or not you’re buying a particular car
- Knowing the amount of interest rate you qualify for gives you a benchmark to compare with a dealer’s offer
Once you have your rate asking the dealer’s F&I person to beat your bank’s rate is encouraged and to your benefit in lowering your overall costs.
The Struggle Of Car Loans And Being Careful With Sales People
Avoid talking monthly payment, this is often used as a ploy to reel you in and get you excited with a low monthly payment.
- Stick to the facts; negotiate only the price of the new vehicle, the loan interest rate and term
- The dealer can cut the monthly payment by increasing the length of the loan- thus increasing the overall interest costs and the likelihood that you’ll owe more on the car than its worth at the end of the term
- Typically, 60 months or (five years) is the standard term and longest you’ll want to have a car loan for
- Any longer than that and you start to loose additional residual value
- Try to stay with a vehicle that fits your budget as opposed to your style
- If you have a trade-in, negotiate that amount separately
- Dealers will quickly ask if you have a trade-in
- This gives them another tool and advantage to play with the number
They give you the impression that they will give you a healthy amount for your car if as a trade-in where in fact they can incorporate any overage in your new car contract.
Additional Accessories On Top Of Auto Loan Balance
Be advised of the costly add-ons dealers try to sell you, i.e insurance coverage, protection plans etc….
- All must clearly be disclosed in the contract, and the dealer cannot require you to buy them as a condition of the loan
- Although I advise of costly add-ons
- Depending on the type of vehicle your purchasing and how long you may be keeping the vehicle some extended warranty plans could actually be beneficial in the event your vehicle suffers a major mechanical / drive train or electrical failure outside of the factory’s warranty which could add up to costly repairs otherwise
- Study the various plans offered thru literature offered from your dealer
- Also, be advised that you don’t have to make a decision and purchase the extended warranty program at the same time you sign the contract
Your call will be fully covered by the factory warranty for quite a while and rushing into an extended warranty plan is not advised or necessary.
The Struggle Of Car Loans And Signing The Dotted Line
Study the contract as if your financial life depends on it- because it might.
- Make sure all the dates and information are correct before your sign
- Dealers have been known to inflate down payment amounts and buyer’s incomes to put buyers into loans they can’t afford
One more thing:
- the CFPB (Consumer Financial Protection Bureau) regulates car loan lending activity by banks and other financial institutions and services
- But congress exempted dealers from such oversight- another reason for caution
- So, dealer arranged financing or self-arranged financing?
- You can be the judge
About The Author Of The Struggle Of Car Loans
This blog article post on The Struggle Of Car Loans was written by Massimo Ressa. Massimo is the Chief Executive Officer of the Gustan Cho Associates. He is also a contributing associate editor and writer for Gustan Cho Associates Mortgage And Real Estate Information Center Website.
Massimo is also a real estate investor and a loan officer and his passion is educating and helping others in areas. Massimo Ressa an expert in such as real estate investing, mortgage lending, and the automobile fields. Stay tuned to more interesting mortgage blog articles by Massimo in the days and weeks to come.
March 18, 2020 - 4 min read