Learn more about sources of auto financing
While some consumers are able to pay cash for their new vehicle, most buyers use financing. Understanding your choices and the loan process will help you save money. Banks, credit unions, and nonbank auto finance companies You can get pre-approved for your auto loan before selecting a vehicle. Check out banks, credit unions, and other lenders. You usually don’t have to have an account with the bank or other lender to get a pre-approval. Generally, you do need to be or become a member of a credit union in order to apply for an auto loan. The pre-approval will give you a loan quote with an interest rate, loan length, and maximum loan amount based on factors such as your creditworthiness, the terms of the loan, and the type of vehicle you have in mind. The rate you are offered may be negotiable. This quote allows you to compare different lenders’ offers against each other, giving you a stronger hand in negotiations. Lenders and dealers are not required to offer the best interest rates available. You may be able to save a lot of money over the life of the loan by negotiating the interest rate. Dealer-arranged financing With dealer-arranged financing, you obtain financing from a lender through a dealership. The dealer collects information from you and forwards that information to one or more prospective auto lenders. If the lender(s) agrees to finance your loan, they may authorize or quote a rate to the dealer, referred to as the “buy rate.” The interest rate that you negotiate with the dealer may be higher than the “buy rate” because it may include an amount that compensates the dealer for handling the financing. Dealers may have discretion to charge you more than the buy rate they receive from a lender, so you may be able to negotiate the interest rate the dealer quotes to you. Ask or negotiate for a loan with better terms. After the auto purchase is finalized, a dealer-arranged loan may then be sold to a lender who has already indicated a willingness to extend the credit. That lender may own your loan and collect the monthly payments, or transfer those responsibilities and rights to other companies.
Buy Here Pay Here dealership financing
Some types of dealerships finance auto loans “in-house” to borrowers with no credit or poor credit. At Buy Here Pay Here dealerships, you might see signs with messages like “No Credit, No Problem!” The interest rate on these loans can be higher. You may want to consider if the cost of the loan outweighs the benefit of buying the vehicle.
Even if you have poor or no credit, it may be worth seeing if there is a bank, credit union, other lender, or another dealer that is willing to make a loan to you.
A lender cannot discourage or deny your application for credit, or offer different prices or other terms and conditions of the loan, based on your race, color, religion, national origin, sex, marital status, age, receipt of public assistance income, or good faith exercise of any right under the Consumer Credit Protection Act.
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