New and Used Auto Loan Rates Choose Your State Below
Special Report: Hitting the Brakes on Auto Dealer Loans
How to drive a hard auto loan bargain
(4/27/2011) With auto dealer loans often padded with $1,200 to $1,700
more than may be necessary over the life of the loan, learn how to shop for
a car loan before you get to the dealership.
Subprime borrowers, those with poor credit, are getting dinged deeper and
the report links dealer mark ups to higher rates of default and
repossession, particularly among subprime borrowers.
You need to know and correct, if necessary, your credit report before the
lender takes a gander. There's only one federally sanctioned place to
accomplish that for free: AnnualCreditReport.com. You can also call
1-877-322-8228. Beware of "free" credit report pretenders and never shop for
any credit without being fully aware what's on all three of your reports.
One from each agency -- Experian, Equifax and TransUnion -- is free every
year. Your credit score is also free under some
circumstances, but worth knowing even if you have a pay a few bucks.
A guaranteed auto loan in your pocket helps you avoid a common sales
tactic -- mixing vehicle price and financing negotiations. Mixing allows the
dealership to give you a favorable figure in one area, while inflating a
figure in another area.
Special manufacturer-provided zero or low interest rates for special
vehicles or during promotions may be the exception, provided you lock down
the price first and you first shop around to learn what interest rate is a real deal.
Likewise, don't forget to shop around for car insurance, rather
that taking the dealer's offer.
CRL also advises:
• Test drive, but don't shop.
You should know what type of car you want and your price range, before
you shop around for financing. If you do, there's a greater chance you can
get pre-approved.
Shop around at your bank and credit union and elsewhere to comparison
shop. If you know your credit score and have you credit report you can
negotiate to get a quote without several lenders pulling your credit report
just yet.
• Drive a hard bargain.
Despite the advice, eight out of 10 car buyers are snookered by
convenience or heavy marketing into financing through a car dealer. If you
find yourself in the dealer's finance department be firm. Negotiate for the
lowest interest rate.
"If 80 percent of car buyers are financing their vehicles through the
dealership, then only 20 percent are getting a good deal through a bank or
credit union. The car-buying consumer's time would be better spent lining up
financing first before thinking about hitting the showroom floor," said
Nancy Osborne, chief operating officer of Erate.com, a Santa Clara, CA-based financial information
publisher and interest rate tracker.
You shouldn't feel intimidated if you've done your homework. Knowing your
credit history, credit score and rates from other lenders are negotiating
points in your favor.
Watch out for rate mark ups. The car dealer may initiate the loan, but
later attempt to sell the loan to a third-party lender, at your expense. Be
prepared to walk if the dealer doesn't offer you a rate for which you know
you qualify. Use it as a learning experience and take your business
elsewhere.
Also, you have the right to take any car financing paperwork home before
signing on the dotted line.
• Shop online.
The Internet can help you shop around for sticker prices on the car,
financing, insurance and any other related products. Read web sites' privacy
polices before completing any online applications so you know how you
information will be used.
• Avoid add-ons.
Vehicle service contracts, guaranteed auto protection insurance, credit
life and disability insurance, and a host of other add-ons typically are
overpriced and unnecessary. The are profit makers for the dealer. Just as
you should shop elsewhere for the loan and insurance, if you think you
really need those add-ons, buy them elsewhere.
• Watch for tricks and traps.
In the "yo-yo" the dealer will offer you a low-low rate, let you drive a
new car home and later tell you the financing fell through, hoping you'll
fall in love with the car and accept a higher interest rate once you bring
the car back.
"Buy Here-Pay Here" dealers finance used auto loans in-house to borrowers
with no or poor credit. The loans have much higher interest rates than banks
or credit unions, are often unsustainable and more likely to result in
defaults and repossessions.
Ignore dealers who attempt to mask the true cost of the loan by focusing
on the monthly payment. Shorter terms loans are cheaper over the life of the
loan. Compare the total cost of all the loans you've compared and choose the
one that's cheapest over the full term of the loan.
