Revealing the Automotive Financing World
Automotive financing requires more research many times than deciding on which vehicle you are actually going to purchase. Should I buy,
or pay cash? Where do I get a loan? How do I assure myself that I am not getting ripped off? These are only a few questions that are sometimes asked.
The financial portion of the car buying process is filled with intricacies, pitfalls, loopholes, scams, tricks and grey areas. Are you scared yet? You should be, but read through and we can help ease your fears.
Many F&I(finance and insurance) officers are very honest and helpful people and will walk you through the whole process step by step making sure you proceed in the way that is most advantageous for you. Unfortunately, unless you do some homework first you won't know who these people are.
We have included as much information as we can so your eyes are opened and you are aware of the proper way to pay for the car you just purchased.
What is automotive financing?
Almost 90% of all vehicles purchased in North America are secured with borrowed money. You can either buy (balloon payments, buy backs straight finance etc.) or lease.
Where can I get an automotive financing?
Financing can be secured through the dealer where you are buying your new or used car. Automotive financing for new cars, the manufacturer (Honda, Toyota) often supplies discounted rates (0%,2.9% etc.) available only through the dealers.
These rates (APR) are sometimes only teasers and available only to those with near perfect credit or on extremely short terms. Contact the dealer prior to visiting and inquire about the criteria needed to secure the discounted rates and which terms they re available on. This will allow you to be sure you are getting the best rate.
For used cars some manufacturers are now also supplying their dealers with discounted rates. Although many times you can secure better rates through other financial lending institutions.
Your own bank can arrange automotive financing for you. They may also have alternative ways to finance which may lower your APR. Be aware of these, as some to-good-to-be-true ways many times are. Secured line of credit/extended mortgage loan (attached to your home) for example will give you a very good interest rate, especially on a used vehicle, although you will be paying this off for potentially 10-25 years. Always check your cost of borrowing.
A credit union is many times the best place to obtain competitive interest rates, especially for pre-owned automotive financing. Some lenders will require a larger downpayment then the banks and dealers to secure the loan. Also, you will have to open an account or join the credit union in order to have the loan approved.
If you don't belong, www.creditunion.coop/cu_locator/index.html will help you find your closest lender.
Should I pay cash to get a better deal?
Cash is no longer King for the dealers themselves. Dealerships get paid a significant amount for securing loans for you, especially through the banks and sub-prime lenders.
The dealer will not give you a better deal for paying cash, although the manufacturer may, if their discounted APR is significant enough that they will save more by not loaning you the money. Be sure to check out any rebates or cash credits that are available. You may be able to save yourself a significant amount in the long run by doing a little math.
Should I get a automotive financing online?
Some great automotive financing and APR's are available online. Be aware though, many sites give you great rates but will then switch you at the time of signing. Be sure to take your time to gather as much information about the company you are borrowing from before you actually do.
The net encourages you to make quick decisions, Don't. Your goal is to acquire the best APR, so research, research, research and maybe the web will have the best rates or maybe the credit union will. Either way know what your alternatives are before heading to the dealerships.
What about my credit report?
You should get you credit score before searching online and definitely before heading to the dealerships. Unfortunately, all those "free credit reports" offered online are about as useful as free things normally are. Forget them.
In the United States the rating is in the form of a score between 300 and 850(900), with higher numbers reflecting a better credit history.
In Canada you may also have it in the form of "R" ratings from 1-9 from best(1) to worst(9).
The three top suppliers of credit reports are Equifax: www.equifax.com Experian: www.experian.com TransUnion: www.transunion.com.
Whether bad or good check for any inaccuracies and report them to the previously listed bureaus.
How is your interest rate determined for automotive financing?
Your credit score is of course a factor as well as the term you choose(how long the loan is for). Banks will also many times give better loans to current clients and best of all BANKS NEGOTIATE. Don't be shy to let them know you want a better rate and that you found or have been approved for a lower interest rate.
Should I apply for multiple loans and accept the one with the best APR?
By applying in multiple automotive financing locations or from many lending insitutions you are actually damaging your credit rating. Research and inquire about rates for your credit score/rating. You can get a good idea of what you will be approved for by doing this.
Again....DO NOT APPLY for loans from multiple lenders. Also when you are applying for a loan ask the adviser/officer/manager "Do you pull one credit report and send it to potential lenders or do the potential lenders each pull a credit report on me? Can I get your answer in writing?"
Make sure only one credit report is pulled to keep your rating in good standing. One site you can use to review multiple avaialable rates is www.bankrate.com
What happens if my credit is not very strong?
There are many options in automotive financing for the credit challenged. The best advice is for you to secure your own automotive financing through a credit counsellor at a credit union or *sub prime lender. This way you have not fallen in love with the vehicle yet and are not vulnerable to having your interest rates raised by a less then honest individual who sees the stars in your eyes.
Many of the sub prime lenders lurk on late night television or on the internet feeding on your potential embarrassment, so be aware. Keep a watchful eye on the "Cost of Borrowing" and any extra fees or charges. Some lenders will try you on for 20-35% interest, which could have been inflated by 15-20% just to add profit for the lender.
Research your chosen local lender carefully and use your gut feeling. If you feel uneasy slow them down or leave. Remember that many good people with very good incomes are having the same issues as you are, especially these days, so you are not alone.
What are "Balloon Payments"?
These are payments that load a large amount of loan into the last payment. An example is 58 payments of $145.67 and two payments at the end of $912.42. Be aware of these types of payments and don't accept them unless you fully understand them. Many dealers will prey on your feelings towards affordability.
What are all the products and services available in the F&I office?
This could potentially make up an entire website in itself. Think of an automotive product, yes any product. It's available through the F&I office at some store in North America. Seriously, no matter what you thought of.
The most common services are, as the name states financial and insurance related. Whatever they offer, tell them you can let them know in a day or two and ask if they have a brochure. Check it out online. Read reviews and alternatives available. Remember nothing is a mandatory purchase. If you do want to purchase it, check out competitive pricing. Negotiate.
Some of the most common products are protection products. Rustproofing, fabric/leather guard, tinted windows, alarms etc. Again, take your time. Ask if you can let them know tomorrow. This normally needs to be decided on a little quicker than the services because it needs to be applied or installed on the vehicle. Take the brochure and check it out. Read reviews and pricing. Negotiate.
Also remember a different dealer than where you bought the car can supply the services or products.
Automotive financing can either be your best friend (saving you extra money) or your worst enemy (sneaking around to steal money from your wallet). That main goal for you is to save as much money and time as possible, whether by spending money now on produucts and services to save you later or by cutting interest rates and fees to save you up front. Either way, each of you can only make the decision for yourself.
If you have any questions that we have not answered on this site we will be happy to answer them specifically for you. Just fill in the form below and we will answer it as quickly as we can.