Apply the info provided in this trio of top questions and answers that people are asking about new car loans and you should be well on your way to that new car smell – and the fun thrill of the new auto ownership experience.
1.Where can I get the best deal on a new car loan?
The answer to this question will depend somewhat on your own unique financial situation, because there are a variety of lenders who make new car loans but many of them cater to a particular type of borrower. If you have excellent credit, for example, you will probably qualify for preferential rates and you can most likely walk into any bank and snag a really reasonably priced and manageable new car loan.
That’s because lenders are suffering from the mistakes they made within the past few years when they lost zillions of dollars by making bad loans and even worse Wall Street investments in high-risk mortgage backed securities and other pie in the sky ventures. If you are a responsible borrower with a great credit history, a low ratio of debt to income, and you have a steady job in this unsteady economy – then bankers want to court you and win your business.
If you have terrible credit and have recently gone through a financial crisis like a bankruptcy or foreclosure, on the other hand, those same bankers will probably turn down your loan application. You may need to go to a specialty lender who primarily does business with so-called “bad credit” consumers. You’ll pay more for your new car loan – mainly in the form of much higher interest on the loan – but when you need to borrow money and don’t look so good on paper that can be the best option.
Those who are somewhere in between can find their new car loans at banks and other lenders, but the terms and conditions of the loan will depend on your FICO score, income, credit history, and the policy of the particular lender. You can also turn to the dealership where you are buying the new car for financing, although that is generally the most expensive way to buy a new car.
2.When should I start looking for my new car loan?
Most buyers look for their new car loan at the last minute, once they’ve already picked out – and fallen head over heels in love with – their new vehicle. But unfortunately many of them get a huge jolt of disappointment when the lender breaks the news to them that they have to break off the love affair with that particular dream car and go shop for something a little less sexy, a little more boring and generic, but a lot more affordable. To avoid this kind of misstep, savvy shoppers should start to look for their new car loan as soon as possible.
Those who give themselves as much as 3-4 months will be in the most advantageous position, because that will give them enough time to review their credit report, make some changes in their finances, and prepare for a successful and swift loan approval process. Even if you don’t have that much time you can still visit lenders and find out what they expect from you, what kind of criteria you will need to meet in order to get your new car loan, and how much you can expect to borrow. That way you can shop with a realistic sales price in mind and buy a car you’ll love without having to worry about the downside if your loan does not go through.
3.What is the biggest pitfall with new car loans?
The biggest pitfall to avoid is borrowing more than you can handle, even if a lender or dealership offers it to you. Consult a financial planner, accountant, or friend who is educated about personal finance and determine how much car you can really and truly afford. Then stay within that budget so that buying your new car becomes an experience of freedom and pleasure, not stress and turmoil because suddenly all of your focus is on money problems. Debt that is reasonable can be a great asset and tool, but tip the scale too far and it can become a catastrophe. Shoot for a total auto expense – including car loan payments, insurance, gasoline, and upkeep – that does not exceed 10 percent of your total income. Try for 6-8 percent, but if you find yourself spending 10 percent or more it is a warning sign.
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With a brand new year in full swing, many consumers are eager to buy a new model of their favorite brand of truck or car. But first they need to secure financing, and these days the process of successfully getting a new car loan approved can be a little more complicated than it was a few years ago. The experience you had last time you applied for a loan to buy a car, for example, may have been smoother and less demanding.
With the newer 2010 models of cars and trucks we also have a new world of post-Wall Street meltdown consumer credit and finance. As a result of the historically severe global credit crisis and recession, consumers should be aware that before they go car or truck shopping they can expect different new car loan hurdles.
First of all, in order to succeed with getting new car loan approval in today’s stricter credit environment, you should have the best possible credit score or FICO score. You will also need to have a clean credit report and proof of steady income. Of course with a recession creating challenging financial problems for people all over the USA, fewer and fewer people actually have the high FICO number and pristine credit needed to sail through new car loan approval without a glitch. If you are in the category – and have less than perfect credit – you don’t have to worry. You can still get a new car loan. But you may have to pay a slightly higher interest rate or accept other added fees that preferred “perfect credit” customers are able to avoid thanks to their low-risk borrowing profile.
Those other options for most people – because only a small group of new car buyers actually have top-notch credit in 2010 – include bank or credit union loans that are still reasonably priced. That’s because prevailing interest rates are still very low compared to where they have typically been over the past few decades. During the 20th century, for example, any interest rate on a home mortgage that was lower than 10 percent was cheaper than average. So while many of us have gotten spoiled by mortgage rates below five percent within this century – and have forgotten that single digit rates are still a bargain – the fact remains that most interest rates these days are still a good deal.
The exception is credit card rates, but you won’t be buying your new car with a credit card. You may decide to buy with auto dealership financing, however, because that is one of the most common ways that Americans pay for their cars. But the car buying professionals recommend that before you do that, you should first look at other options. Dealers may offer interest rates that look enticing or they may give you a new car loan with a really sweet monthly payment. They might throw in some free gasoline, a package of vehicle upgrades, or knock a big chunk of money off the sticker price. But the tricky part about dealership loans is that no matter how good they look on the surface, they are generally more expensive over time than a conventional new car loan from your local bank.
That means that before you sign for dealer financing you need to carefully study all the small print on the loan agreement. You might even want to run it past an attorney, because the complex legal language in these contracts can be bewildering. The real risk is that you will buy a car and later find out that the new car loan you got from the dealer is a burden on your finances because it is taking much too long to pay off the balance. Avoid that scenario at all cost, because a bad loan can easily ruin the excitement and pleasure of driving a new truck or car – and that can be a most disappointing and frustrating experience.
Study all your finance options. Visit bankers and other lenders and find out how their new car loans stack up against those being offered to you by the car dealership. Don’t be afraid to consult an expert or call a lawyer if you can’t crunch the numbers by yourself. Remember that buying a new car should be fun, not stressful, and that the key to keeping it positive and thrilling is to get a reasonably priced new car loan that you’ll be happy with for years to come.
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Between the cash for clunkers program and desperate dealer incentives to promote car sales as major vehicle manufacturers struggled to avoid bankruptcy, the automotive consumer was the only real winner in terms of the 2009 auto industry. But as we celebrate a New Year – and the start of a brand new decade – with lots of lingering economic uncertainty, many people who are in the market for a car or truck want to know the outlook for auto loans in 2010.
While nobody has the benefit of a crystal ball, consumers should have much better success this year compared to last year when it comes to auto loans and vehicle purchases. Of course there are variables that nobody can possibly predict, but according to recent news reports there are some very compelling reasons to be optimistic about car loans.
Last year, for example, the global credit markets were still reeling from the aftershocks of the unprecedented financial meltdown that rattled banks and other financial institutions at the end of 2008. The future of the entire banking system was in jeopardy, it seemed, from 2008 through the first half of 2009. Banks and other lenders were paralyzed by excessive debt, borrower defaults, and an overall lack of cash with which to make auto loans. Meanwhile the automotive industry was in the midst of its own severe crisis, and the oldest and most reputable automobile manufacturers in American were collapsing – leaving dealerships in a panic.
Those factors created a double whammy for the auto loan niche of the credit market. On the one hand there was very little credit to go around among traditional banks. Meanwhile some of the biggest players in the auto loan industry – those lenders that are and on the other hand some of the biggest auto loan institutions owned by or affiliated with big automotive companies like GMC – were completely strapped for cash. The bottom line was that it got much harder to get a loan of any kind, and that included auto loans. So despite lots of deals and perks like the cash for clunkers program, many consumers still found it hard to get approved for their auto loans in 2009.
But now the business headlines are announcing that while interest rates are still historically low, consumers are finding more loan availability. The Boston Globe newspaper for example, recently ran a story explaining that easing of credit restrictions on auto loans is finally starting to inspire a surge in buying. The well respected Ward’s Automotive Group – which tracks data about the auto industry – reported that light vehicle sales rose approximately 20 percent this past December compared to the year before. Meanwhile the most recent data available on car loans from financial institutions shows that they are approving more loans, and that is especially true for consumers who have average or above-average credit.
As car companies and banks continue to see positive economic signs on the horizon – such as improved auto sales figures and fewer defaults, foreclosures, and bankruptcies – they will both gain the confidence to increase auto finance lending. That will, in turn, encourage buyers to take out more auto loans – so that a rosy economic outlook can potentially start a chain reaction by creating a cycle of improvement that just gets better and better.
But before we can put on our party hats and toast the end of the recession – and the full fledged return of credit in the form of easier and more affordable auto loans – the unemployment picture must first improve. Employment data is still a wild card, and while there are signs of economic improvement the employment outlook remains bleak. Recent news reports show a rather unpredictable hiring forecast, and it seems that just when we get some good news regarding labor and employment another statistic makes the headlines to deflate our enthusiasm. The President has vowed to make job creation a top priority in the coming months, however, and if the national unemployment rate backs away from double digits and starts to shrink, that will be good news for auto loans.
The reason that auto loan availability is tied to employment figures and other general economic data is that when people are working and earning, they are in a better position to repay their car loans in a timely fashion. That makes auto loans easier to get, and as lenders start to compete for your business, those auto loans also become more affordable.
So while the forecast for auto loans looks good so far, based on current news, keep an eye on the business pages. If other statistics also start to fall into place it could turn out to be a banner year for auto buying.
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Here are three expert tips for receiving the best auto loan possible, regardless of what kind of car or truck you intend to buy.
#1
Look Beyond the Dealer for Auto Loans
The first thing for consumers to understand before buying a vehicle is that when it comes to paying for a car or truck, there are lots of options. To be in the strongest negotiating position when you arrive at the car or truck dealership, first secure your vehicle financing and bring a letter with you that documents the fact that you already have loan approval. That way the dealer or salesperson will know that you are a serious and committed buyer, and he or she will not waste their time or yours touting various dealer finance options. You can focus instead on the nuts and bolts of the transaction to get the best vehicle at the best possible price. If you decide to do an auto loan through the dealer, compare the interest rate, terms, and conditions they offer you to those offered by the banks in your area. Choose the best loan or demand a discount off the sticker price to compensate you for any extra costs that the dealer’s loan adds to the bottom line when compared to auto loans from other lenders.
#2
Take Care of Your Credit Score
No matter where you go for an auto loan, the lender is going to look at your credit score and then offer you a loan based on your credit history. Lenders are not nearly as easy-going as they were 2-3 years ago, back before the credit crisis, and even if you had a decent score back then it will likely be interpreted as a lower score these days. What was a good score back in 2007, for instance, is now average or even below average. So before you shop for your car contact one of the major credit reporting agencies and check your FICO score. This is the number bankers use to get a snapshot view of your credit worthiness.
You can review your credit file and FICO score for free once a year, or pay a small fee and do it more than once a year. Read the full report, challenge any errors or omitted information that you think needs to be corrected or updated, and then begin to take tangible steps to bolster your rating.
That can be done by paying off outstanding balances on credit cards, by being careful not to miss payments or make a late payment, and by generally reducing the amount of debt you carry. The more income have and the lower your debt, the better your chances are of having a stellar FICO score that can get you preferential treatment in the form of lower rates and cheaper auto loans.
#3
Be Patient, and Don’t Forget to Do the Math
Understanding a little bit about the mathematical calculations that go into every auto loan can help you save money while also avoiding common pitfalls and automobile dealership tricks of the trade.
The interest rate is perhaps the most important number to pay attention to, but it can be a moving target right up until you sign on the dotted line. That’s because the interest rate is not set in stone but instead fluctuates on a daily basis – depending upon whether other prevailing rates are going up, coming down, or remaining steady. But once your lender commits to a loan and a specific rate, however, you are “locked” into that rate – which means they can’t change it unless you somehow violate the terms of your loan agreement.
The exception to this rule is the so-called “adjustable rate loan,” a type of loan typically used for mortgages and home equity loans. But most consumers are better off buying a car with a more predictable fixed rate that will not change once the loan is made. So if you plan to use a home equity loan, for example, to pay for your vehicle then you should study the terms of the loan agreement closely to determine whether yours is a fixed rate loan or one of the more volatile and risky adjustable rate loans. Shop around, evaluate all your auto loan options patiently, and then select the one that is right for you and your particular needs.
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