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Most people need to finance their car when buying. The choice of financing can have a major impact on the overall cost of the purchase. There are also many possible options for financing, and buyers can save a great deal of money by doing a little research and understanding the impact different financing choices will have.
Many people look at banks or credit unions for financing outside of the dealership. Some people may consider banks and credit unions to be the same thing, but they aren’t. Credit unions, in general, are local and typically not as profit-motivated as banks. This allows them to generally offer better loan terms like lower interest rates.
Dealing with a credit union also means keeping things local. This can benefit borrowers in a number of ways. First, customer service is more likely to be local and accessible compared to a large national bank. The finance officers in a credit union also know they are dealing with local customers and community members. They may be more likely to work with you if your credit or income isn’t perfect and approve you for a better loan than the person may get at a bank.
Your credit score is one of the most important pieces of information you have when trying to secure financing. Your score not only impacts whether or not you will get approval for higher loan amounts but will also significantly impact the interest rate on whatever loan you get. While institutions will show you the score they used to make their decision, this doesn’t tell you all the details.
If there are problems with your credit score you don’t want to wait until you are sitting at the dealership or bank to find that out. Credit scores may have misreported information or errors that should be corrected before trying to secure financing. Different finance companies may also use different reports and the scores can vary slightly. In certain situations, your credit may look better at one place compared to another.
Many people get caught up in only the monthly payment for a loan. Honest companies will be upfront about all the detail, which includes the monthly payment, interest rate, loan term and total cost. The total cost of the loan is the most important information. Everything else can be manipulated. For example, if a customer looks only at the monthly payment, it may look like they are getting a great deal. Then they realize the very long term attached to the loan and see that it is actually much more expensive in the end. How upfront a finance company is about this information can tell you a lot about their integrity and should play a big part in how willing you are to work with them.
Getting a loan is more than just paying principal and interest. All finance agreements will come with additional fees added in and may have other requirements than just credit and income. These can vary remarkably between institutions, and they can be buried deep in the terms and agreements. Ensure you pick a company that charges minimal fees and has requirements you can meet. You may have to ask for these fees to be presented up front. This is another integrity check in the company. They should be open and honest about all of these fees, especially once you’ve asked. Still, compare what they told you to what is written in their offer before you sign.
While financing tends to be better at credit unions or banks, it is important to make a clean comparison between offers from these institutions and dealerships. Many times, dealerships may offer cash back offers or other incentives that can only be claimed if financing is done through them. This makes the comparison a little more difficult. It is important to carefully consider the total cost of the loan from both places and then add the incentives on top to see which is lower. Often, good dealership offer will make the total purchase cheaper, even if their loan rates aren’t as good.
The most important thing you can do is take their time with the financing process. Don’t get talked into a bad deal by going to the dealership on day one expecting to drive off in a new car. Ideally, a buyer should spend about a month doing research and comparing rates and getting offers to get the best deal possible.