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Although paying cash for a new or certified pre-owned vehicle may be the best way to buy a car, it’s more likely shoppers plan on getting a loan. Conducting some due diligence regarding loan terms and interest rates can save you both time and money.
Rather than take a Saturday afternoon to walk the lots of car dealerships filled with makes and models you adore, consider planning your major purchase in advance. The first money and time-saving steps involve reviewing your monthly budget and determining a hard dollar amount you can afford to spend.
You might be wondering how this saves time or money? By creating a reasonable budget, auto buyers set limits on the models available at car dealerships. You won’t waste time test driving vehicles that are outside your price range. That financially responsible approach can also help avoid allowing a very persuasive car salesperson from talking you into buying a car that you really cannot afford.
When a salesperson tries to up-sell you into a car beyond your financial comfort zone, you’ll have a tangible number that can save money over the long haul. Staying true to your financial planning also avoids the stress that follows when unexpected expenses pop up.
Consumers often hear slick language like “competitive rates” and “0% APR car deals” as part of car loans that lenders may offer. If you deconstruct the verbiage and deals, it’s quite possible that community-based lenders can deliver rates and loan terms that better serve your needs. Keep in mind, competing isn’t winning, and 0% APR car deals do not equal free money.
By checking in with Allegiance Credit Union or other community banks or credit unions and other lenders, everyday people enjoy the benefit of weighing loan products and added value programs in a transparent fashion. Consumers also gain the opportunity to secure pre-approval, which often helps prevent excited buyers from exceeding their reasonable spending limit.
Perhaps the single greatest financing misstep eager car buyers make is getting swept up at the moment and making an impulse buy. Pre-approval ranks among the best solutions to making level-headed major purchasing decisions. But beyond getting ensnared in the world of shiny cars and slick sales pitches, hard-working community members derive wide-reaching benefits from the pre-approval process. These include the following:
A powerful link exists between good credit scores and lower interest rates. When people go through the pre-approval process, local loan professionals can discuss how your credit history affects rates and terms. It is good to know where your number places you in terms of rates and terms. Strategies such as improving your debt-to-income ratio or fixing a reporting error can improve your score and create access to new opportunities.
Working with a local credit union or community bank personalizes the process for auto buyers. This means residents can often sit down with a car loan professional and review the products available. It’s not unusual for a loan professional to discuss flexible options based on down payment amounts, length of loan terms, co-signers, and other factors. The point is that a more personalized approach can result in borrowers getting the right terms to fit their needs.
Potential buyers who walk into car dealerships with pre-approval vocalize a clear statement about making an informed decision. This strong position is the exact opposite exuded by inexperienced buyers whom car salespeople could exploit. But the reality is that you already conducted your due diligence and have probably arrived at the best rate and terms possible. This leverage often forces salespeople to discount vehicles or offer rebates to get you under the pre-approved number. If a salesperson wants to make a commission, up-selling is not on the table.
The car loan pre-approval process requires little time and produces actionable information. It provides consumers with a baseline number and flexible car loan options. Given that buyers must go through the loan approval process anyway, pre-approval makes perfect sense. Why not get the best possible rate and make auto loan lenders work within your financial parameters?
Lenders roll out a variety of incentives to attract potential buyers, and perhaps none prove as effective as 0% APR (Annual Percentage Rate).
What may be sadly true about this proposition is there’s no such thing as free money. Rebates driven by car-makers trying to increase sales and develop brand loyalty are not discounts. When car dealerships take money off the top, no one is losing a nickel. That so-called rebate was factored into the financial equation long before that vehicle arrived at the lot.
A similar case can be made regarding 0% APR car deals. The idea you are getting a no-interest car loan is something of a façade. These deals typically reposition the interest and fee savings from the first 12 months or so and add them to the backend. It’s not out of the ordinary for borrowers to see a spike in monthly payments unless you pay off the loan before the 0% APR portion expires.
These criticisms should not imply that consumers should never consider either manufacturer rebates or 0% APR car deals. Depending on your financial position and where you secure the auto loan, there are significant pros and cons worth considering.
Although the money-for-nothing marketing remains substantially flawed, a slim number of car buyers may be able to take advantage. The first hurdle involves qualifying for 0% APR car deals, which is no easy task. Borrowers usually need exceedingly high credit scores with thresholds of 740 or above 800, pristine debt-to-income ratios, and well-established employment to gain approval. Those factors overwhelmingly reduce the pool of people who can get approval. These rank among the top pros and cons regarding 0% APR car deals.
The seemingly no-interest deal is usually limited to only pre-selected makes and models. Leveraging the deal only makes sense if you like the offerings. Otherwise, anticipate quick buyer’s remorse.
The 0% APR car deals offered usually come with inflexible repayment terms. This can result in high monthly payments over a short period. If that figure fits into your budget, great. If not, money could be tight for years.
It’s also important to understand that 0% APR car deals may be crafted by the manufacturer’s finance wing. The shorter-term loans are a byproduct of the car-maker recovering its full value relatively quickly.
Manufacturer rebates also rank among the tried-and-true marketing strategies used by manufacturers and car dealerships. They mirror the weekly supermarket discounts that motivate people to get loyalty cards and shop on specific days. Discounts and rebates bring consumers to retail outlets and car dealerships. In this fashion, rebates tend to be less murky than 0% APR car deals. After weighing the pros and cons, an increased number of people might find they are better served taking the rebate.
Rebates generally do not require car buyers to qualify for the incentive. People with lower credit scores who may be required to invest larger down payments automatically get the rebate. The discount is typically available regardless of credit history.
Car-makers funnel these discounts to car dealerships to help create a steady stream of buyers. For instance, ongoing rebates and similarly marketed discounts remain open for our valued elders, military service members, educators, and first-responders, among others.
Although rebates offer a defined discount, these offers cannot usually be used in conjunction with 0% APR car deals and other low-interest offers. Rebates fall into the either-or scenario.
Perhaps the top reason that everyday people take the rebate over other incentives offered by car dealerships stems from the fact they can shop around for loan products. Working with local lenders allows working families the opportunity to select a loan that fits their lifestyle. Length of loan terms and suitable interest rates have increased value when you can take money off the top. That’s largely why people who need a new car begin the process by getting pre-approval from Allegiance Credit Union or a trusted financial institution and then go purchase at the dealership.
Hard-working people initially focus on getting good value for their money when making a major purchase such as a car, truck, or SUV. With that mission accomplished, it’s critical to put financial protections in place. No reasonable person would buy a house and thumb their nose at taking out a homeowners policy. And no savvy car buyer would drive around without added security. These rank among the top ways that car owners can protect themselves against unanticipated car-related expenses.
Another protection that local lenders present to community members involve coverage in the event you lose your revenue stream. The program gives borrowers the advantage of postponing monthly payments for a set period of time in the event of an injury, illness, family leave, or job loss. Payment protection plans remain optional benefit lenders routinely offer for a nominal fee. The expense is usually rolled into the car loan’s monthly installment. For a relatively small fee, payment protection plans deliver major benefits when someone’s life suffers disruption.
The conventional wisdom surrounding GAP coverage is that it should be secured within the first three years of buying a vehicle. This does not mean you should wait 36 months. Because these programs provide security for the uncovered amount between a car’s value and loan amount, timing depends on the borrower’s position.
Low down payment loans result in car buyers suffering a financial gap the moment they drive off the lot, in many cases. Higher down payments may stave off the gap for months, perhaps even years. Car buyers with outstanding loans would be well served to do the math between what they owe and what the vehicle is valued. If it were totaled or stolen today, consider your out-of-pocket cost and whether Guaranteed Asset Protection coverage makes sense.
An extended car warranty, also known as an extended service contract, offers car owners a plan that covers unforeseen repairs. These programs can be used to pay for parts, labor, and repairs that a manufacturer's warranty may not necessarily cover. But most often, extended car warranties fill the financial void after the carmaker's assurance expires based on time or mileage.
It’s crucial for car buyers and owners to check their make, model, and mileage to determine if the vehicle remains under warranty. Consider speaking with a local bank or credit union about purchasing an extended car warranty to ensure you won’t get hit with an unexpected major car repair bill. The peace of mind is worth it.
People can work directly with a loan professional to review suitable loan products and achieve refinancing goals. The most common involve lowering payments, securing lower interest rates, and reducing the loan’s length. So yes, borrowers usually maintain the ability to pivot away from the less-than-ideal financing they received at car dealerships and get a car loan that better fits their lifestyle needs from a local lender.
Several factors play into deciding which car loan product makes the most sense. Each person’s financial portfolio and credit history remains unique. Other factors such as down payment, debt-to-income ratio, employment, and budget lead to potentially different borrowing strategies.
But the one constant through the car-buying process is that everyday people can get pre-approval from Allegiance Credit Union without making a commitment. The best way to decide which loan and loan options are right for you is to get in touch with a Consumer Loan Officer and understand what products are available that best fit your specific needs.
For more tips to help you save money when negotiating with car dealerships, review our "Car Loans 101: Car Buying Made Easy" complete guide.