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Some car dealers offer fair interest rates and an all-around nice buying experience to their customers. Other car dealers, however, use every possible trick to get money out of their customers. For example, if a buyer is not familiar with their credit report and score, and the dealer realizes this, the dealer may wind up talking circles around the buyer about how their credit history is blemished and they will be lucky to get approved. The dealer then turns around and obtains financing for the buyer – which the buyer probably could have obtained by themselves elsewhere beforehand – and urges the buyer to take the high interest rate because it is a great deal considering the blemished credit report.
In many instances, the buyer's credit really isn't all that blemished, and sometimes the dealer adds a percentage point or two to the final interest rate as sheer profit for the dealership. Of course, not all dealerships do business like this, but some do. This is why a buyer should always be familiar with their credit report before attempting to purchase a car, and is another reason why buyers should secure financing before even stepping foot on the car lot.
When you buy a car at a dealership, the dealer is going to do everything possible to squeeze more money out of you. You will be offered an extended warranty, life insurance, disability insurance, guaranteed asset protection, and any other number of extras, even if you secure financing through another lender. Even if you have a great interest rate, it won't matter if you agree to all the extra coverage and warranties offered by the dealership. The best idea is to decline every extra the dealer attempts to talk you into, even if they make it sound like the greatest idea ever.
For example, unless you already have the intention of obtaining an extended warranty, don't allow yourself to be talked into getting one from the dealership. If you really want an extended warranty, it might be offered by your lender at a lower price. The important thing is to not get blinded by a low interest rate and allow yourself to merely skim the purchase papers instead of reading them thoroughly. If you pay attention you will be able to catch any additional fees and charges placed on your paperwork by the dealer before you actually sign the papers.
Auto manufacturers aggressively market their cars, and one of the ways they do this is to offer incredibly low interest rates for car financing through the dealership. You have probably seen commercials on television or ads in the newspaper which advertise interest rates that seem too good to be true. Rates that hover close to zero percent APR entice prospective buyers into the dealership, but consumers soon discover that they are not eligible for the ridiculously low auto loan rates.
The initials OAC stand for On Approved Credit, and if you look closely you will see these initials or something similar displayed next to the low interest rate. Only buyers with flawless credit are eligible for these types of loans, and since not many consumers actually have flawless credit there are not too many folks driving off the car lot with the lowest interest rate. Instead of becoming mesmerized by low advertised interest rates, contact your bank or credit union to see what interest rates they are currently offering on auto loans. Unless you have amazing credit, you probably won't find an interest rate too much lower than the one offered by your bank or credit union. Of course, if you do find a lower interest rate, be sure to take it.
If you are unfamiliar with the process of applying for an auto loan, there are a couple of things you need to know. The first thing you should know is that it is possible, and certainly preferable, to get pre-approved for an auto loan before you ever pick out your car. You can do this through your bank, credit union, or another lender. Before you can be approved for an auto loan, your credit report will be reviewed by the lender. If you do not know what is on your credit report, you should get a copy and take a look. Your credit report lists your payment history for unsecure and secure debt, so every credit card, department store card, and loan you have is listed on the report along with your payment history. If you were 30 days late paying your Sears card two years ago, it is still listed on your report today.
Lenders offer the lowest interest rates to borrowers who have the highest credit scores because these borrowers are statistically more liable to pay their payments on time each month. On the other hand, borrowers with lower credit scores are offered higher auto financing rates because they are considered more of a credit risk. Be sure to check out your credit score before you apply for a loan, and you will know what type of interest rate to expect from your lender.
When you apply for an auto loan at a dealership the dealer acts as a loan broker to try to find you the best interest rate possible. This means that the dealer will send your financial information out to several lenders in an attempt to get you financing. When the dealer finds more than one lender that is willing to finance a loan for you, they should - in theory – let you know about the very lowest rate you are approved for. The benefit to using the dealer is that they are able to check with several lenders at once, but the downside to this is that you don't truly know what the offers are. The dealer might pick one loan over another because of the relationship with the lender instead of the lower interest rate. In other cases, the dealer might get you approved for a certain interest rate but then tack on one or two percentage points as profit, leaving you with the higher interest rate. The best way to avoid these problems is to secure financing before going to the dealership. If the dealer can then get you a lower interest rate then go ahead and take it…but don't make the dealer your sole source for financing without checking out other lenders first.
Before you walk onto the car lot to shop for a car, you should already have financing secured from another lender for the purchase. Arriving at a dealership with a loan already in place makes the process of buying a car much easier and quicker because you can skip the whole process of applying for financing through the dealership. You also have the same buying power that someone paying with cash has. For example, if you have a pre-approved loan for the amount of $17,000 but the car you want costs $18,500, the dealer may simply slash the extra $1,500 from the price since you have the check ready to go. The real beauty of this scenario is that even if you have a good interest rate from a lender, the dealership may be able to beat the rate and get you an even better loan. Although it is true that you will have to sit through the whole process of applying for the loan at the dealership, if they can get you a much better interest rate then it is worth it. You will simply need to cancel the other loan and go with the loan offered by the dealership.
Car loans for the purchase of a car are a little different from car loans for the refinancing of an existing vehicle. With the purchase of a car, borrowers can get pre-approved for the loan before even picking out the car. With a refinance, however, borrowers are merely taking out a new loan to pay off the current car loan they already have. Borrowers will often refinance auto loans in an attempt to obtain a lower interest rate. Lenders generally charge higher interest rates on auto loans for refinancing than they do for new car loans.
A refinance is a good idea if you can save a substantial amount on the interest charges for the remainder of the loan. For example, if your credit was quite bad a couple of years ago when you first obtained the auto loan but you have steadily worked to improve your score, you may now be eligible for a better interest rate than the rate you currently have. If you still have a few years left on your current high-interest auto loan, it may be worth it to refinance. Just be sure that your current loan does not feature any sizeable prepayment penalties for early payoff.
When you are shopping for an auto loan, you will notice that although interest rates are usually similar, each lender has their own auto loan rates and their own rules regarding which borrowers get which interest rates. While some lenders offer one interest rate for auto loans, others offer varying interest rates based on the credit score of the borrower.
Lenders that only offer one low interest rate exclude borrowers with bad credit scores, and lenders that only offer one high interest rate exclude borrowers who are eligible for lower rates because of their high credit scores. By offering varying interest rates, lenders are able to offer auto loans to more borrowers than if they only offered one interest rate.
Lenders that offer varying auto interest rates generally grant the lowest interest rates to borrowers with high credit scores with the least amount of months on the loan. In other words, the better the credit score, the lower the auto loan interest rate will be.
The car loan rates people receive are dependent upon a few factors. The interest rate you are offered will depend upon the car you buy, the terms of the loan, and your method of payment, among other factors. One important factor is your credit score and credit history. If you have a low credit score, then you may not qualify for the lowest interest rate. You will not know your actual interest rate, however, until you apply for the loan and receive a firm offer of credit.
Whatever vehicle a car shopper decides to purchase, auto financing should be approved prior to final sale. Try to avoid signing off on any bill of sale that reads "financing pending."
Although most car dealer financing can be done from the lot, a financial institution, online shopping or even a local bank will offer a better rate than the car dealership. In the long rung the savings of the interest rate will render the best long term savings.
Despite the number of prime and sub-prime loans, not all new car financing options are ideal. Use the following checklist to avoid damaging car financing alternatives:
• Thoroughly review any auto financing agreement meticulously
• Inquire about any mystery figures to make sure that each calculation is accurate
• Compare the actual cost of the automobile to how much the car will cost after you have satisfied the car loan (longer auto financing terms mean paying more for the car than its true value)
• A loan where the interest is paid up front is a warning sign of an illicit company. (Companies using these tactics rarely grant the loan and disappear with the funds).