Choosing the Best Auto Loan
Shopping for a new car might be fun, but most would agree that searching for a good auto loan isn't a joy. However, that attitude could be costing us.
Although it may not feel like it throughout much of Colorado, warmer weather is not far ahead of us in the forecast. With more sunshine bringing people outside from their long winter hibernation, more car dealerships will also be looking to attract spring buyers. Whether it's through new models or attractive financing, the new season is sure to bring its fair share of deals for those already considering purchasing a car. However, while many buyers spend the bulk of their time searching for a vehicle with the best looks and features, they tend to neglect looking for a loan that also meets their needs.
"Many U.S. car owners might be overpaying on their auto loans."
A survey of more than 1,000 recent car buyers from Credit Karma found that many tend to spend more time comparing different makes and models than they dosearching for the best deal on an auto loan. In fact, around 40 percent of survey respondents said they either went with dealer-financed offers or did not even bother to compare loans. Credit Karma makes a cogent point by noting that both loans and the cars themselves can be easily compared online, but shopping around for financing could lead to bigger savings. Based on these findings and an analysis of its user data, Credit Karma estimated that some 15 million of its users might be paying unnecessarily high interest on their auto loans, with cumulative savings totaling $25 billion.
Of course, choosing the right (or wrong) car could also make a difference in terms of real cash savings and especially intangible value. After all, it would be hard to argue that buying a clunker of a car is as bad as choosing an unfavorable loan. Still, there is clearly a lot we could stand to learn about how best to choose an auto loan.
Setting the budget
First, before taking a serious look at either cars or a loan with which to buy one, figure out how much you can actually afford. This might be different for everyone, but as Consumer Reports wrote, a reasonable benchmark to use is that no more than 36 percent of your gross monthly income should be comprised of any debt. If you calculate 36 percent of your gross income, and subtract that from the total amount of all debt payments you owe (including mortgage, rent and credit card interest), you can see how much is left over for a car.
Keep in mind, though, that auto loans work similarly to mortgage debt, where borrowers must first make a down payment and then keep up monthly payments plus interest. If you're currently short on cash or facing a substantial debt load, you might consider waiting to purchase a car and instead saving up for a while.
Shopping for an auto loan
Once you have an idea of your budget, take the time to research your auto loan options. Although many dealerships offer their own financing most of the time, it also tends to come at a significant markup. According to Bankrate, coming to a dealer with a loan preapproval in hand affords buyers significant bargaining power in terms of securing a better deal on the car itself. Some dealerships might also still offer rebates or other incentives for those approved for third-party financing.
So where to begin the search for a quality auto loan? Consumer Reports and others recommend starting with local banks and credit unions, particularly the one you already have a relationship with. Local banks tend to have the most favorable loan policies and competitive interest rates, although this might come at the expense of strict credit history requirements.
It's also a good idea to search online for auto loan rates, if only to get an idea of your options. Many websites like Bankrate allow users to input their budget, credit score and much more information to match them with ideal financing sources. Online search tools benefit users by giving them a wealth of choices, particularly if they have less-than-stellar credit. However, they might favor national lenders over local institutions that could have better deals, so don't forget to search locally as well.
Contact your local Vectra Bank to learn more about New Car loans and Used Car loans.