Several finance options exist for a used car loan, while each offers its own benefits depending on consumer credit standing or convenience. You can obtain financing on your own or let a dealership handle the process for you. Learn which finance options you should consider before you make your financing decision.
Traditional Financing
Credit unions usually offer the most competitive rates and term options in an area. Other lenders, such as Chase, HSBC or Bank of America also exist on a local level. You can find used-car interest rates advertised on the bank's website, or you can call for details. The rates you see advertised require a good to excellent credit rating, but fortunately, you can still obtain an approval with a decent interest rate, even if you do not qualify for the best rates. You may qualify for rates by tiers used by the bank, meaning that if you are not an "A" tier (to obtain the lowest rates) you may qualify as a "B" tier, which might offer a point difference for interest rate. In addition, using a local bank may allow you to finance up to 84 months. Check with lenders to determine requirements for different terms. You can go to any local lender to apply for a pre-approval, which is good to have on hand when shopping, or you can apply online if the bank allows it. A pre-approval can take up to a week, so plan enough time before shopping.
Subprime Financing
If you are considered a risky borrower, meaning your credit is fair to poor, you may find an approval through a subprime lender. Subprime lenders charge very high interest rates (up to 29 percent) and often require a significant amount of money down for purchase. Subprime lenders also don't allow as long a term, which, combined with a higher interest rate, can make for a larger car payment. While these pitfalls are unfavorable to some buyers, a subprime lender may prove the only option for some. Subprime lenders do not exist locally in all areas, but larger dealerships (if you are using one) likely work with subprime lenders. Even though a subprime lender may be your only option, decide on your budget before shopping and stick to it. Obtaining financing through a subprime lender can leave you paying over $100 more a month in payment than a regular finance. If you cannot make your payments, the vehicle will be repossessed, further damaging your credit rating. Proceed with caution if using a subprime lender and seriously consider your monthly payment and its affordability.
Dealership Financing
You can finance your vehicle through a dealership, who uses local lenders like credit unions, subprime financing and national banks with a local presence. Larger dealerships use more banks, while smaller, independent dealers often use just one or several banks. You do not have to find financing on your own if you plan to purchase from a dealer. However, dealerships do make a profit from your financing in some cases. Credit union financing offers dealers a flat fee -- you would receive the same rate whether you used the dealer for financing or went straight to a credit union, but the dealer will receive a small bonus for choosing to finance your loan through the bank. Other banks allow a dealership to mark up your interest rate point to make more of a profit. For example, if your excellent credit warranted you a 5.9 percent interest rate, the dealer can mark the rate up to 7.9 percent and receive a profit from the bank for doing so. If you plan to use the convenience of dealership financing, it is wise to bring a pre-approval with you. Doing so will motivate the dealership to beat your rate instead of increasing it for profit.
0 comments:
Post a Comment