Your car financing rate can potentially cost you significant money during the term of your loan. Not everyone is approved for the best rates offered or advertised and rates are as high as 29 percent in some states. Several different types of lenders exist for vehicle financing, which you can use to your advantage to shop around for the best rate or find a lender to fit your needs.
Manufacturer Offers
Manufacturer rates are often the most competitive but are usually only available for new-car purchases. The car companies provide incentives for buying by trumping traditional lending institutions by offering rates such as 0 percent or 1.9 percent financing for 60 months. The rates are often given in lieu of rebates or instant money off the vehicle. You can view any low-rate offers at the manufacturer's website. Most offers change monthly and require buyers to go through a preferred lender.
Traditional Lenders
Traditional lenders, such as local credit unions, military banks (USAA or Navy Federal Credit Union) or large-name banks specific to your area are usually in competition with each other. Rates change with the market, but you can go to any of the bank websites to view current rates. These banks offer approvals on a tier scale, meaning you may not get the best rate advertised. Once approved, your rate may fluctuate by one or more points depending on your tier approval.
Subprime Lenders
Subprime lenders offer loans to risky borrowers or those with poor credit who can find financing elsewhere. The interest rates are not competitive and the bank often requires substantial cash down. Subprime lenders also prefer a shorter loan term, which often result in higher payments. These lenders do not exist in all areas, but you can use the Internet to locate one nationally based, such as Road Loans or Capital One Auto Finance. Many subprime lenders offer loans with interest rates as high as the borrower's state allows.
Considerations
Obtain a loan pre-approval to find out your true interest rate. Banks determine approvals and rates based on numerous bits of information including employment history, income and payment history. Unless you are sure that you qualify for the best rate, apply for a pre-approval. Keep in mind while shopping that the rates that you see advertised on websites are usually for a term up to 60 months for new cars. If you prefer a longer term or want to finance a used car, call the bank to get correct rate offers.
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