Shopping for Car Loans

Never get married to a single make and model until you know what your financing options are.

The first thing to do when shopping for financing is to see if manufacturers are offering any incentives on the models you are interested in. Use Auto Loan Daily’s “Rebates and Incentives” tab to see what incentives are available on specific models.

If no incentives are available on the models you are looking at, don’t let that change your mind about what car is right for you.

Now it’s time to start shopping for a loan. You will see a wide variation in auto loan rates.

Remember, these rates are based on certain assumptions that may not apply to you. Most will assume a 10 percent down payment and FICO score of 700 or better. Before calling a lender or applying on-line you will need to know:

 Purchase price: Determine total purchase price by adding advertised price, taxes, tag and title.

· Loan term: Using an auto loan calculator, determine the minimum loan term you can handle given what you have budgeted for a car payment. For example, can you afford to go 48 months on the loan, or will you have to stretch it out to 60 months?

· Credit score:  Get at least three quotes, preferably from a commercial bank, a credit union and a thrift or savings and loan. If you speak with a live person, it won’t hurt to tell them in advance that based on your credit rating, you think you are entitled to a certain interest rate.

Questions to ask your lender:

  • What is your turnaround time: Most lenders should be able to get you a quote within a few hours.
  • What is my interest rate? Ask them for the annual percentage rate, or APR. This includes interest, insurance and the origination fee, or points, charged to originate the loan. Specifying APR will make it easier to compare rates between lenders.
  • What is my monthly payment?
  • What FICO score is the offer based on?
  • Do you require me to purchase credit insurance? If you have a spotty credit record, the lender may require you to buy insurance that will pay of the balance of the loan should you default.
  • What is the cost of that insurance?
  • How much do you charge for gap insurance on these vehicles? Gap insurance pays the difference between the actual cash value of the vehicle (or what your insurance company is willing to pay you if your car is totaled or stolen) and the balance outstanding on your car loan. Check with your insurance company to see what they would charge for a gap rider to their policy. Lenders can not require you to take gap insurance but with vehicles that depreciate fast, it may be a good idea.
  • How long is this offer good for? Loan offers usually have a shelf life of 15 to 30 days. After that the lender will want to recheck your credit.
  • How do I pay? Does the lender offer online payment? Do they offer a discount if you allow them to withdraw money automatically from your bank account every month?
  • What happens if I pay late? What are the fees the lender charges for late payment? Will they raise the interest rate? By how much?
  • Is there a prepayment penalty? Do you charge a fee if I pay off the loan early?
You should organize the answers to these questions in a chart and bring it with you to the dealer. This will help you evaluate the dealership’s offer.