Buyer Question: Where should I obtain my vehicle financing?
Comment: Today customers have several options for financing the purchase of their new vehicle e.g. 1) local bank, 2) local credit union, 3) Internet financing sources, and 4) the dealership where they purchase their vehicle.
Buyer Tip: Always obtain a pre-approved loan from a financing source e.g. Internet Financing Site, Bank, Credit Union before visiting the dealership.
Buyers with lower credit ratings might want to consider Internet financing sites like Household Auto Finance at www.householdauto.com.
Bank and Credit Union. Apply for a loan at several local Banks and Credit Unions. Determine if their interest rates for the same loan term (length in months), fees and prepayment penalties are equal to or better than the Internet sites. If a local bank or credit union will match or beat the Internet sites … finance locally.
Dealership. If you are considering financing your vehicle through the dealership you should know vehicle financing is a large source of income for the dealership. The contract you sign at the dealership will be sold by the dealership to a funding source. The dealership often participates in the financing with the funding source by adding an interest surcharge, of several percentage points, to the customer contract.
Buyer Question: Will applying to multiple financial sources negatively affect my Credit Rating?
Comment: According to Fair Isaac Corporation, who developed the FICO credit rating score, “most credit scores are not affected by multiple inquiries from auto … lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on the credit score.”
The following steps take approximately three hours and could save you up to $1000-3000.
Apply at two or more of the vehicle financing Internet sites. (1/2 hour each) e.g. E-Loan at www.eloan.com, Household Auto Finance at www.householdauto.com.
- Apply at your local Bank and Credit Union. (1 hours each)
- Compare each pre-approved loan’s terms and conditions e.g. interest rate, length of loan,
- pre-payment penalties, length of approval period, length of the interest rate lock period.
- Determine if the financing sources require you to be covered by GAP insurance, credit life insurance, credit disability insurance, extended warranty coverage or to have your vehicle etched. The dealership may falsely advise some or all of these items are required by your financing source.
- Include the best pre-approved loan(s) e.g. interest rate, loan term and conditions in your Buyer Information Folder.
Comment: Absolutely … remember you are under no obligation to use your bank, credit union or Internet site’s pre-approved loan. If the dealership offers a better deal, take it and save some additional money. Just make sure it is a better deal.
Dealership Trick: Dealerships have been known to focus the buyer on a lower monthly payment while extending the term of the loan.
Buyer Tip: A better deal is not necessarily lower monthly payments. A better deal is a lower interest rate for the same loan term (length in months). Always compare the dealership’s interest rate and loan term against your pre-approved loan’s interest rate and loan term the dealership’s offer
The following example is where the dealer has reduced the monthly payment by extending the length of the loan from 60 to 72 months. This has resulted in a lower monthly payment but a higher amount of interest being paid over the life of the loan.
Example: A $15,000 loan at 6%.
| Monthly Payments | Length of Loan (Months) | Interest Rate | Total Interest Paid |
| $290 | 60 | 6% | $2,400 |
| $250 | 72 | 6% | $2,899 |
Dealership Trick: Dealerships have been known to focus the buyer on a lower monthly payment by extending the term of the loan while raising the interest rate.
The following example is where the dealer has reduced the monthly payment by extending the length of the loan from 60 to 72 months and raising the interest rate from 6% to 7. This has resulted in a lower monthly payment but a substantially higher amount of interest, an additional $987, being paid over the life of the loan.
Example: A $15,000 loan
| Monthly Payments | Length of Loan (Months) | Interest Rate | Total Interest Paid |
| $290 | 60 | 6% | $2,400 |
| $256 | 72 | 7% | $3,413 |
Classic Dealership One-Liners regarding financing new vehicles …
“We can get you the best interest rate from one of our 50 funding sources.”
Comment: Maybe! Check the dealership rates against your pre-approved rates from the Internet financing source, local bank or credit union.
“We can’t sell you the vehicle at the agreed price unless we finance it.”
Comment: Remember they are not the only place which sells this model of vehicle.
“Hmmm … your credit scores are lower than we expected. Our financing source is going to expect a higher interest rate on your loan.”
Comment: Did you obtain financing from an Internet source or a local bank or credit union before going to the dealership?
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The purpose of website eAutoAdvantage.com is to provide the user with general information about the subject matter presented. Website eAutoAdvantage.com is not intended, nor should the user of website eAutoAdvantage.com consider it, to be financial advice applicable to the user’s specific situation. The user is solely responsible for the use of website eAutoAdvantage.com. If the user has any question about a specific financial situation, they should seek counsel from a financial planner or CPA registered to do business in their state. Also see our general disclaimer.
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