How you can avoid paying too much for your auto loan (and what to do if you already are)
When you are in the market for a new or used vehicle, do you have a plan for how you will get a loan before you start test driving cars?
For many people, the answer no.
They simply go to the dealer and start shopping around. They’ll worry about financing later.
So after test driving and falling in love with the perfect car, they might find themselves unprepared for what comes next.
When sitting down with the dealership’s sales team to strike a deal, a negotiation process can sometimes veer into a pitch that pushes a customer to pay for a new set of wheels with a higher than expected interest rate, undesirable financing terms
or include overpriced extended warranty and GAP coverage that can end up costing hundreds if not thousands of extra dollars over the life of the loan.
As part of this, some dealerships may now require potential customers to undergo a dealership credit pull in addition to any credit pull from the customer’s preferred lender. They explain that this extra credit pull might be used as a backup in
case they don’t receive a check fast enough from the other lender.
Often, this high-pressure tactic causes customers to opt for the dealer’s financing. They fear the second credit pull will lower their credit score or they’ll risk losing the car they want if they don’t act fast enough.
While pushing their own financing may be lucrative for a dealer, it can make a car purchase and monthly car payments that much more expensive. Don’t let this happen to you.
There is a better way!
Never settle for less than the best car loan rate
We get it – at the end of the day, you just want to drive home with your new car as quickly as you can. That may cause you to make a hasty decision on the loan front that ends up costing you way more than it should.
Unfortunately, when you delay figuring out your car financing, you make yourself vulnerable to high-pressure sales tactics.
The answer is to make sure you don’t set foot on a car lot until you are preapproved for a loan from your preferred lender. Doing so will help make sure you are receiving loan terms that fit your budget.
Plan ahead and save
If you know you’ll be in the market soon for a new or used vehicle, take the time to shop around not only for the best price on a car but for the best loan rates.
If you are already a member of a credit union, see if your institution has any loan specials and compare their rates against those of other lenders.
Once you’ve settled on the best option, plan to get preapproved for an auto loan before you go to the dealership. That way, you can stay strong and politely decline any alternative loan options and still get the car you want.
How it works
Typically, when you apply online, the preapproval process is quick and empowers you to start shopping right away. For example, during our regular business hours, CAFCU can approve a loan within one business day so you can start your search.
With credit unions like CAFCU, you can apply online and, if everything checks out, receive a preapproval letter by email that you can take to your dealer. This letter will advise the dealer on the amount of loan you are approved for. You’ll
also get a checklist of items your lender will need to approve the loan so your dealer can get the cash to cover your car purchase.
When you’ve found the car you want, your dealer will share the purchase order with your lender, along with any other required documents so the lender can make their final approval and cut a check to the dealer.
Did you already get pressured into dealer financing?
Hope is not lost! If you were talked into dealer financing and are unhappy with your rate, you can try to lower your monthly payment by refinancing. To do this, look for a loan offer with a better rate and terms than the one you secured from the dealer
and contact the new lender about next steps.
Here at CAFCU, we have been able to help our members reduce their monthly car payment significantly by helping them refinance an expensive car dealer loan with us. We also offer reasonably priced Guaranteed Asset Protection (GAP) and extended warranties.
Every day, our Lending Team helps our members lower their monthly payment and daily interest, shorten their loan terms, and add more affordable extended warranty and vehicle loan protection options to help them protect their vehicles without paying too much.
Not a member of a credit union yet? No problem!
As member-serving institutions, credit unions exist to offer our members the best car loan interest rates possible.
You don’t need to already be a credit union member to save money on your car loan. Many credit unions have open fields of membership that will allow you to join and reap the benefits of being part of a not-for-profit financial cooperative.
For example, with CAFCU you can request to join simply by applying for your first car loan online. Once your loan and membership are approved, we will help you maximize your saving potential. That’s because our vision as an organization is to
empower the financial success of every one of our members. We want you to live well within whatever means you have and will do whatever we can to help you get there.