The Main Sources for Getting a Car Loan
It really pays to know the different ways to get a car loan, and which sources to stay away from.
Banks are one of the most popular sources for car financing, with about 40% of all car buyers getting a loan through them. Interest rates can vary considerably from bank to bank since each one calculates risk differently.
Sometimes you can find special car loan rates used to attract new customers, so it pays to call several different banks and compare the different rates.
Captive Finance CompaniesMost major car companies have a financing division which lends money to customers that buy their vehicles. They're called captive finance companies and usually offer low interest rates to help sell the vehicles.
Whenever you see extremely low APR rates such as 0% for 60 months, these are only offered through the captives. They lose money on the lending, but make it up with increased vehicle sales.
Credit unions are finance institutions which are owned and controlled by its members. The main purpose of a credit union is to provide credit at reasonable rates to its members. They're a great resource for auto financing and are used by about 15% of car buyers.
There are many online services such as AutoCreditExpress and MoneyAisle that let you get finance quotes from multiple lenders in one shot. This can be very convenient, although it's still recommended to shop around and compare rates from other sources.
Dealerships don't actually provide car loans directly - they just arrange financing (for a fee). Most dealers have relationships with several dozen financing sources including banks, independent finance companies, and even credit unions.
Sometimes they can get you the best rates, but don't count on them doing so unless you've already shopped around and gotten quotes from other financing sources. Once you've done that, you can see if they can beat your best rate. Otherwise, they'll just pad the interest rates and make a killing off you.
Home Equity Line of Credit
For those who have built up a significant amount of equity in their home, taking out a home equity loan may be a good, low-cost option. Just make sure to keep the loan short and only shop for the loan through a bank or credit union.
For some people, getting a car loan is very difficult. You may have bad credit or not enough credit history. If your only option is paying cash but you don't have enough to pay for a car, a little help from the family can go a long way. (Also see: Best Loans for a First Time Buyer.
You may have an uncle or grandparent who needs to make yearly gifts to save on their estate taxes. This would be a great source for your car payment.
Buy Here, Pay Here Lots
These are independant used car lots that provide car loans directly to buyers. The only thing we have to say about them is: Stay far away! These places prey on people who are desperate for a car and will usually charge outrageous interest rates. Visit Working Cars for Working Families if you have no credit and need help getting a car.
The only thing worse than Buy Here, Pay Here financing. Don't even think about doing a title loan. It's better to deal with not having a car than it is to get a loan this way.
My Recommendation for Car ShoppersTrueCar No-Haggle, Edmunds Price Promise and Ryde Shopper are the quickest way to see the lowest car prices in your area. These sites show you no-haggle prices from dealers closest to you - and the deals are usually really good. This should be the first step you take when negotiating your car price. Follow this up with my checklist to make sure you squeeze out every last bit of savings.
- Gregg Fidan
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About: Gregg Fidan
Gregg Fidan + is the founder of RealCarTips. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals. He has written hundreds of articles on the subject of car buying and taught thousands of car shoppers how to get the best deals.