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Finding An Auto Loan With A Low Rate |  |
Although one might think that automakers would be racing to offer fantastically low rates to potential customers given the present weak sales market, the reality on the ground is a bit different. Finding an auto loan with a low rate and acceptable payment terms is a real challenge. Understanding that challenge and the factors contributing to the current state of the auto financing market is the first step in finding your way to an auto loan with a low interest rate.
What’s Moving the Market?
At the moment, the auto loan market is recovering from the effects of the Cash for Clunkers program. While it has been touted as a wildly successful initiative in the media, for automakers the sensation is that it was actually more of a mixed blessing. On one hand, there is no doubt that sales in July and August were quite high, with lenders struggling to keep up with financing demand. On the other hand, now that the promotional period is over, demand has fallen off a cliff, leaving dealers and lenders reeling.
As both sides struggle to adjust, it is hard for them to know exactly how much financing to make available at any given time. Burned by past repossession moves and shifts in the credit market, they are also more wary of leaving capital out with customers who may not be able to repay the loans. Thus, a loan approval that might have previously taken minutes now takes hours, days, or even weeks. Rates have also crept up as new risk factors are included in loan offerings.
How to Go Hunting for a Loan
Keeping in mind that automakers, dealers, and automotive financing companies are bouncing all over trying to respond to the volatility in the market, how can you go hunting for a good loan? You will want to know what you want going in, understand where you are likely to find funding, and be prepared to make a larger down payment than in the past.
The first step is knowing what you want from the loan. What is important to you? Do you need to have a low interest rate, or are you more concerned with specific payment terms? What credit restrictions will you be working with? Instead of simply taking whatever the market has to offer blindly, knowing in advance what works for you and what will pose a challenge will help you focus your efforts on lenders who are likely to be able to give you what you want.
Speaking of lenders, you need to look in the places where you are likely to be able to get a loan. In recent years, bank financing has been edged out of the market in favor of dealer financing, as dealers were offering promotional 0% down interest rates. However, dealer financing is a very restricted market now, so you may have better luck getting a loan through your existing lender. At the very least, you should let them bid on the loan, as you may be surprised at just how competitive traditional lenders can be in the current environment.
Finally, you will want to be prepared to make a larger down payment on your vehicle than in the past. While 100% financed dealer may have temporarily become the norm, it is now much more likely that you will get a good rate on your loan if you are able to put 10 – 20% down on the vehicle. This will help mitigate a poor credit history, and allow you to get financing with lower rates and lower payments overall.