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    Getting a good deal on a loan is tricky business, but can be attained if you do your homework (TheTruthAbout..., Flickr) .

    by: Gary Hoffman | AOL Autos
     

    Car buyers need to be on their toes to get the best possible auto financing this year. This was no simple proposition even back in the era of easy credit, and with financial institutions still suffering the hangover of the global financial meltdown, it will pay – literally – to do your homework. Shaving a single percentage point off the loan for an average car today, you could easily save over $500 on your purchase.

    The starting point is to get a pre-approved loan from a bank or credit union before you even walk into a dealership, and then see if the dealer can beat it. “I can’t think of any other way to do it,” said Michael Royce, AOL Autos contributor and publisher of beatthecarsalesman.com. “You shop around.”

    Even if a pre-approved loan does not beat an automaker’s financing incentive, it improves your bargaining position by setting a standard, giving you something concrete as a basis of comparison. Without a pre-approval, it’s almost impossible to tell whether a dealership’s offer is a good one. Once you have it, you’re “gold,” as salespeople like to say.

    Fewer Options

    Bear in mind you may have somewhat fewer loan options today than you would have had two years ago, so you may not be able to play one lender against another as easily as in the past. Banks can still be shy about making loans and may look at you more warily than they did before. But the good news is that lenders are indeed becoming more comfortable making loans since the financial meltdown of 2008.

    Credit unions have been strong lenders throughout the slowdown. Their share of auto loans shot up to 37 percent in early 2009, from 24 percent the previous year, and it remains at a relatively high level. That may not be a bad thing, according to Royce. “From my experience,” he said, “credit unions often have better deals than banks.”

    With auto loan delinquencies trending downward, community banks are loosening up, too. And there are other choices for borrowers. Many automotive and financial websites route consumers to sources of car loans. Car.com and LendingTree, for example, have institutions competing for customers with good, bad and indifferent credit.

    At times, the weak lending environment may seem to make shopping for loans tougher. “There are a lot fewer banks playing in this space,” said Gary Pierce, national account director for cars at LendingTree.com. For example, HSBC, a bank that once dealt directly with consumers, now provides car loans exclusively through dealers, he said.

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    Bank of America focuses on borrowers with excellent credit, Pierce said, while Capital One is active with customers with mid-range credit. Strangely enough it is possible to be turned down if your credit is too good. If you’re not one of the bank’s target customers, said Pierce, it may prefer to lend to others and charge more interest.

    If buyers have problems with financing, Royce recommends they simply press ahead. “In the past, you might have been approved at three or four places, and you picked the best one. And now you may only be able to get one or two,” he said.

    Low Rates – For Now

    The silver lining of all the economic turmoil is that normal interest rates are still low by historic standards, thanks to the Federal Reserve’s efforts to bolster the economy. Right now, interest rates for new car purchases bottom out at about four or five percent for five-year loans. In practical terms, that may mean it is going to be cheaper to finance your car this year than next, when interest rates are expected to rise.

    The automakers’ own economic woes have also resulted in a steady flow of huge incentives, at least for now. These often force consumers into the altogether pleasant position of having to choose between a big rebate and a zero-percent (or other low-rate) financing deal, or between bank and dealer financing. Don’t assume that a hefty pile of cash on the hood will be better, but do the math. “You have to look at the total cost of ownership,” he said.

    First you shop for the lowest price on the vehicle you want to buy, subtract the rebate, and then figure out the payment based on your pre-approved loan deal. Then calculate what the payment would be with the zero-percent (or other low-rate) deal, based on the full purchase price without the rebate. Compare the two payments and that will tell you whether to take the cash and go with your pre-approved loan or get your financing at the dealership to take advantage of the zero-percent (or other low-rate) offer.

    Financing At The Dealer

    Both Royce and Pierce warn against automatically taking zero-percent incentives from manufacturers at face value, however. The automakers themselves point out that not everyone qualifies for their lowest rates. A spokesperson for GMAC, the lender for Chrysler and General Motors, declined to disclose the share of buyers who do qualify.

    The real problem is that buyers might not learn they don’t qualify until too late, Royce said. Most people have a hard time getting up from the table and walking away from a deal. If they aren’t willing to walk, they may end up paying a lot more for financing, he said. This is another reason why it’s best to always have that pre-approval in your pocket.

    That said, it’s worth investigating whether the dealer can beat your pre-approved loan. The dealership may still turn out to have the best offer, and not simply because it opens the door to the manufacturer incentives. Dealers have good access to consumer financing and may even be lenders themselves. They can be especially helpful if you are having a hard time getting a loan.

    F&I departments (finance and insurance) are the conduit for incentives and a legitimate alternative to banks and credit unions. Over the years, they have become a major source of dealership income, offering everything from extended warranties and alarm systems to window tinting and pinstriping. Along with service operations, the F&I department helps dealers offset the low profit margin on car sales. “In many cases, dealerships are willing to sell a car at cost or below cost, knowing that they can make it up on the financing,” Royce said.

    Buyers need to protect their flanks, however. Dealers may try to increase the selling price with extra options if they sense they aren’t going to be making enough money on the financing end. “Dealerships may charge you a higher overall cost of the vehicle because you are just paying a small amount of interest,” said Pierce.

    Of course, you can stand firm on any price increases and resist the temptation of paying for options or trim you don’t want. As a last resort, you might want to dig out the business card you picked up at another dealership, make the call, and start the process all over again. After all, the money you save could represent your own personal economic recovery this year. 

    “Take a look at the whole picture,” Pierce said. “You might save yourself thousands of dollars.”

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    Discuss
    1 - 20 of 69 Comments
    arvig Sep 18, 2010 3:20 PM
    capricarn posted this drivel: "You dont have to act like you know it all in order to buy and get a good deal on a car. Just know where you want to be monthly payment wise and find the car of your dreams. So what if the dealership makes a couple thousand. You are happy arent you? Its not all about the invoice and the trade and working it till your knuckles hurt. Belive it or not, people actually pay MSRP Manufactures Suggested retail price for cars. You pay MSRP probably a hundred times a week buying groceries. Or do you go to the store manager and ask him for the invoice on every item on your list. Bottom line, If you like the way you were treated and you like the car and you feel good about it and it fits your budget then buy the car! does that make sense? its doesnt have to make CENTS!" My reply: Uh-huh. You MUST be a car salesman, given both the crappy advice you gave, and then the usual whine about people asking to pay invoice for a car. Well anyway, to go in order: 1) Only someone clueless goes in and sets the deal via car payments. You'll end up paying MORE then MSRP at some dealerships if you just go in and tell them what you want your car payment to be. Sure, they can juggle figures until they get it down to x dollars a month, if you're willing to have a seven year loan or even longer loan. Why not haggle for the price of the car, with a pre approved loan based on the price of the car instead? If the dealership can meet or beat that then sure, I'll finance with them but if not I see no problem coming in with information anyone can find spending 5 or 10 minutes on the Internet and spending a few minutes at the bank or credit union to get a preapproved loan. 2) As for asking something like a grocery store for the MSRP, that is at BEST an apples to oranges comparsion. A grocery store, department store and so forth hasn't been haggling with it's customers since the day the first car dealership opened on the planet. Do you know why there's a window sticker with the price of the car on the window? Because up until the late 1950's car dealerships didn't even TELL the consumer the MSRP, they just spat out a price and had the person haggle, the consumer was hoping they weren't getting ripped off. Yes, that was a long time ago but I do think that needs to be said. I've never seen a grocery store not post the price of an item, then demand I haggle for each and every item I buy in the store, have you? Or even if prices are posted, I haven't seen them do things like an add a tag with "additional dealer markup" for a banana or box of cereal, have you? So please, drop that little bit. The car sales industry set the stage for haggling, you're just sour that people can come in with the invoice price and other information from the Internet now. Anyway, it's not like the business manager/F&I manager doesn't try to upsell 20 different items that are mostly useless anyway.
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    arvig Sep 18, 2010 3:10 PM
    oompah1003 posted this: "I have worked in car sales for Hyundai for about a year now. I hate the way people on here are bashing car sales. Do you know how much I make on a car sale? How about $250 per car. With a weekly salary of $150. Can you live on that?" My reply: Here's how I see it. If you're honest, then I have no need to bash you specfically. If the industry is honest as a whole, then I have no need to bash your profession. But at the same time, so many..perhaps not you but so many HAVE set the stage and set the reputation where people do bash car sales based on that. It was YOUR choice to become a car salesman. If you're not making enough money, try to change jobs. What do you want ME to do about YOUR income?
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    catroina2 Sep 15, 2010 3:04 AM
    go to edmonds etc internet search and get the prices .THAT'S THE PIECE OF PAPER YOU NEED TO BRING IN..and tell them to forget about their rebate --then negotiate from there. ....preapproved ???? ! who ISN'T - ?
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    rfmjchp220 Sep 15, 2010 2:08 AM
    When I bought my 2002 Tundra, I had my son and his wife with me. I let them do the talking. When almost at the end of the discussion, my daughter-in-law asked if the final price included something I have forgotten the exact name of. ******* money Toyota holds back from the dealer to cover dealer advertising costs for that specific vehicle. Our sales person went and got a person higher up in the food chain. He asked how my daughter-in-law knew about this. She said that her father was a Toyota salesman for 14 years in a neighboring state. And he still is. The second person reduced the sale price down $200 or $300.
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    savantor Sep 15, 2010 1:36 AM
    Borrowing from your 401k to buy a car? Foolish. You're robbing some poor old man or lady...yourself! You may "pay yourself back", but you miss out on the growth. Don't steal from your own retirement for a car! Yikes! Talk to a CFP or CPA about it.
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    savantor Sep 15, 2010 1:29 AM
    The best way to finance a car is with a home equity line of credit. If you still have one. New cars are a bad deal...buy one that is at least 2 years old, look for low miles.Pay cash for a car. Don't finance. A friend (a student making minimum wage & living on her own) bought a used Acura for $600, put another $300 in it (battery, tires, etc) & drove it for 6 years before she gave it to her sister! She said it was the best car she's ever owned. One of the worst? A brand-new VW bug...@ the time, her "dream" car.
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    oompah1003 Sep 15, 2010 1:23 AM
    I have worked in car sales for Hyundai for about a year now. I hate the way people on here are bashing car sales. Do you know how much I make on a car sale? How about $250 per car. With a weekly salary of $150. Can you live on that?
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    bamabex Sep 15, 2010 1:05 AM
    that was 17%....crazy, huh?
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    bamabex Sep 15, 2010 1:04 AM
    Several local car dealerships advertise "we know bad things happen to good people." Yeah, I know. I was injured at work and was on disability for two years until I could get better enough to get another job. The pittance of disability (after depleating my savings & retirement accounts) ended up making me less than "credit-worthy", but I've been working really hard to rebuild my credit. I've been back at work 4 years next month, making decent money & paying my bills. Went to buy my daughter a used car (a 2005) for transportation to college, and I knew I wouldn't qualify for the 3-5% rates....********? for 4 years? that's ABSURD.
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    elange505 Sep 15, 2010 12:39 AM
    Hey Gary write about dealerpack, and service grids, and parts matrix?? If you dont know, dont write anymore!
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    elange505 Sep 15, 2010 12:37 AM
    After 23 yrs in the automotive business, this is kinda funny. Gary you know nothing, banks are in bed with the dealers. There is a dealer pack on new and used cars from 600. to 1000. Your best bet is to go with your gut and shop around, you will never beat the dealer, just like vegas. They have a big nut to crack...million dollar stores, electric, parts inventory, shop tools, salaries....i can keep going. They are businesses that need to help the community to strive. Just like the local pizza place.
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    john1923t Sep 14, 2010 11:08 PM
    I never buy a new car, it is a loosing investment. I worked for one of the biggest chevrolet dealers in Cleve. ohio , and the owner told me to buy a low mileage 3 to 4 yr old car , drive it two years, then sell it. He was right no depreciation, no expensive insurance, still under warranty,. and at this point, if you take care of it, you can sell it for almost what you paid for it. I can drive a new car and only spend $500. to a thousand a year.and drivr what ever I want every two years.
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    dynodon0374 Sep 14, 2010 9:55 PM
    I had dealt with my bank for years, I went for a loan for a car getting more or less pre approved. The manager says this is the best rate I can get you. What surprised me is I got a lower interest rate thru the dealer with my bank. Most banks have a central office for car loans and they deal directly with dealers, like purchasing a house know what your credit score is it is a tool to get the best interest rate possible especially if you have an above average credit score. Never ever buy additional warranties this is most dealers cash cow and most are not worth a hoot anyways.
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    raress9596 Sep 14, 2010 9:45 PM
    Best way to finance a car is to get your own loan! I buy cars from a very reputable dealer. I buy at least one a year or send in customers. Six months ago I took advantage of G.M.'s offer of 2.9% financing or $3,000 cash back. I took the $3,000 cash and applied (online mind you) to a major bank and was approved for an auto loan of 2.375% because of my outstanding credit score. I always secure my own loan and never ever buy anything through the F&I guy! He was in shock when he saw this (he does get something from the bank). It was a win win for me.
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    dougsholmes Sep 14, 2010 9:42 PM
    EMT - I've sold Lexus and Kia - you should look at what Kia is now if you haven't looked at their cars in a couple of years. Or read the enthusiast publications to get educated. Ironically, and despite the global recession, there is an automotive renaissance in the industry across all manufacturers and and countries of origin. Cars are safer, better made, better designed and more reliable then they have ever been.
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    archcpa Sep 14, 2010 9:35 PM
    Please investigate the "auto loan credit score". I recently learned that hsi is different than the credit scores provided by the three major credit bureaus. You cannot obtain this score or find out the formula for it. It generally produces a lower score than your regular one and leads to higher interest rates. Often the deale rthen discounts the loan back to a bank using your regular (higher) scores. Seems like a giant scam.
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    tmoilanen Sep 14, 2010 9:31 PM
    Zezebee, you're spot on. F & I (finance and insurance) guys are the sneakiest of the sneaky and the lowest of the low. They'll use every trick in the book to nip you on a higher interest rate and sell you unnecessary insurance. The play on your emotions (fear, emotional attachment to the new car), pull tactics such as the take-away, in which you drive off the lot first day, but three days later get the call stating, "Well, we can't get you in at 8% over 48 months, but if you go 14% over 60 months, your payment will be only $30 more per month." Never mind that this works out to 10 grand more over the course the loan. There are a million gimmicks. How do I know? I've worked in F & I. Got the boot because my numbers weren't high enough due to my conscience. Wanna know the best way to purchase a vehicle? Cash, baby. Never finance. Save your pennies, get them to commit to a price, and lay a suitcase of bills on them, or at the very least a cashier's check. You'll piss them off, but so what? They deserve a dose of their own unscrupulous medicine.
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    dougsholmes Sep 14, 2010 9:30 PM
    Yet as cars become more and more sophisticated in the areas of safety, technology, performance and features, and as sales people must constantly continue their education on product developement on these things for their own brand and their competitors, people for some reason think we are not entitled to a paycheck. I have no problem brooming imbeciles like the poster "zezebee". Guys like him lie through their teeth and expect us to give up every last cent, and then they still compain about everything. I send idiots like him packing just as quick as I can and move on to the next real buyer.
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    emtfd27 Sep 14, 2010 9:25 PM
    As far as car salespeople go... there are good fair ones and then there are the typical "used car salesperson" I have personally been lucky with having my sister and father both work at a local dealership. Don't always believe that the dealership is making hand over ******* profits off of new cars. For example, take the brand new Ford Fiesta, the MSRP is $144.00 over invoice! Now tell me... how do you expect a dealer to pay for the car, insurance, payroll, etc, and all on $144 profit... that is of course if the car buyer doesn't talk the price down. Yes, some cars are marked up a lot, but do your homework. Cars are generally the worst investment you will ever make. Unless you manage to find that rare gem. If you have to purchase a "new" car, go for a used one. It's amazing to think that you can purchase a BMW or Lexus that is a couple of years old for the same price as a "higher end" Kia. Personally... I would take a BMW or Lexus over a Kia or Hyundai any day, especially if they are the same price.
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    amberin1975 Sep 14, 2010 9:00 PM
    I agree with a lot of what this article says. I decided to trade in my 3 year old Suburban when my grandmother came to live with me and couldn't get in or out of it. I opted for a minivan. I used my bank's car buying service and got pre-approval through them to cover buying the new vehicle. However, after I test drove the vehicle I told the salesman that I only wanted to buy the vehicle if he could beat the interest rate the bank offered and I left the lot. The next day I had a new car for the price negotiated by my bank and at the desired interest rate. As much as I wish I could pay cash for a vehicle and admire those of you that can, it wasn't an option for me. But I highly recommend using a car buying service if your bank or credit union has one and pre-approval most definitely greased the wheels to get the deal I wanted!
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