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

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.

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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  • 70 Comments
      • 5 Months Ago
      Let me let you people in on a little secret: MANY CAR SALESMAN HAVE FAMILIES TO SUPPORT!!!!! So, what, because you want the best deal your cheap asses can find, they're just supposed to make a whopping $75 if they're lucky on your purchase? I'd like to throw up right now. My fiance has to deal w/ people like you on a daily basis & selling cars is a much more stressful job than you can possibly imagine. You don't work for free so why the hell should they? Sick.
      • 5 Months Ago
      If you are financing a car then you are already an idiot. You have fallen into the argument that you need a $20-$30k car to avoid paying a repair bill once in a while. Right now $3,000-$4,000 buys a lot of car(if your ego allows it). If you can't buy a 3-4k car outright, then you have NO business financing a $20k car.
      • 5 Months Ago
      ha! if people really knew how our monetary system worked, there would be revolution by morning. fact is, a loan application is not an application at all. fact is, it is a PROMISSORY NOTE. they take YOUR credit, and draw money from it, and then try and charge it back at interest. they have no claim to any debt. a debt does not exist when buying a car. you pay for it when you "apply for the loan", or fill out the promissory note. its paid for, right away. you people really should look up some of these banking terms and definitions in banking dictionaries and law dictionaries. then look up case laws where the bank fails to repossess a car they never had possession of in the first place. this bank has no proof of claim. they cannot prove that you owe them anything without having a contract saying that you do. of course, they do not have this, seeing as that you never signed one with a bank. and the contract must be signed by BOTH parties in agreement or it is invalid. they are stealing your money and you are helping them do it. do your homework people.
      celebrityl
      • 5 Months Ago
      IS AOL RUNNING OUT OF MATERIAL ? THIS IS AN OLD STORY THEY HAVE RUN NOT TOO LONG IN THE PAST.....................
      James Thomas
      • 5 Months Ago
      I've always found cash and a Hewlett-Packard financial calculator totally disarms and intimidates the salesperson, his/her boss, AND the finance person. The HP is gold when evaluating a lease.
      • 5 Months Ago
      Buy used, good quilaty cars with low miles, ask the price them tell them you will pay them X amount in cash. If they refuse walk away we did this and they run out after us to tell us OK. Then made a excelent offer on our trade in.
      • 5 Months Ago
      i CAN COUNT THIS MANY..
      • 5 Months Ago
      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 - ?
      • 5 Months Ago
      Getting a pre-qualified loan means you will pay a higher price for the vehicle, This same policy brought down the auto & housing industries because peopple paid whatever they qualified for regArdless of whether the car or house was 'worthit'. Take a check and a max price , and be prepared to walk out of the finance officers office if you don't get your price for the car you want.
      raress9596
      • 5 Months Ago
      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.
      Herbert C. Haber
      • 5 Months Ago
      The questionaire which accompanied your "tips" on how to get the best deal on the purchase of an automobile suggested that I have my financing in place; but never contemplated that a car buyer might walk into a dealer's showroom with the intention of buying a car for which he would pay all cash. Is that possibility so remote that it is not worth consideration? To me, the cash purchase of an automobile beats the cost of every other method of payment.. I have even sold off some of my investment portfolio at times in order to pay cash for my automobile purhcase.
      csolitire
      • 5 Months Ago
      IF YOU HAVE A DEPENDABLE CAR AND IT IS PAID FOR...START SAVING FOR A NEW ONE. PAY CASH FOR A CAR THAT IS 2-5 YEARS OLD. IT IS A SHAME THAT WE HAVE TO BUY MONEY TO BUY GOODS.
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