Are you or your family in the market for a new or new-to-you vehicle? Maybe it’s time for something a little more reliable? Or you’re simply excited about the new F150 model, and you’re weighing your options and the cost to the monthly budget? There are a number of terms and financing options, making it sometimes confusing – and even overwhelming – for borrowers.
Getting behind the wheel of your new car should be exciting, so we’re here to help you learn more about Auto Loans and the buying process, so you can live more.
How is leasing different than buying?
The question we hear most often is related to confusion around leasing versus buying a vehicle. The monthly payments on a lease usually are lower than a payment on an auto loan for the same car. However, it’s important to remember: you are paying to drive the car, not buy it. That means you’re paying for the car’s expected depreciation during the lease period, plus a rent charge, taxes, and fees. But at the end of a lease, you must return the car unless the lease agreement lets you buy it.
Be Aware of Hidden Fees Related to Dealer-Arranged Financing
With dealer-arranged financing, the dealer collects information from you and forwards that information to one or more prospective auto lenders. If the lender(s) chooses to finance your loan, they may authorize or quote an interest rate to the dealer to finance the loan, referred to as the “buy rate.” The interest rate that you negotiate with the dealer may be higher than the “buy rate” because it may include an amount that compensates the dealer for handling the financing.
What’s the Alternative to Dealer Financing?
Get pre-approved with us! Traditionally, our rates are some of the best in the area, and there are not hidden fees when you finance with us. We can pre-approve your loans, so you can shop like a cash buyer. What kind of loans can I get from my Credit Union? Click here to get pre-qualified and see what ECU can offer you!
What About a Co-signer?
If you don’t have a strong credit history, some lenders may require that you have a co-signer on auto loan or lease agreement. Co-signers assume equal responsibility for the contract.
How Does the Interest Rate Impact My Payment?
The Annual Percentage Rate (APR) is the cost you pay each year to borrow money, expressed as a percentage. The higher the APR, the more you’ll pay over the life of the loan – and the more you will pay each month in monthly payments.
Fixed-Rate vs Variable Rate financing
A fixed interest rate means the interest rate on your loan does not change over the life of your loan. With a fixed rate, you can see your payment for each month and the total you will pay over the life of a loan. A variable interest rate means the interest rate on your loan can change, meaning that it could go up or down. If your interest rate increased with a variable-rate loan, your monthly payment will also increase.
Loan Term or Duration
The term of your loan is the length of your auto loan, generally expressed in months. A shorter loan term (in which you make monthly payments for fewer months) will reduce your total loan cost. A longer loan can reduce your monthly payment, but you pay more interest over the life of the loan.
Down payment
A down payment is an initial, upfront payment you make toward the total cost of the vehicle. Your down payment could be cash, the value of a trade-in, or both. The more you put down, the less you need to borrow. A larger down payment may also reduce your monthly payment and your total cost of financing.
What is CARFAX®?
If you’re interested in a used vehicle, CARFAX® can provide you with vital vehicle history information (salvage title, odometer rollback, manufacturers-lemon buy back and uncompleted recall repairs) about a vehicle you’re considering buying. You can request your CARFAX® vehicle history report for free by clicking here. It’s a win-win that comes with valuable peace of mind.
Guaranteed Auto Protection (GAP) insurance
GAP insurance covers the difference (or gap) between the amount you owe on your auto loan and what your insurance pays if your vehicle is stolen, damaged, or totaled. You don’t have to buy this insurance, but if you decide you want it, ask us about adding this to your loan. The cost for GAP insurance varies by providers, and our cost to you is traditionally much lower than what you will find elsewhere.
BE AWARE: No Credit Check or “buy here, pay here” Auto Loan
A “no credit check” or “buy here, pay here” auto loan is offered by dealerships that typically finance auto loans “in-house” to borrowers with no credit or poor credit. The interest rate on loans from these dealerships can be very high – which ultimately will impact your monthly payment. If you’re establishing (or re-establishing credit), talk to us first. We have over 20 Certified Financial Counselors who are here to help you through this process. Plus, our rates are not predatory or set to cause hardship with repayment.