With well-publicized microchip shortages stalling production lines and spurring many new car dealers to ratchet up prices well above manufacturer’s suggested retail prices (MSRP), consumers who need to replace a vehicle naturally pivot and start looking at used cars. But wait — the new car shortage has also squeezed the used car market, so even used cars aren’t as much of a deal as they used to be.
Higher prices across the board mean even more consumers than usual will need financing to get into a new (or new to them) car. Dealers push hard for in-house financing, but the experts at USE Credit Union say that while dealer financing can be convenient, it often comes at a steep cost. Here’s a quick primer on key things USECU says buyers should know about financing before they start their car shopping.
Compare Interest Rates
While some car dealers partner with credit unions to offer low-cost financing to their customers, financing is often a cash cow for dealers who partner with banks and other lenders. In fact, the National Credit Union Administration’s December 2021 comparison shows the national average on a 48-month bank auto loan at 5.06% while the same loan from a credit union averaged just 2.85%. Plus, the dealer isn’t required to offer you the best rate that your credit score and the difference could total hundreds or even thousands of dollars over the life of the loan.
Shop Around for Extras
Lots of consumers don’t fully appreciate the total cost for dealer financing until they’re getting ready to sign their loan documents. That’s when discretionary items such as extended warranties, Guaranteed Asset Protection (GAP) and loan protection products might be discussed. Both make sense for a lot of consumers, but they’re also products that will likely cost a lot less with your credit union.
Shape up Your Credit Rating
Any time you see the term “rates as low as” in any advertisement, it’s important to know that those best rates are reserved for consumers with top credit scores. Those with less-than-stellar credit are particularly vulnerable with dealer financing, since dealers make the most on those sales and then usually hand the borrower over to a disinterested third-party lender. Credit unions, on the other hand, are not-for-profit financial institutions that tend to be more focused on the borrower’s complete financial picture.
Get Preapproved So You Can Negotiate Better
No matter what your credit rating, you’ll be able to work your best deal on your new or used vehicle when you get preapproved and can hit the dealership knowing exactly how much you have to spend. That’s because it’s common for car sales staff to divert attention away from the vehicle’s sales total price and toward a monthly payment, which can easily be manipulated by changing the terms of a loan.
Say you start out talking about a 48-month loan, but the monthly payment is too high. The salesperson will likely come back with an offer of a lower monthly payment. On the surface, that sounds good, but it almost certainly means the details of the loan have been changed – extending the loan term or upping the down payment, for example.
When you’re preapproved, your monthly payment is already dialed in and you can stay focused on working your best deal on the vehicle’s price.
Ready to Get Preapproved?
Click here to get your application rolling and get preapproved for a car loan today!
This information is provided for educational purposes only. All loans subject to credit approval. GAP coverage is optional and are not a condition of credit. Restrictions apply. Must meet membership and account opening criteria.