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Auto Financing Guide

Vehicles are among the most expensive things that people buy in addition to their homes and paying for college educations. Because of this, financing the purchase is often necessary. If you obtain financing yourself instead of going with dealer-arranged financing, you may be able to increase your negotiating power with the dealer and save money on interest.

How Your Credit Score Affects Auto Financing

When evaluating you for an auto loan, your lender will consider several factors including your current debts, income and employment history, and your down payment. One of the most important factors that will be considered is your credit score.

Your credit score is an important indicator of how you will manage an auto loan. It’s based on how well you have managed past debts. A good score indicates you will likely make your monthly payments on time and you won’t default on the loan.

Credit scores fall within the range of 300-850. The score you will need to qualify for a loan will vary depending on the lender, but some will approve you for a loan with a score of at least 600, which is considered a fair score.

Having a good credit score isn’t just important for getting approved for an auto loan. It could also affect the interest rate you get. Because your credit score represents borrowing risk, auto loans for borrowers with higher credit scores usually have lower interest rates than borrowers with lower scores.

How Auto Loan Terms Affect the Interest Rate

The loan term is the length of time required to repay a loan. Loan terms for automobiles are usually expressed in months. A 60-month term, therefore, means you will repay a loan in five years.

The loan term is another factor that may affect the interest rate of your loan. Shorter loans usually have lower interest rates than longer loans. This is because they have a lower risk of loan default. The shorter the loan, the faster the loan will be repaid. Borrowers are rewarded for the decreased risk with lower interest rates.

Why You Should Consider Auto Loan Pre-Approval

Before you start shopping for a car or truck, there are several important benefits to obtaining an auto loan pre-approval to consider. Auto loan pre-approval means your lender has done a preliminary review of your finances and has agreed to loan you up to a certain amount. Pre-approval may help you narrow your search and negotiate a better deal.

It Helps You Set a Realistic Budget

Once you are pre-approved for an auto loan, you will know exactly how much you can borrow. This can be helpful when shopping because it allows you to focus on the vehicles you know you can afford instead of wasting time looking at vehicles that are outside of your budget.

It Gives You More Negotiating Power

If you have been pre-approved for an auto loan, the dealer will consider you to be a cash buyer. This will increase your negotiating power because it will allow you to negotiate the vehicle price instead of the monthly payment amount.

It Protects You From Financing Markups

When dealers arrange financing for you, they may charge a fee for the service. They may also add an interest premium to the interest the lender is charging you. Pre-approval allows you to bypass financing markups.

It May Help You Avoid Dealer Upsells

Before a deal on a vehicle is finalized, the dealer may try to sell you extra services or products. A few dealer upsells you may encounter include:

  • Gap insurance
  • Paint protection
  • Fabric protection
  • Anti-theft equipment
  • Prepaid maintenance plans

If you are pre-approved for an auto loan, it may give you an easy way to say no to expensive dealer upsells if they are outside of your budget.

How to Get Pre-Approved for an Auto Loan

Getting pre-approved for an auto loan is usually a quick process. Many lenders now let you do it by phone, online, or in person.

1. Check Your Credit

It’s a good idea to check your credit score before applying for a loan pre-approval. If your score is lower than you prefer, there are some things you may be able to do to increase it. It’s important to keep in mind, however, that it could take several months for your score to improve.

2. Gather Your Documents

If you don’t have all of the documents you will need when applying for auto loan pre-approval, it could cause delays. You may need to provide documents or information pertaining to:

  • Current housing
  • Social Security number
  • Loan amount and requested term
  • Income and employment information
  • Current vehicle (if you are using it as a trade-in)

3. Compare Lenders

Different lenders will offer auto loans with different interest rates and terms. Be sure to compare lenders to see which one will give you the best deal.

Credit unions typically offer auto loans with lower interest rates than banks. This is because they are nonprofit organizations. Since they don’t have to earn a profit for investors, they can pass on the savings to their members with low rates and fees.

4. Apply for Loan Pre-Approval

If you are pre-approved, your lender will give you a pre-approval letter that you can show dealers so they will treat you as a cash buyer. The letter verifies that you are approved to borrow up to a certain amount.

5. Go Shopping

You can now search for vehicles that are within your budget. When you find one you want to buy, you can give the vehicle information to your lender to complete the loan application and obtain financing for it.

Auto Loans With Argent Credit Union

If you are in the market for a new vehicle, Argent Credit Union offers auto loans for cars, trucks, and motorcycles with competitive interest rates. We finance both new and used vehicles manufactured from 2010 to the present.

Terms of up to 84 months are available and you don’t have to make any payments for the first 90 days. Borrowers with excellent credit may qualify for up to 120% financing.

Click on the following link to learn more about our auto loans.

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