The car buying process can be very overwhelming. You may be skimming through hundreds of online postings or dealing with pushy salespeople at your local dealership. To simplify the car buying process and alleviate stress, you’ve got to do your homework. Creating an organized plan for finding and financing a new or used vehicle is essential! Before falling in love with your perfect car, it’s helpful to spend your energy on creating a thoughtful and organized plan before embarking on your search, to make sure you are looking for vehicles that work for your lifestyle and budget. If you’re able to pay for a car in full, by all means, pay away! But for the vast majority of car-buyers, the financing process is executed best through receiving an auto loan to pay off your vehicle through a series of recurring monthly payments.
A Car-Buying Plan
Your car-buying plan should include a list of criteria for your next car, a realistic budget, and a thorough knowledge of your loan options. To set a list of needs for your next vehicle, ask yourself questions like: How long do you need the car to last? What kinds of terrain are you frequently driving on? It would also help to read up on reviews for specific makes/models so that you can help filter down vehicles that work best for your lifestyle. When budgeting, make sure to estimate a monthly payment range that is realistic for you, based on your other potential expenses like phone payments, rent, electricity bills, groceries, etc. Also, be aware of how interest rates and loan terms will factor in your monthly payments. You should decipher whether you’d prefer higher payments with a shorter loan term, or lower payments with a longer loan term. Knowing the status of your credit score is also helpful (higher credit scores can mean lower rates). In order to get the best deals, you should be thoroughly educated on what types of loans are available to you.
Direct Loans vs. Indirect Loans
There are two different types of auto loans available. The first type is a “Direct Loan,” meaning that you receive your loan directly from a bank or credit union. Alternatively, there are “Indirect Loans” or “Dealer-Arranged Loans,” in which the dealership you purchase from forwards your information to potential lenders (lender partners or financial institutions) that can provide you with a loan. In other words, this type of loan generally means the dealership is doing a portion of the legwork for you. While there is no option that is inherently better than the other, it’s essential to know the pros and cons of both.
For Indirect Loans, the process may be more convenient. In many cases, you can figure out your financing on-site at the dealership, with some automakers offering lower rates as a part of special promotions. Dealers can also shop your credit profile to a variety of different banks to get the lowest offers. It benefits you to be confident in your credit score when choosing an indirect loan. Although, cons may include higher interest rates, as the dealer’s rates get marked up from the bank. In many cases, the lender quotes an interest rate to the dealer to finance the loan, known as the “buy rate.” The rate that gets negotiated with the dealer (the “contract rate”) may be higher than the “buy rate” so that the dealer receives compensation for handling the financing process.
With Direct Loans, you can have more personalized control in the financing process. Receiving a loan from your own bank means that you may have a closer, more reliable, and more trustworthy relationship. Borrowing directly from your bank also means that there is no middleman, meaning rates may be lower. Additionally, you can speak with your bank/credit union for all available auto loans and rates before finding a vehicle and get pre-approved. With indirect loans, you won’t know your loan options until after finding a car at the dealership. Generally, if you value ease and convenience, you may enjoy an indirect auto loan. If you prefer more control and personalized service, you may want to opt for a direct auto loan.
Effectively finding and financing your next vehicle involves proper research, knowledge, and persistence. Here at Premier Source Federal Credit Union, we can help ease your car-buying process with our variety of flexible loan terms and excellent low rates. Come in and speak with us or apply online today!