You should never believe everything you hear, especially when it comes to car loans. Misinformation about how to get a car loan has spread to common misconceptions. These misconceptions can lead people in the wrong direction when pursuing a car loan.
Since a record 107 million Americans now have car loans, it’s more important than ever before to know the facts about how to get a car loan. We’re about to break down the biggest misconceptions that accompany getting a car loan.
Misconception #1: A Lower Payment Means You Got a Better Deal
One of the biggest misconceptions about getting a car loan is that if you have a lower car payment, you landed a great deal. According to Cartelligent, in order to lower your monthly payment, the term length of the loan is often extended. This means that you’ll end up paying more in interest.
Make sure that you take all of the numbers consideration: total price of the car, interest rate and monthly payment. Don’t focus solely on the lower monthly payment.
Misconception #2: Car Financing is the Same as Cash
Many car dealers offer what they call ‘same as cash’ financing. This means that you won’t be paying interest during a promotional period. However, according to Carvana, this means that you’ll end up paying interest on the total balance once that promotional period ends. Make sure to carefully investigate the loan terms so that you understand how much you’ll actually be paying in interest once the promotional period is over.
Misconception #3: You Need a Perfect Credit Score to Get Approved
In order to be approved a loan, you credit score must be high and flawless. Right? Surprisingly, you don’t need to have a great credit score to get approved for an auto loan. Many credit unions are capable of working with people with low or no credit to help them get into a car.
Your credit score primarily plays a role in determining your interest rate. Someone with a perfect credit score will get a more favorable interest rate, while someone with a low score will get a higher rate. However, both will likely be approved.
Misconception #4: You are Required to Make a Huge Down Payment
Many people believe you need to save up several thousand dollars in order to secure an auto loan. While having a down payment helps, it is not required. The primary benefit of making a huge down payment is that it will lower your monthly payment. It will also decrease the amount of interest you pay over the life of the loan. So, while it is a good idea to have a significant down payment, you are usually able to secure an auto loan while putting down less, if necessary.
Misconception #5: There’s No Need to Shop Around for Car Loans
All auto lenders are the same, right? Wrong! Shopping around is necessary to finding the best rate. You may discover that a credit union will earn you an ideal rate, while big banks and car dealerships' rates may be higher. Some lenders will only finance your vehicle if you buy it through an independent or franchise dealer, while others accept private party auto sale loans as well - like Copper State Credit Union.
Misconception #6: Car Dealers Will Have the Best Auto Loan Rate
While some auto dealers are capable of securing an ideal auto loan rate, there’s no hard and fast rule that states that they’ll always have the best deal. Many times, a credit union will be able to secure a better auto loan rate due to using their own resources. It’s well worth shopping around to compare rates.
Misconception #7: Seeking Multiple Pre-Approvals Will Destroy Your Credit
Fortunately, the credit bureaus understand that consumers will be shopping around for different auto loans. As such, all inquiries made within a 14-day time period will not impact your credit score any more than one inquiry.
If you're ready to get pre-approved, take advantage of our easy online application!
Rates, terms and conditions are subject to change and may vary based on creditworthiness, qualifications, and collateral conditions. All loans subject to approval.
This article is intended to be a general resource only and is not intended to be nor does it constitute legal advice. Any recommendations are based on opinion only.