Auto Financing
Just because you've figured out what you can afford doesn't mean lenders will agree with you. That's where your credit report comes in. Lenders will look at your credit report to decide whether to loan to you or how much. If you know you are going to be looking at more than one lender, try to group your requests within the same month. These credit score checks may have a greater impact on your credit if you apply for financing several times over a longer period of time. Check your credit score before engaging with a lender to determine if you are a credible candidate for a loan. Determine your financial situation before you start negotiating a deal – it pays to be prepared.
There are many varieties of auto financing to choose from.
- Dealer financing – You buy and finance the car all at once through a car dealership. Occasionally, dealers offer special deals to get rid of overstock in their inventory, especially at the end of a car model year. RGCU has good relationships with local dealers, and you can get a credit union loan right at the dealership.
- Banks – You can get a loan at most banks. However, many banks require a 10–20 percent down payment to cover the depreciation of the car in case you default on your loan and they need to repossess your car.
- Credit unions – Credit unions typically offer very attractive auto loan rates. Obviously, we are partial to Rio Grande Credit Union and hope you will be too.
- Trade-in – If you already own a car, then you can trade it in for a discount on a new vehicle. If your old car is in good condition with relatively low mileage, you may be able to use it toward a down payment.
When you're financing your new car, it's important to know how pre-approved financing and negative equity will impact costs.
Pre-Approved Financing
Many lenders will pre-approve a certain loan amount based on your income and credit history. With a pre-approved loan, you'll know exactly how much you can afford to spend on your car. Again, we are happy to help here at RGCU.
Negative Equity
As soon as you drive a new car off the dealership lot, it instantly becomes a used car and its value continues to decrease. While the value of your car drops immediately and will continue to depreciate over time, what you owe on your loan drops more gradually. If you owe more money for your car than what you can sell it for, then you have negative equity.
You can avoid losing money from your negative equity by following these simple tips:
- Buy a car that you can afford. If your auto loan payments are too high, you may decide to sell the car before it's been paid off completely.
- Keep your car until it is paid off completely.
- Pay off your loan sooner by choosing a shorter loan or overpaying the monthly amount, if allowed.
- Make the largest down payment you can. This will help offset the effect of depreciation and start giving you some positive equity.