Walking into a car dealership with pre-approved
car loan financing can give you an edge in the car buying process. It enables you to eliminate the finance portion of the negotiation process so that you can concentrate on getting the best price possible for the vehicle you are interested in.
What is the easiest way to obtain car loan financing? There are a number of ways, really, but in today's market the four most common are the four traditional ways, banks, credit unions, finance companies and captive lenders, plus one new entry into the fray - online web sites.
Captive finance companies have been in car loan financing for nearly as long as there have been cars to sell. Originally formed to help dealers finance their inventories from the manufacturers, these lenders, such as GMAC and Ford Motor Credit, exist to help move inventory out of dealer lots and into the hands of customers. With the power to adjust interest rates to reflect the sales of their various models, these lenders can offer customers subvented (supported) interest rates of as low as 0% to entice customers to buy a particular model.
Banks have been lending money for vehicles nearly as long as the captive finance companies. Most banks have fairly conservative lending policies and because they operate as for-profit institutions, their lending rates, while competitive, are usually offered to only the most qualified customers.
Unlike banks, credit unions lend money only to their members. Because they are non-profit, their car loan financing rates tend to be more competitive than those of most banks and their lending parameters are much less stringent.
Independent finance companies earn their profits on the mark-up in interest rates that they charge customers. As a rule, these companies cover a much broader spectrum of car loan financing than banks, credit unions or captive finance companies. Because they "buy deeper", the interest they charge is higher and can actually hit the usury rate cap of the state they are doing business in.
Online car loan financing web sites, as you might expect, are a fairly new phenomenon compared to the previous four we've mentioned. As such, you need to be careful where you do your shopping. Be sure to pick a site that has been endorsed by an independent company, such as the better business bureau. The
car loan application that you fill out should be fairly comprehensive and should also be SSL-encrypted to ensure the privacy of your personal information. Finally, you'll want to check the web site's privacy policy to ensure that your personal information will not be shared with anyone other than the intended dealer or financial institution you're applying to.