After the banking collapse of 2008, Americans are far less trustful of big banks and financial institutions than before. In fact, a Gallup poll 2015 showed that a majority of the public trust tech firms far more than they trust anyone that handles their money. So where does that leave you when you need to finance your new-to-you car? How do you know who to trust or where to get the best interest rates?
When it comes to buying a used car on the private market financing can be tricky. Remember to get an inspection and do your due diligence before signing on that dotted line. Once you’ve had the car inspected and done all the preliminary legwork, you need to figure out how much financing you need. Take the cost of the car, and subtract any cash you plan to put down on it. Then head over to a website like Bankrate.com to check out the latest interest rates. They have a great calculator there that can help you figure out the actual cost of your loan, here.
Once you’ve done some of the preliminary homework, its time to shop banks. Just like you shopped for you car, comparing prices, state of repair and other factors, you need to shop your banks. Some big banks offer great introductory rates on auto loans if you open an account and maintain a set balance. Others offer industry standard auto loans and no bells and whistles. It’s best to start your research online and check out any banks that you currently hold an account with first. Be prepared because each bank that you apply at will run your credit, which can cause your credit score, the number that banks use to assess how risky you are, to drop. The lower your score is the more risky you are to a bank—which means it will be harder for you to get a loan or open credit.
Big banks in general charge higher interest rates. This is because they generally carry more debt and take on more risk. They also have a lot more overhead (think buildings and employees) than a small local bank might and they have to pay those folks. The cost is often passed onto the consumer in these situations. The pros of going with a big bank are that generally you can always get ahold of them if there’s ever a problem with your account. They also offer better rewards programs than smaller banks, largely because they can afford to. If your credit is shaky bigger banks offer less appealing rates than credit unions and often won’t approve risky borrowers. Big banks are in the business to make money so you often get a lot of flash and not a lot of personal service from a big bank. Finally bigger banks can afford to offer incentives like a $500 bonus for opening an auto account.
Credit Unions on the other hand often times approve riskier borrowers and can offer better rates. They also offer more personalized service because they are non-profit and they can help walk you through tricky loan language if this is your first time buying a used car. The negatives of a Credit Union are that they are not always accessible (they don’t often have hours during weekends and nights) and they usually assess a used car at less than a bigger bank might—because they want to minimize the amount of risk they are taking on. Typically this only ends up being a few thousand dollars in difference but they are much stricter on their pricing than bigger banks.
Ultimately you need to do the research before committing to any bank. Read the fine print and be sure you know what you are signing up for. Keep up with Instamotor for more on how to find the right financing for that new-to-you car.
Founder and a car nut. Born and raised from Detroit, Michigan. Val managed 12 dealerships prior to founding Instamotor.