THE FEDERAL RESERVE’S 2016 Survey of Consumer Finances found that 85.2% of U.S. families own a car or other vehicle. Looking to buy a car and need a loan? Banks provide more auto loans than anybody else. Other major players include credit unions, auto-finance companies, car manufacturers and car dealers.
It might be convenient to get financing through the dealership. But you will likely get a better rate if you shop for a low-cost loan before you head to the car dealer. With a preapproved loan in your back pocket, you will be in a stronger bargaining position with the dealership, and you could parlay that preapproved loan into an even better deal.
The dealership might offer you the choice of a rebate or a 0% loan. To figure out which is best, simply compare the monthly payments on the 0% loan with the payments on the alternative loan, which would be a smaller amount borrowed—thanks to the rebate—but at a higher interest rate. That higher rate might not be so high if you bypass the dealership’s financing department and get a low-cost loan elsewhere.
An auto loan won’t necessarily be your best bet. Also consider whether it would be cheaper to buy the car with a home equity loan or line of credit. The rate may be lower than on an auto loan, plus the interest could be tax-deductible. The downside: You put your home at risk if you fail to make the required payments on your home equity borrowing.
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