Auto Loans & Auto Financing 101: Your How-To Guide
The rate of car ownership in the U.S. has been trending upward. In 2022, LendingTree reported 91.55% of American households had access to one vehicle and 11 million New Yorkers had a registered vehicle during 2020.
With so many households relying on car transportation, finding the right car at the best rates is essential to saving hundreds of thousands in the long-run.
So, if you’re searching for your next car, why should you consider taking out an auto loan?
There are many factors that make it appealing to take out an auto loan to finance a car. Some of the top reasons being to secure a low interest rate and to achieve specific incentives like zero percent down financing.
But what about financing through a dealership?
This is where things can get tricky. That’s because a dealership may pressure you into a specific car and price. They also might charge you a higher price tag upfront, leaving little room for negotiation and generating expensive monthly payments.
What’s the right route to secure the best auto loan rate through low rate auto loans?
In this guide, we’ll explain auto loan and auto financing, so you can get started getting your ideal loan amount and monthly payments. We’ll also go over the best places to shop for the lowest rates and best available promotions.
Let’s get started!
What is an Auto Loan?
You may be wondering “what is an auto loan?” and “how do auto loans work?”
To put it simply, an auto loan is a lump sum of money given to you from a bank or credit union to buy a car.
Because you take out a loan to pay for your car, CreditKarma says, “you can think of a car loan as its own separate purchase — it comes with a cost, which you pay through interest and fees the lender may charge.”
So, in order to get an auto loan, you’ll need to apply for auto financing through a financial institution. Places you can finance through include:
- Credit unions
- Banks
- Online lenders
- Car dealerships
Before you begin the process, you’ll first need to determine what financial institution is best for your needs. We’ll touch on this a bit later. But, for now, let’s go into what auto financing is and how it differs from auto loans.
What is an Auto Financing?
Auto financing is extremely common with around 35% of American adults relying on an auto loan, according to a study by the Federal Reserve.
The biggest difference between an auto loan and auto financing is that auto financing means to take out a car loan. In short, you finance the car through an auto loan.
So, how does auto financing work exactly?
When you go to purchase a car, you’ll need to finance the car upfront with a lump sum of money, which you’ll get from an auto loan from your financial institution.
After you pay for the car using your auto loan, Nerdwallet explains, “Then, it’s [car] yours to drive, while also making monthly payments on loan (with interest) over time. Until you fully repay the loan, the lender holds the title to the car and can repossess it if you fall behind on payments.”
While you can go through a number of financial institutions to receive an auto loan, credit unions are less expensive and offer a larger range of benefits. We’ll go over the top benefits in the next section.
Why You Should Go To a Credit Union First for Auto Financing
Credit union auto loans are some of the least expensive options available.
Because your credit union is directly located in your community, they can help you finance your car for less with more benefits than traditional banks, dealerships, or financial institutions. In addition, as a member, you have access to lower interest rates and fees.
Even if you don’t have the best credit score, you still may be eligible to get approved for a car loan fast, according to Bankrate. Let’s go over the top four reasons to go through a credit union for a vehicle purchase.
4 Top Benefits of Getting an Auto Loan through a Credit Union
If you’re searching for a “credit union auto loan near me,” you’ve found the right place. Credit union auto loan rates are some of the lowest and most accessible compared to larger institutions.
You can enjoy these four major benefits:
- Lower than industry average rates: You don’t even have to go to the best credit union for auto loans to secure low, affordable rates. By auto financing through your credit union, you’ll still have the ability to secure very competitive rates compared to national lenders.
Bankrate found, “In the first quarter of 2022, the average rate on a five-year new car loan from a credit union was 2.78 percent, according to the NCUA. At banks, it was 4.69 percent. If you’re borrowing $30,000 for a car, the credit union saves you $1,545 in interest over the life of the loan.”
That’s huge savings. - Personalized customer service: At a credit union, you’re more than just a number. Credit unions are looking to give their members the best financing available. So, more than often, they’ll have more flexibility when it comes to a lower credit score or loan eligibility requirements. In most cases, getting approved for a loan will be faster because you’re dealing with a local team.
- Fast auto loan approval that’s user-friendly: Lots of credit unions are now allowing members to apply for loans online. So, whether you want to visit the credit union in person, call over the phone, or apply for a loan online, you’ll have many avenues to take.
- Additional promotions & services: Credit unions focus on their members. That’s why they can offer additional promotions and services that traditional banks can’t. Examples of this include:
- No pre-payment penalties
- No hidden fees
- Promotional rates
While these promotions and services depend on the credit union, you’ll still find more savings financing through a credit union. Explore First New York Federal Credit Union’s current promotions today.
Why is an Auto Loan through a Credit Union better than a Bank or Dealership?
Credit unions are structured differently than traditional banks or financial institutions, meaning their success results in significant benefits for credit union members.
Typically at banks and dealerships, you won’t find the same competitive rates or promotions you would at a credit union. If you finance with a bank or dealership, you could possibly lose out on saving hundreds if not thousands on your monthly payments over the life of your car loan.
Let’s dive into the specific disadvantages of financing through a bank or dealership.
Traditional Bank
There are a few main differences between a bank and credit union. First off, a bank is a for-profit institution that is owned by shareholders, people who buy stock in the bank. Whereas, credit unions are a non-for-profit institution that is owned by members, people in the community that use their services.
This primary difference allows credit unions to give their members exclusive loan rates and services compared to larger for-profit entities.
“Credit unions are not-for-profit, so any money they make above their costs is returned to members in the form of higher savings rates (called dividends), lower loan rates and less expensive fees,” says U.S. News. “Because they are not-for-profit entities, credit unions are taxed differently than banks, which allows them to save more money, and those savings get passed on to members as well.”
How does this apply to auto loans?
It’s simple. Credit unions are able to offer you competitive credit union auto loan rates and services, not available at commercial banks, dealerships, and other financial institutions. Plus, you may have access to additional promotions that can include no hidden fees or pre-payment penalties, depending on the credit union.
Dealership
You may already know this. Car dealers don’t always have your best interest in mind. Before you finance a car through a dealership, know that you’re missing out on major savings by not taking advantage of your credit union’s low auto rates.
Here are a few reasons to avoid financing through a dealership:
- Getting a vehicle and loan from one place comes with a risk: You want to avoid car dealer financing as much as possible. Car dealerships don’t have your best long-term interests in mind and will often lead to a higher interest rate (and you losing hundreds and thousands of dollars).
Plus, it’s still possible to achieve your one-stop goal by visiting your local credit union. They can work with you to find a specific dealer who will accept your credit union’s low rates and financing options.
- Zero percent interest promotions aren’t the best way to save overtime: These promotions aren’t always the best way to save. These offers may be exclusively available for certain car models or credit scores.
Instead, you should look into other promotions available at your local credit union and then finance through them. MECU credit union explains, “You’re likely to come out ahead with both cash in hand and excellent loan terms.”
- Dealerships push you to accept higher interest rates: Dealers get commission paid from multiple lenders. This means they’re not looking to give you the lowest rate possible. Instead, they’re looking to get you to accept a fast loan from a lender that offers to pay them a higher commission. Meanwhile, a credit union is looking to help you secure the lowest rate possible because their goal as a non-for-profit is to help their members — not to make money for their private business.
- Dealerships don’t offer banking perks: Unlike credit unions, dealerships can’t offer you a wide-range of benefits and perks. So, if you finance with a dealership, you’re not only going to miss out on the lowest rates available. You’re also going to miss out on specific promotions that help you save in the long-run and give you additional perks.
3 Steps to Get Started
Whether you’re looking to explore competitive rates or refinance an existing loan, there are a few steps you can take to get started.
Step 1: Check Your Credit
The first step you should consider is looking at your credit score. This will help you determine what loans you’re eligible for and what your loan payments could look like.
Step 2: Shop Around
Research your loan options. Find out which credit union offers the best loan rates and see if they work with specific dealers who will accept their low rates.
Step 3: Contact Possible Lenders
Speak with your local credit union. If you’re a member, your credit union will help you determine the best loan for your needs. They can help walk you through the total loan amount and monthly payments you’ll need to make over the course of the loan. They can also show you all of the available auto loan rates at your credit union and give you access to helpful tools & resources.
Auto Loan Calculators
Want to calculate your payments fast? No worries. We’ve rounded up reliable online auto financing and refinance auto loan calculators that can help. Get started using these calculators today:
Get the Best Rates on Your Next Auto Loan: Contact Us
When you’re shopping for your next car, skip going through multiple auto lenders and get in touch with your local credit union. Here, at First New York Federal Credit Union, we can help you find the best loan rates available while helping to answer all of your questions.
So, whether you’re looking to get started buying a new car or refinancing a current one, contact us today or speak to a live representative using our Face2Face Video Banking tool.
Let’s get you in the car of your dreams with the finest auto financing, flexible terms, and car & recreational vehicle loans available in the Capital Region. That’s the First New York Federal Credit Union difference.
Ready to apply? Apply online, by phone at (518) 393-1326 and press 3, or stop by any First New York Branch.
*consult with your tax advisor
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