Low APR Dealer Financing

You see advertisements like these all the time. Dealerships offer low interest loans on new cars, but how many people actually obtain these deals? It's estimated that a mere six to seven percent of applicants are actually approved for these too-good-to-be-true deals. Many of these offers call for a credit score above 700 and the majority require 36 months to pay off the loan. So not only do you have to have an outstanding credit score, you also have to pay the loan fully in a short amount of time. Even if you do qualify, 36 months is a short period of time to pay off the loan, and the monthly payments are much higher.

Financing and Trade-ins

Don't trade in a car that you still owe money on. Many dealers say that they'll pay off the remainder of you debt within days, but don't hold true to their word-netting them even more profit. Because the car is still in your name until the dealer pays it off, the bank will contact you and hold you responsible for the lingering payments on your former car. If you still decide to trade in your car for better new car loans, make sure that you have the deal in writing.

Dealer Credit Score Scams

A close friend of mine, with a credit score of nearly 800, tried to take advantage of a special new car financing deal through a local dealership. He applied for the auto loan through the dealer on the car of his choice. Several salesmen returned with a sheet of paper with 550 credit score circled in red ink and told him that he wasn't eligible for the two percent financing special-instead he would have to pay ten percent. Dumbfounded, my friend pulled a copy of his credit report out and showed it to the salesmen. Two salesmen promptly left and the remaining one claimed that credit agencies purposefully show lower credit scores to lenders than consumers-a blatant lie. Avoid such scams by doing research prior to visiting the dealership.

Look Beyond Monthly Payments

Many dubious dealers offer you lower payments on your auto loan than a bank (or financing company). What they don't tell you is that the dealer's loan may be 72 months as opposed to the bank's 36 months. Some dealers even flat-out lie about the interest rate on their auto loans. In that case, you can use a loan payment calculator (which are available on the internet) to make sure the numbers add up. Let me reiterate, avoid financing your car through dealerships. If you have any questions, please visit our "auto loan frequently asked questions" page.