Personal Finance

The Best Car Loan Usually Isn’t from the Dealer!

| by PhilipTirone

The Best Car Loan Usually Isn’t from the Dealer!

I have a lot of embarrassing credit-related stories. A landlord revealed one of his tenant’s low credit scores right in front of her boyfriend. A bank teller once told me I was turned down for overdraft protection because of my low credit score—in fact, this was the impetus for becoming a credit expert!

Recently, a new client told me about an embarrassing experience at a dealership. She spent a couple of weeks searching for the right car, and kept visiting the same car salesman over and over. When she finally decided on a car, she applied for financing from the dealer, hoping to get the best car loan.

The dealer offered her a terrible loan package because her credit score was subprime. She was mortified. We met because she wanted to learn how to build credit so that this sort of thing would never happen again.

She came to my teleseminar and shared her story with me, which got me thinking that, though credit is certainly a critical component of securing the best car loan, even people with great credit should know a few things about shopping for car loans.

First, the dealer might tell you that you have a low credit score even if you do not. For the record, anything about 720 is a great credit score. Anything above 700 is still considered terrific, but you might pay a little more in interest than the person with a score of 720. 660 to 700 is considered fair to good, and 620 to 659 is considered weak. Anything below 620 is subprime. In today’s strict market, you will probably need a co-signer if your score is not strong.

If your dealer tells you that your 710 credit score is poor, this is an outright scam. He is simply using a sale tactic to get you to sign on the dotted line and accept a poor financing offer.

If your dealer tells you that your 710 credit score is poor, this is an outright scam. He is simply using a sale tactic to get you to sign on the dotted line and accept a poor financing offer.

The dealer is hoping that you think: I guess I can’t get the best car loan with my shoddy credit. I might as well accept this expensive financing package.

The number one way to avoid this unnecessary situation in the first place and get the best car loan is to already have the financing nailed down before you walk into the dealership. Dealers almost never offer the best loan packages, so it is almost always better to avoid bundling the purchase of the car with the financing, warranty, and trade-in of your old vehicle. Shop around for financing ahead of time, using banks, credit unions, and online auto lenders.

Then the dealer can make you a loan offer if he wants, but he knows you are going to compare it to other, probably better, offers. Even if you truly do have poor credit, even a bankruptcy, there are far better sources of sub-prime auto loans than the dealership.

If for some reason you still want to find out what kind of financing the dealer can offer you, then the second important step—after applying for financing from other lenders—is to create something called “The Folder.” Simply create a folder that contains your credit reports, your credit scores, and some monthly payment calculations based on the target purchase price, interest rate, and loan term. Store your financing offers from the other lenders inside the folder, as well as information about the price other sellers of your desired vehicle will accept.

Be sure you check online to see how much other dealers from across the country are asking for the vehicle, and include this information in the folder. It is perfectly acceptable, and often less costly, to purchase vehicles online these days. Once your local dealership knows that you know this, it will be easier to negotiate.

Creating a folder with all this information puts you in charge of negotiations. If you want to get the best car loan, never enter the dealership without it.

The third important method to get the best car loan is simply this: get up and leave several times before agreeing to a deal. If the sales tactics are too heavy-handed—if the dealer is asking for your credit information even though you are not sure you want to apply for financing, if the numbers they are offering do not make sense, if it just feels like you are not going to get the best car loan—get up and leave. Shake the salesperson’s hand and tell him or her you will be in touch. Then walk out. If they tell you their offer is only good for a day, reply calmly and confidently that you are willing to take your chances, and then go.

Only once the dealer understands that you are knowledgeable, educated, prepared and willing to walk away will you start hearing their best offer. Have confidence and do not get emotional. You have financing from other sources, “The Folder,” and numerous other sources from which you can buy your chosen automobile and get the best car loan available.