Types Of Mortgage Loans For Automobile Purchase (Auto Loans) and All You need to Know

Are you looking for the best mortgage loans for automobile purchase? We have put together this guide on the best options available for you; simply take the time to read through this well detailed article. Mortgage loans for automobile purchase can be used to purchase either new or used vehicles.

As a prospective car buyer you have two options when looking to secure a mortgage loan for automobile purchase namely direct lending or dealership financing.

In this article we talk about;

  • Mortgage loans for automobile purchase
  • Direct lenders
  • Dealership financing

When looking for a mortgage loan for automobile purchase you can approach direct lenders like credit unions or banks and get pre-approved for an auto loan. Some predatory lenders will seek to takea advantage of you especially when you are in desperate need of a loan so care has to be taken when choosing a lender.

When you get a good offer from a direct lender it is advisable to carry it along when shopping for a car It might not be the financing you end up with, but it will be a big help as you negotiate terms with dealers. It lets them know that you’re aware you can get financing from someone other than them.

Let us look at the various ways a prospective car buyer can get mortgage loans for automobile purchase;

Through Dealership Financing

When you finance a mortgage loan for automobile purchase through a car dealership, Car dealers can issue discounts such as reducing the price of the vehicle if you finance through them you don’t have to borrow as much, obviously it will cost you less. But make sure that a lower price doesn’t come with a higher term or interest rate that will make the sticker price savings pointless.

We have different types of dealership financing namely

  • Captive finance companies

This is simply the financing arm of major auto makers such as, Ford, GM, Toyota and Honda.

These are called captive finance companies, which account for 31% of auto loans and 61.2% of new car
loans they can make deals with promotions like 0% interest for a certain number of months or rebates
(often called cash bonuses). However, those incentives are usually reserved for customers with excellent credit so polish that credit score before you go shopping.

  • Dealer arranged financing

These dealerships have relationships with banks that allow them to provide financing, but they don’t issue loans themselves. Instead, they act as a go-between with customers and banks. Dealerships take a loan from the bank and tack on a few percentages points to the interest for themselves.

  • Buy here, pay here

There’s a reason only 7.6% of loans are issued by Buy Here Pay Here (BHPH) dealerships. These types of
loans are in-house financing, and the house definitely wins. BHPH dealers are notorious for offering high interest loans to subprime borrowers.

They’re willing to do this because the loans are secured by the vehicle. When the customer can’t afford to make payments, the dealer will repossess the car, sell it again and collect another down payment.

Banks

Banks have always accounted for one of the largest shares of auto loans, competing with captive lenders
for the top spot and make up 30.2% of the market.

Historically, they were the biggest lender, but since the Great Recession, banks have been more reluctant to issue car loans. It is a big reason why captive finance companies have become so popular. Still, banks are a good place to get pre-approved as a reference point.

Credit Unions

Credit unions make up 18.7% of the auto loan market for a good reason: they are a nonprofit institution, which means they can offer lower rates than banks. A typical rate on an auto loan from a credit union is about 1.25% less than what a bank can offer. The catch is that not all credit unions lend to borrowers who
aren’t members.

Navy Federal Credit Union and Alliant Credit Union are two of the more popular credit unions. It’s a good idea to check and see if you qualify to become a member of a credit union when shopping for auto financing.

Online Lenders

Lending Tree, MyAutoLoan and ClearLane (a branch of Ally Financial) are three of a variety of online services that collect a number of loan offers from different lenders so that you can easily make comparisons Light Stream (offered by SunTrust) issues online loans to customers with excellent credit, and Auto Credit Express does the same for those with poor credit.

Consumer Finance Companies

Be wary of consumer finance companies like Westlake Financial, Credit Acceptance Corp and Santander.
These types of companies have been in the news for shady business practices like illegal repossession and
bating customers into loans with extremely high interest rates. Their popularity is rising, and they account
for 12.4% of loans.

Home Equity Loan to Pay for a Car

One alternative financing option that could be appealing to a homeowner is taking a home equity loan to
pay for a new car. The rates on home equity loans should be close to what you would pay for an auto loan.

Taking out a Personal Loan

Taking out a personal loan to pay for a car is not a bad idea if you can afford to pay over the likely shorter term of a personal loan. Generally, you need a credit score of 660 or higher to get an unsecured personal loan.

The benefits of getting one to buy a car are that, if you’re buying a used car from a private seller, it’s a way to get the money more quickly. The car isn’t collateral for the loan, so you’re in less danger of losing it if you can’t pay.

However, if you’re on a tight budget or have bad credit, this isn’t an option that will likely be available to you, or be one you can afford.

After Signing

Once you decide to buy a car, be sure the terms are final and that your financing is fully approved before you sign the contract and drive the car off the lot. If it isn’t final, tell them you’ll come back the next day. Don’t leave without a copy of the agreement. You want to be sure the deal you sign for is the deal you were promised.

The lender is the legal owner of the car, which means they hold a lien on it, in some cases hold the title too, until you pay off the loan. If you default, the lender has the right to repossess the car. So, make your  payments on time, and at the end of the loan term, the car lien will be released to you

CONCLUSION

If you are reading this, you have obviously read through this article, taking a mortgage loan for automobile purchase is a major commitment, considering the monthly financial commitment,
Understanding how different mortgage loans for automobile purchase works and all it entails will put you at the best position to make a choice.

References

Your Loans and Mortgages – Creditmutuel.fr

Current auto loan rates for 2021 – Bankrate.com

How to buy a Car without being taken for a Ride – Npr.org

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