How To Get an Auto Loan During the Credit Crunch
Part 4: Go to the Source: Captive Arms, Banks and Credit Unions
The final step in the vehicle-financing process, of course, is engaging lenders and dealers in getting the car — and the deal — that you want and can afford.
If the dealer's captive-finance arm "doesn't want [your loan], there are another 400 lenders the dealer can send it to for a look," said Rich Apicella, practice executive of BenchMark Consulting International, an Atlanta-based firm that advises consumer lenders. "You may just end up with fewer or different lenders than you're used to dealing with."
Become as aggressive about shopping for credit as you may be about finding a particular vehicle. There are two basic ways to find it: working with a dealer and doing your own research.
Rumors of Their Deaths
General Motors Acceptance Corporation (GMAC) has really fouled public perceptions of credit availability with its recent move to restrict its own auto loans to GM customers only with credit scores of 700 or more. Many Americans, therefore, have presumed that all the car-company captive-finance arms have soured on making loans.
But most other automakers said they haven't cut back their in-house financing at all.
"We're using it as a competitive advantage," said Meredith Libbey, a spokeswoman for Ford Motor Credit. While GMAC long has provided home mortgages as well — which helped lead to GMAC's credit squeeze — "all we do is put people behind the wheel," Libbey said. "And we haven't changed our lending criteria in years — including now."
Nissan has just introduced new zero-percent financing on its five most popular models. "There wouldn't be the need for this if the consumer out there had so little confidence that they can get financed," said Al Castignetti, U.S. general manager of the Nissan division. "But if you're in the marketplace and you want to buy a car, Nissan is going to make it as easy as possible for you."
Honda Finance "hasn't changed anything," said Honda spokesman Chris Martin. "And dealers aren't having any difficulty financing people. For the majority of people who have a job that pays them, and they want to buy a Honda, they can probably get financed."
And in October, Hyundai announced "a very aggressive series of financing offers" that combine cash incentives and interest rates as low as zero percent, noted Mike Buckingham, president of Hyundai Motor Finance.
Even GM has quickly launched a massive advertising campaign to reassure consumers that, despite GMAC's move, GM dealers want to help customers find "Financing That Fits." To that end, GM began highlighting an online system at its dealerships that helps consumers find financing opportunities at all of the lenders with whom the dealer has relationships.
Financing Sources Galore
Most dealers can tap into dozens of potential loan sources, and they're more motivated than ever to try to find a deal for you.
But you may be able to find your own loan just as easily without a dealer's help. There are more online lenders than ever. Some, including Triad Financial and Road Loans, have pulled out of car lending through dealers and instead are focusing on giving loans directly to consumers. The easiest way to score a loan is to go to Edmunds' Finance page, where you can apply directly online through our partners.
Plenty of major banks and consumer-finance companies also remain eager to lend you money to buy a car, including Bank of America, Wells Fargo, Capital One and Chase; dealers said that Chase even now is approving a strong volume of subprime loans. Many consumer-finance companies, such as AmeriCredit and General Electric, also are keeping the car-credit spigot open.
A good bet for car loans may include tapping into relationships you have established with independently owned local or regional banks. Typically, they were less involved in subprime mortgage and auto lending than the major national institutions, so they're not as poisoned. And now that all of the competition has begun lending more conservatively, these outlets are more competitive than they have been in a long time.
Credit Unions to the Fore
Credit unions may be the single best place for you to look for a car loan. Already, about half the fixed-term loans of the nation's 8,100 credit unions are for automobiles, not including the vast amount of home-equity loan proceeds that also go toward vehicle purchases. Credit unions have plenty of capital and liquidity these days. And nearly 90 million Americans are members. To find credit unions near you, go to the Credit Union National Association.
Credit unions are in a position to step up these days in large part because of their very composition: They are not-for-profit entities formed by groups of employees for the sole benefit of the membership. Among other things, they stayed out of the subprime markets for mortgages and car loans.
"We hold almost everything we originate in our own portfolios," said Michael Schenk, senior economist for the Credit Union National Association. "So we care ultimately what happens to those loans. In contrast, the mortgage brokers and big banks that originated and sold [mortgages bundled as securities] didn't really care what happened to them."
Credit unions' loan rates "are extremely competitive," said Jesse Toprak, executive director of industry analysis for Edmunds.com, "and applications aren't based solely on credit scores." Consumers who have average or below-average credit scores, he said, "especially can get great rates from credit unions if approved."
Get Approved in Advance
Now more than ever, it's a good idea to prequalify for an auto loan. This step will make you more confident when you go into a dealership and ensure that a last-minute financing snag doesn't get in the way of your goal. Preapproved shoppers can also act like cash customers and negotiate hard on a purchase price. A dealer will work hard to beat your approved rate (if it's possible) in order to keep your finance business, and may be able to tailor a package combining the best vehicle with a loan that suits your individual financial situation.
"There are almost always big rebates available on at least a few vehicles, and those deals are particularly important for consumers with marginal credit," said Jessica Caldwell, Edmunds.com manager of pricing and industry analysis. "A big rebate reduces your loan-to-value ratio, which makes any financing deal more attractive to banks.
Overall, "Dealers are getting more realistic and consumers are, too," said BenchMark Consulting's Rich Apicella. "Previously, dealers would find out your monthly payment and sell you right up to that or maybe over it. The reality now is that good dealers aren't doing that."
Part 1: Credit Is Available and Pricing Incentives Abound
Part 2: Know the Score: How's Your Credit?
Part 3: The New Reality: Higher Rates, Stiffer Terms
Part 4: Go to the Source: Captive Arms, Banks and Credit Unions
