If you have excellent credit with a corresponding high credit score, like above 725, there is really not a good time or a bad time to get a new car loan. Dealers love to cater to people with high credit scores simply because the biggest hassle in moving cars off the dealer lot, getting the buyer credit approved, is no longer an issue and they can focus all their energies on selling the car and all the add-on features.
But with the current state of the economy, there are starting to be fewer and fewer people with credit scores at that level. In fact, many people have borderline credit scores or even downright poor credit, and that new car loan is likely to come at with a premium interest rate as well as a sizeable down payment requirement.
The reason is that banks and other lending institutions are starting to really cut back as much as possible on approving high risk loans. Whereas in past years a high risk loan would be approved with halfway decent credit, even with a high interest rate, the times are changing with the bailout of the mortgage industry, and lenders are starting to back away from new car loans that are considered risky by today’s standards.
If your credit score is low or even marginal, you may still get your loan approved, but be prepared, mentally and financially, to put down a large down payment. The lender wants the buyer to have a certain amount of “equity interest” in the new car, and a hefty down payment ensures that that is exactly the case. When the buyer has a large stake of his own equity in the new car, it is far less likely that he will default or allow the car to be repossessed because of non-payment.
In today’s lending market, can banks really afford to be that picky about what loans they approve? Yes and no. Yes they can because in today’s economy, they feel like they have to be that picky to avoid the consumer defaulting and leaving them with the car. Although repossession is always an option, the bank does not want the car, because then they still need to invest resources to sell it and recoup the remainder of the failed loan. But then again, no because the lending market has always been lucrative, and less loans being approved means less income for the banks via the interest charges, which have been their cash cow and icing on the cake for so many years.
When shopping for a new can loan in today’s market, you are going to need to think outside the box in a big way to get a decent rate and minimal down payment requirements. Check with local banks instead of the nationwide big names for one thing, since the local banks were not nearly as impacted by the mortgage fiasco.
Interestingly enough, very few people consider turning to the Internet to get a new car loan. This is strange because the Internet is one of the first places they turn when they are looking for pricing information and comparative feature analysis of the various cars they are considering. It should not be that much of a stretch to consider getting your new car loan via an Internet lender.
Why? These lenders have likely not been impacted by the mortgage crisis because they do not play in that ball game. Therefore they are still very financially stable and able to pass on very aggressive rates and terms to buyers, and that includes buyers with marginal or even bad credit.
The bottom line is that if you need a new car, shop for your financing before you settle on the car and negotiate the price. Having an approved loan in your hands gives you a tremendous amount of additional leverage in price negotiations with the dealer. Shop around for your best option but do not forget to comparison shop online for your new car loan, where you may be very pleasantly surprised.