Mortgage Loans For Automobile Purchase (Auto Loans): All You Need

Are you trying to find the finest mortgage loans for purchasing a car? Simply spend some time reading through this comprehensive post to learn about the greatest options we have for you. Both new and old cars can be purchased with mortgage loans for automobile purchases.

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 take advantage of you especially when you are in desperate need of a loan so care has to be taken when choosing a lender.

It is advised to bring a good offer you receive from a direct lender with you when looking for an automobile. Although it might not be the loan you ultimately receive, it will be quite helpful as you bargain with dealers. It lets them know that you are aware that there are other sources of funding than them.

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

Through Dealership Financing (Mortgage Loans)

 

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.

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 (Mortgage Loans)

Lending TreeMyAutoLoan 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.

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