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Preapproved Loans... Page 2
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Annual Percentage Rate (APR) is the total cost of the loan including the fees. So while
two institutions may charge the same interest rate, their fees may vary and you'll see a
difference between the two APRs. Compare APRs when trying to figure out which rate is
better since the APR takes the fees into account.
The most common car terms -- length of time money is loaned -- is 36 months (3 years), 48
months (4 years) and 60 months (5 years). The longer the loan term, the more total
interest is paid, but the monthly payment will be lower.
From time to time automakers offer super financing deals. For example you may see ads for
vehicles with very low interest rates attached, like 2.9 or 3.9 percent (sometimes less).
This is an attempt to move cars or trucks that aren't selling fast enough and deplete the
inventories. In these cases, the automaker's captive finance company "subvenes",
or subsidizes the loan. The buyer pays the low interest rate and the automaker pays the
dealership for the vehicle and the loss of interest.
Sometimes the automakers offer a cash rebate in lieu of low-rate financing. Consider
whether taking this rebate and financing at a normal rate is more attractive. Often, it
is.
Preapproved Financing and Negotiating
Power
Another route to take when financing the purchase
of new car is to get your loan in advance of the purchase -- that way you don't suffer the
humiliation of waiting for the finance manager at the dealership to approve your loan and
give you your rate. More important than personal comfort, is that you'll actually have a
check in hand or quick access to cash when you are negotiating. (See the WOMAN MOTORIST
New Car Buying Handbook for negotiating tips.) Someone with money has a much stronger
bargaining position than someone who still has to haggle over a loan.
Preapproval tells you at what rate and terms you would qualify for an institution's loan,
And it can improve your negotiating position at a dealership. However, the preapproval
process can be inconvenient at many institutions, requiring you to visit the institution
twice -- first when you apply for preapproval and again after you purchase the vehicle
when the lender reviews your purchase order and other items prior to paying the
dealership.
Gary Miller of PeopleFirst Finance ( http://www.peoplefirst.com ) recommends that you get a preapproved loan that gives you
easy access to the money to make the purchase. "We eliminate the inconvenience often
found in the preapproval process by actually providing our customers with a loan
commitment in the form of a blank check. With a blank check, there is no need to come back
to us after they find their car. Our customers simply fill in the dealer name and amount,
sign the check, and they are done. In effect, we turn our customers into cash
buyers." Dave Zeller of PeopleFirst says, "If you have to go back to the bank to
get a check after negotiating the car's price, you may lose the deal or at least some
ground. The more likely you are to buy a car when you are at the dealership or come in and
get the car after negotiating over the phone, the lower the price you can negotiate."
Dave went on to talk about rates and convenience. "Given the small difference in
monthly payments based on the small differences in interest rate, consider the convenience
aspect of the auto loan you are considering. Look at the convenience of the application
process -- can it be done over the phone or Internet, can you apply 24 hours a day, how
much documentation does the lender require, how quickly do they make a decision, is it
minutes or days, what is the process for closing the loan, what do you have to sign, what
documents to you need to provide (purchase order, proof of insurance, etc.), where do you
have to go to deal with the paperwork, how is your loan going to be serviced, do you have
the option of deducting the monthly loan payments from your checking account, does the
lender invoice you each month, provide self-addressed, postage-paid envelopes, do you have
24-hour access to your account information by phone or on the Internet -- there are so
many convenience options to consider. Given that you will be making a payment every month
for years to come, make the choice for personal convenience."
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