Personal Finance Advice

It’s a great idea to shop around for the best interest rates on an auto loan before you actually pick out the car you want to buy.  Dealerships don’t always have the lowest interest rates or the best terms for loans, so it’s important to take the time to find out who is going to give you the best deal.  Don’t just ask the question, “Do you have the lowest interest rates available?” because oftentimes lenders can’t even answer this question with any degree of certainty so all you’ll receive is a guess or at the very least you’ll receive a standard marketing response like “If you can find a lower interest rate we’ll match it.”

Here are 5 important questions to ask a potential auto lender, whether it’s a bank, credit union, or the financing department of a car dealership:

1.  Is the interest rate you’re offering me going to change?  You might think you’re getting a certain interest rate, but then after an additional credit check or something else you’re suddenly contacted and told that the interest rate will be higher than the original quote.  By this time you’ve already driven the car for a couple days and you don’t want to go through the hassle of getting another loan so you might simply accept the higher interest rate, or at least this is what the lender is hoping for.

2.  Do you have prepayment penalties?  With some auto loans, if you pay the loan off early you’re hit with a hefty fee.  This doesn’t only pertain to paying the loan off early, but also to refinancing the loan with a different lender.  Even if you don’t foresee circumstances where you may someday be in a position to pay the loan off early you should still avoid prepayment penalties if at all possible.

3.  Will the servicing company change?  Some auto lenders package their loans up and sell them in bulk to other lenders and servicing companies.  You can’t be quite sure what kind of customer service you might wind up with if your loan gets passed on to another company, so if this worries you then you should find a lender who won’t sell your loan to another company. 

4.  What additional policies have you added to this loan?  Although it’s ultimately up to you to examine loan paperwork and make sure nothing extra has been added to your loan, many lenders try to sneak additional policies onto the loan in an attempt to make additional money.  For example, lenders may routinely add insurance policies, GAP policies, or extended warranties to loans and wait for customers to ask to have the policies removed…if they even notice them.

5.  What happens if I find a better interest rate after I’ve signed for this loan? Not all lenders offer interest rate guarantees, but since some lenders will lower your interest rate if you find a better rate within a certain period of time after signing the documents then it’s a good question to ask.

You can save yourself quite a bit of money by simply asking some questions.  Don’t ever assume that your lender is out to get you the best deal on a car loan.  Ask the questions to make sure you don’t wind up with a loan that you will later regret.