CFPB’s Guide To Auto Loans: Shopping and Negotiating Your Best Deal

We have broken down the CFPB’s guide to auto loans to help you get the best deal on your auto loan. While you’ll certainly want to get the best deal you can on your new or used vehicle, you also want to take the opportunity to save as much money as you can on the financing for your auto purchase.

The Consumer Financial Protection Bureau (CFPB) has created a great guide on how to get the most out of your auto loan shopping experience.

We’ve published two previous posts about the guide — a general overview and a look at how to begin budgeting and understanding your auto loan options. Now, we’ll get into the meat of the CFPB guide on how to shop for a loan, negotiate your best loan and close the deal.

Shopping for an Auto Loan

Even before you begin shopping for an auto loan, you need to be prepared. The guide recommends checking your credit reports as the first step, because this is what lenders will use to judge whether to give you a loan and if they do, what interest rates and fees they will charge you. If you find errors in your report, you’ll want to correct those before you begin applying for auto loans.

Next, you’ll want to check around to see who is offering the best rates on auto loans. Check with your local bank. If you are a credit union member or have the ability to join one, you might get good rates there. Also check with online banks as they often can offer better rates as they don’t have brick and mortar overhead costs.

You also should consider making a down payment, or saving more money for a down payment, if you would like to borrow less money and shorten your payback period.

Also, if you have a vehicle to trade in, the CFPB’s guide to auto loans has advice about how to get the best value out of that. If you still owe money on the trade-in, you want to make sure you don’t owe more than you can get on a trade-in as that will increase the cost of your new loan.

When you are ready to shop for a loan, you need to have all of your personal information ready, such as Social Security number, lease or mortgage information, income, outstanding credit, such as credit card debt, etc.

If you can get preapproved for a loan through a bank or credit union, you’ll have more leverage when you arrive at the dealership to negotiate on a car price and dealer-arranged financing.

Negotiating an Auto Loan

You’re probably prepared to negotiate on the price of the automobile, but the guide also points out some other terms you can negotiate:

  • Trade-in value
  • APR and interest rate
  • Length of the loan
  • Whether there is a prepayment penalty
  • Dealer fees, such as delivery fee, preparation fees, document fees
  • Optional add-ons, such as extended warranties, window tinting, alarm system, GAP insurance, etc.

Remember, the goal is to negotiate toward the total cost of the vehicle and loan, not just the monthly payments. Shortening the term of your loan is probably the biggest savings you can make. The guide cites an example on a $20,000 loan where shortening the payoff from 6 years to 3 years can save more than $1,500 on your total cost.

The CFPB’s guide to auto loans provides a worksheet where you can keep track of all of these options so you can calculate the best deal for your situation, rather than relying on the dealer to provide the answers. Remember, you don’t have to buy the vehicle on your first trip to the dealer. Take good notes and make the calculations for yourself.

Closing the Deal

Those good notes also are going to ensure you receive the deal you negotiated.

The lender is required by the Truth in Lending Act (TILA) to disclose in writing certain facts about your loan, so you want to make sure the TILA document matches what you have negotiated.

The required information the TILA document must provide are:

  • Annual Percentage Rate (APR): Your interest rate expressed on an annual basis.
  • Finance Charges: The total you will pay in interest and fees over the life of the loan if you pay each month on time.
  • Amount Financed: The cost of the vehicle, sales tax, fees and add-on, minus your down payment and/or trade-in.
  • Total of Payments: Your monthly payment times the number of payments for the full amount you will pay.

Check all documents to ensure it matches your notes, you are getting all of the services and add-ons you agreed to. Don’t be afraid to ask questions and clarify each detail about your auto loan.

If the dealer lets you take possession of the car before the loan as been approved, sometimes called “spot delivery,” make sure when the documents arrive that all is accurate or be prepared to return the vehicle if not.

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