Ready to buy a new car? Credit is available
Thinking of financing a new car? Despite the economy crunch, this could be the perfect time.
“It may be a tough time for business, but it’s a great time for consumers who have a stable job and solid credit scores,” says NADA’s 2009 chairman, John P. McEleney “There are plenty of incentives that lower costs.”
If your credit isn’t so perfect, think about alternative sources like credit unions as a possibility for financing—or better yet, ask your local new car dealer for help. Dealers work closely with local financial institutions to get their customers affordable, quality loans.
And, the cost of a new car may not be as high as you think. “We have not seen incentive and rebate programs at this level for years,” offers GNYADA president Mark Schienberg.
The deals are happening. For example, Babylon Honda in Long Island, New York, is currently offering 0.9 % financing for 36 months and 2.9 % financing for 60 months on certain vehicles, as well as a variety of cash incentives.
And other manufacturers, like Toyota and Mazda, are offering incentives as low as 0% financing.
“We have to get the word out that things are not that bad,” Gary Schimmerling, CEO of Babylon Honda says, “The media is enhancing people’s fears by making it sound like you can’t get a loan. We have to stay positive.”
“Media reports about consumers who are unable to get auto loan financing are often overstated and have the negative effect of dissuading consumers from even trying,” adds Jesse Toprak, Edmunds.com Executive Director of Industry Analysis.
Besides dealerships, where else can consumers learn about their financing options? One service, AWARE —Americans Well-informed on Automobile Retailing Economics —sponsors educational programs on vehicle financing.
A survey conducted this summer for AWARE found that 45% of U.S. consumers plan to buy a new vehicle within three years. Two years ago, the comparable figure was 51%, according to AWARE.
"We see this as a teachable moment," AWARE spokesman Eric Hoffman told Automotive News in a recent interview. "We want to reassure people there's financing.” More important, we want to remind them of the steps they need to take to be smart shoppers."
Edmunds.com, an online resource for automotive information, created the following guide to auto loans for car shoppers.
- Consumers with average credit scores will be required to make a down payment as high as 20 percent.
- Lenders are restricting the length of loans; six year loans may no longer be an option for many consumers.
- The minimum credit score required for an auto loan has risen to around 500.
- The credit score required for the best loan rates has risen to at least 720, up from 700 a few months ago.
- Consumers with the best credit can expect an interest rate as low as 5.95% while consumers with average credit may see rates as high as 12.5%.
Edmunds.com suggests the following strategies for consumers on the hunt for auto loans:
- Get pre-approved for a loan before visiting the dealership.
- Pay off credit cards with high balances to immediately improve your credit score.
- Offer the highest down payment that your budget allows.
- Look to credit unions, local banks and online lenders as alternative sources for auto loans.
- Consider less expensive used and certified pre-owned cars if finding new car financing proves difficult.