6 Common Auto Loan Myths Debunked
According to LendingTree, the average monthly car payment was a record-high $738 in the fourth quarter of 2023 (up 2.5% a year prior) and auto loan balances now stand at $1.61 trillion, second only to mortgages in U.S. consumer debt, per Federal Reserve data.
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Cars are an expensive and often unavoidable necessity, as are the loans required to pay for them. While rates and terms will be more favorable if you have a sparkling credit score, every lender has different criteria that they use to determine loan approval.
Credit is at the heart of some common misconceptions about car loans, but its just one thing you need to consider when purchasing a new car. Unless you’re well versed with loan financing, it can be intimidating process. That’s why you need to sort fact from fiction so you can secure the loan that’s best for you and your finance health.
Here are six myths about car loans that need serious debunking:
1. You Can’t Get Approved for a Loan with Bad Credit
As mentioned above, having good credit is helpful when you’re applying for an auto loan as it can help you qualify for better rates and terms. But you certainly don’t need perfect credit to qualify for a loan. As myAutoloan points out, “There are lenders that specialize in bad credit loans with a focus on helping borrowers secure financing for their auto loans.” You certainly won’t get the best rates with poor credit, but the situation is far from desperate.
2. You Can’t Get a Better Financing Outside a Dealership
When it comes to financing, everything depends on your situation and what you want to pay. Convenience is nice, but shopping around to explore options will likely save you more money. Dealerships can get you approved quickly and efficiently on the spot, whereas banks and credit unions might have better terms and interest rates. Always check online lenders too, as they have some of the best deals around.
3. You Can’t Get Approved for a Car Loan if You’ve Already Been Turned Down
Different lenders have different criteria for loan approval. If one lender says no, another may say yes. However, remember that submitting multiple credit applications could mean getting hit with multiple hard inquiries depending on the type of credit you’re applying for, which can bruise your credit score. So, it might be smart to do your research on two or three lenders and the requirements they require for loan approval.
4. You Can Save Money by Making a Lower Down Payment or Agreeing to a Longer Term
Car loans aren’t just about the monthly payment. You have to determine how much you’ll pay in interest and for how long too. The less money you put down, the more you’ll pay in higher finance charges. Likewise, agreeing to a longer term will reduce your monthly payments, but they often lead to paying more interest over the life of the loan. A big down payment and a short loan term is the best combination for buyers applying for a car loan.
5. You Can’t Refinance an Auto Loan
Sure you can! Almost everything is negotiable in the automotive world, and not just on the lot either. If you accepted a loan on terms that turned out to be unfavorable to you, if your credit score improves or if interest rates drop, explore options to refinance the loan at a lower interest rate or for a shorter term. As Consumer Reports says, refinancing can save you hundreds, or thousands, of dollars.
6. You Can’t Get a Bank Loan on a Used Vehicle
With car prices still exorbitantly high, one wonders why anyone buys new. Used cars aren’t cheap either, of course, but you can get a loan for one just as easily as if you were buying a new vehicle. Although it can be challenging to assess the value of an older model vehicle compared to a newer one, First Financial Bank notes, “The process is the same as if you were financing a new car: You have to consider the monthly payment, the total cost over the loan’s life, and the possibility that the loan will outlast the vehicle, to decide whether an auto loan will work for you.”
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