For many people, Labor Day is a chance to enjoy a much-needed three-day weekend. Some spend their days off at a pool or water park, while others fire up the grill and have an old-fashioned barbecue with friends and family.
This is also a time when auto dealers begin working harder than ever to fill showrooms with new models and get rid of last year's inventory. As a result, a tremendous number of sales and incentives are available this time each year.
Individuals interested in obtaining competitive auto loan deals might have their chance this Labor Day weekend. But before heading to your nearest dealership, take some time to learn more about finding and securing affordable auto loans.
Labor Day Weekend Is Perfect for Finding Auto Incentives
With summer coming to an end, auto dealers will be marking the end of the 2013 model year with some amazing deals on vehicles.
Though this year's Labor Day sales are just beginning to crop up, auto shoppers will have a lot to look forward to; past years have seen discounts including cash rebates up to $3,000 on some Chrysler models and zero-percent financing on most Ford models.
As Labor Day draws near, more deals will make their way into the headlines. But before you run out to secure one, make sure you're armed with the right information to make the best auto loan decision for your bank account.
Ways to Find the Most Affordable Labor Day Auto Loans
There's no doubt there will be competitive discounts available on vehicles from dealers across the country. That said, your job is to find a deal that fits into your budget, so that once the ink is dry on your contract you won't have inadvertently drained your savings account.
The key is finding both the most affordable car and the most affordable auto loans. To help you accomplish the latter, here are a few strategies for understanding financing options at dealerships and financial institutions and avoiding car loan mistakes that cost you money.
Financing at the Dealership
Financing at an auto dealer is a common occurrence. Most dealers now work with one or more financial institutions to give buyers multiple borrowing options. But before securing a loan with a dealer, explore some of the incentives being offered, especially during Labor Day, and what they really will mean for the buyer's finances.
- Zero-percent financing: An auto loan accompanied by zero-percent financing is very appealing to car buyers; essentially, zero-percent financing entails a loan that charges no interest over a portion or the entirety of the loan term.But before attempting to jump on this type of deal, keep in mind that these agreements usually require shorter-term contracts and often offer less flexibility in negotiating the price of the car, which means the cost per month could be higher. Additionally, these deals are only available to borrowers with excellent credit scores and are typically offered alongside specific in-stock inventory.
- Cash back: Cash-back offers are often available during Labor Day and other big holiday sales. Sometimes the cash-back offer can be granted to the customer in the form of a check, while other times it might be applied to the price of the car.While there might be certain criteria a customer has to meet to acquire a cash-back deal, they're usually not related to a credit score. Keep in mind that it's rare for dealers to offer zero-percent financing as well as cash-back incentives. If you qualify for one, you probably won't get the other.
- Zero down payment: If you run across a lender that is offering an auto loan with zero down payment needed, you might have run across a subprime auto loan lender that accommodates borrowers with less-than-perfect credit scores.Typically, the rates associated with these loans are sky high. As a result, this type of arrangement is not considered a good route for most car buyers.
Financing at a Financial Institution
The traditional way to secure an auto loan is by working directly with a financial institution, such as a bank or credit union. There are pros and cons to taking this route, however; before applying for a loan with your local establishment, consider the following basics of financing at a financial institution:
- Interest rates: It's a common belief that interest rates tend to be a bit lower at financial institutions when borrowing directly (and usually lower at credit unions than banks), but this is not a hard-and-fast rule.And while it's hard to know what rate you'll be offered without applying for a loan, you can check your own FICO credit scores with Experian, TransUnion and Equifax, then examine average auto loan rates based on your scores.This is a crucial step, no matter what your credit score is. "You can't aggressively pursue the best possible rate without seeing what lenders see. This works in both directions – your credit may be worse than you think, but it may also be better than you think," said Christian Gulliksen, senior automotive editor for CarsDirect.com, a leading service for buying used cars.When you do apply for loans, you can use your own research to determine whether you're being charged too high a rate.
- Loan availability: One challenge with financing a vehicle directly with a bank or credit union is loan availability.While most financial institutions have plenty of money available for car loans, they aren't making a profit off a car sale and can only hope to profit from you repaying your loan with interest. As a result, they are far more discerning when determining who qualifies for loans.
- Negotiation leverage: Taking out a direct loan with a financial institution puts you in a better position to negotiate the price you want to pay for your car. After all, in the eyes of the lender, you are paying for your vehicle in cash.
Optimizing Your Auto-Lending Experience
You're just about ready to get out and discover the great deals and discounts available this Labor Day weekend — but before doing so, here are a few tips on ways to optimize your lending experience.
1. Do your research
It's critically important that you conduct research before starting a vehicle search. Your first stop should always be to check your credit scores and find out what other criteria could impact your ability to secure an affordable loan (income, down payment, etc.) before applying.
Additionally, take time to conduct online car searches whenever possible so that you can check vehicle identification numbers and examine potential issues, such as salvage titles and liens (mostly problematic for used vehicles).
2. Don't get too excited by your first offer
It's easy to get over-excited if you think you're getting a good deal. But don't move on that excitement just yet. Take time to shop around and make sure that what you're being offered actually works for your bank account.
"The only way to know you're getting a competitive rate is to compare it with offers from various sources like captive finance companies, banks and credit unions," Gulliksen said.
3. Ask lots of questions
Whether you're working with a dealer or a financial institution, ask questions about anything you don't understand. Don't secure an auto loan with terms you don't completely understand. If something sounds sketchy to you, take a day to conduct your own research. You can always come back the next day after you feel assured that the deal you're being offered is fair.
4. Be wary of additional "deals"
In the process of signing a contract with a dealer, you might be offered a lot of additional "deals" that could inflate the price of your vehicle. Take time to learn about the true value of these deals, which might include credit life insurance, theft-deterrent packages and disability insurance. Again, ask questions, conduct research and draw your own conclusions to ensure you get the most affordable auto loan possible.
There's no doubt that Labor Day 2013 can represent far more than a three-day weekend. For you, it could mean getting your hands on the car of your dreams. So take time to explore the deals being offered and use these tips to secure the affordable auto loan you deserve.
Photo credit: emilio labrador
