Acting Soon on an Auto Loan May Help Lock In a Good Deal
Interest rates are hovering at near historic lows, but may not be for much longer. The Federal Reserve’s move to end a policy designed to loosen credit may lead to a hike in borrowing costs next year. So if you expect to need a new car within the next year, now may be a good time to make your move, at least on the financing.
Average new car loans with 48-month terms across the U.S. carried rates of just over 4% as recently as September, according to Fed data. Now, some credit unions, like BrightStar Credit Union, are offering to finance as much as 99% of the cost of a new vehicle for as low as a 1.8% annual percentage rate.
Getting an auto loan
As you gear up to drive away in a new car, here are a few tips on securing low-cost financing ahead of any potential rate increases.
Use a credit union
Credit unions are member-owned, not-for-profit organizations, which lets them offer significantly lower-rate loans than most lenders. Research from the National Credit Union Association shows four-year, new-car loan rates averaged 2.64% in the second quarter of this year at U.S. credit unions. That compares with a national average rate of 4.78% at banks. Credit unions on average offered better rates on both new and used car loans for all durations measured.
Secure financing before heading to the dealer
It’s a good idea to know how much monthly payments are likely to be before heading to the dealer. Consider using an auto loan calculator to determine how much money you’ll pay each month for different loan terms and rates. Securing the financing before you negotiate a price for a car may take the pressure down a notch and help you land a better deal.
Shop at the right time
Timing is everything when it comes to buying a new car. Toward the end of the year, dealers may be scrambling to meet annual sales quotas, and salespeople maybe angling for holiday bonuses. Combined, those motives can make it an ideal time to negotiate a good price. As January approaches, dealers often try to clear out this year’s models to make room for next year’s on the sales floor. You may also benefit from bargaining during the early part of the week, as that helps to ensure you’ll have a salesperson’s full attention, undistracted by the traffic of a busy weekend. Making an offer toward the end of the day can also help you win a better deal, as salespeople may be tired and anxious to head home.
If you expect to replace a car or buy a new one before 2016, acting now rather than in nine months could help you score significant savings, should rates rise as expected. And a credit union’s favorable loan terms may help ensure that you make the most of the opportunity.
Cait Klein, NerdWallet