In the fourth quarter of 2022, credit unions won the market share of all automotive loans and leases—more than banks and dealerships combined.1
This statistic shouldn’t come as surprising. After all, credit unions are known for low interest rates on loans in general. However, is that true for credit union auto loan rates today, and is money the only factor?
What about zero-interest financing offers from auto dealers? Are those deals too good to be true or are they worth investigating?
Let’s shine a light on car financing and compare dealerships and credit unions when it comes to car loans.
What to Compare in Automotive Financing
Most people buying cars finance them with fixed-rate loans paid over a term of 24 to 84 months, secured by the vehicle purchased. When you choose a financing partner for that loan, make sure you cover the bases and compare apples to apples. What matters most to you?
● Interest rate
● Total interest paid
● Bonus cash, rebate, or limited-time no-interest financing offers
● Monthly payment
● Loan term
● Convenience
● Fees and penalties including prepayment penalties
No matter how compelling an offer or rate sounds, do the math to figure out your total cost over the life of the loan.
Interest-Free Dealer Financing
Zero-interest offers are one way that manufacturers and dealerships incentivize more auto purchases, particularly when they have excess stock, are targeting specific audiences, or seeking to attract holiday and seasonal buyers.2
Here’s what to keep in mind:
● Offers usually require a high credit scores, which could be 700, 750, or even 800
● The 0% interest may be for a limited period with a big jump up at the end of that time
● Offers are typically limited to specific models and years rather than all cars in a lot
● Dealers may use 0% as a distraction from expensive add-ons and fees
● They may also count on customers not negotiating on price with the 0% interest
Credit Union Financing Pros and Cons
A credit union is a member-supported nonprofit that typically returns any earnings via member distributions. Conversely, banks, auto dealers, and other lenders are for-profit entities with a responsibility to maximize income for their owners and shareholders.
Credit unions, compared with dealerships and other lenders, are more likely to:
● Offer lower interest rates
● Charge lower amounts for fees and penalties
● Have flexible underwriting and work with member with lower credit scores
● Work with you if you encounter problems with repayments
On the flip side, credit unions:
● Can’t match a zero-interest financing offer
● Require membership, and some have specific membership criteria
Dealership Financing Pros and Cons
Dealership financing can be structured in a few different ways, all of which provide income to the dealer. Find out how your dealer is profiting and whether the arrangement is:
● Indirect financing arranged through the dealership with a third-party lender
● Captive financing through auto manufacturing subsidiary companies
● “Buy here pay here” in-house dealership financing
You may want to finance through a dealer if:
● Your credit score qualifies you for a zero or ultra-low interest rate special offer
● You can pay off a loan on time or faster to avoid penalties and a big jump in interest
● You’re willing to pay for the convenience of one-stop-shopping-and-financing
The problematic side of dealer financing includes:
● A dealer commission or company markup (that you’ll pay) for selling you financing
● Higher average interest rates
● Wading through bonus offers to calculate actual costs of the purchase and financing
How to Get the Best Car Financing Deal
Before you head out to wander the dealer lots, apply for an auto loan with your credit union. If you have a loan offer in hand, you’ll be in a wise position to compare what the dealership can do for you.
Even if the dealership works with a local credit union as a third-party lender, you’ll have a chance at a better rate—and no dealer markup—by working directly with the credit union.3
Finance Your Next Set of Wheels with NJFCU
Ready to get rolling on an automotive purchase? North Jersey Federal Credit Union (NJFCU) offers 100% financing of the full purchase price (including taxes and title fees) and among the lowest auto loan rates NJ residents can obtain. Borrow for up to 72 months on most vehicles or 84 months for luxury vehicles. Check out our current low rates on new and used car loans.
Discover the benefits of being a member of the best credit union in NJ and apply today!
Sources:
Automotive News. Credit unions expected to remain an auto lending force. https://www.autonews.com/finance-insurance/credit-unions-are-car-lending-force
Car and Driver. What to Know About 0% APR Car Loans. https://www.caranddriver.com/auto-loans/a41855998/0-apr-car-loan/
Bankrate. Why you should get your car loan at a credit union. https://www.bankrate.com/loans/auto-loans/credit-union-car-loan/