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Looking For An Auto Loan?

Auto Loans blog
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By: Nicole Stovall
Senior Manager Consumer Loans

February 28, 2023

If you are in the market for a vehicle, you are faced with the challenge of knowing how to navigate the auto industry landscape. Dealer inventory for new and used vehicles is increasing, and loan rates are rising with it. It is expected that the Federal Reserve will continue to raise interest rates in 2023, so navigating the auto loan landscape strategically will help buyers stay on track with their financial goals. Doing your own research and educating yourself on auto loans will save you time and money.

Most consumers finance their vehicle purchases with a loan, therefore securing financing and understanding the overall cost prior to visiting the dealership is key. Here are several factors to consider:

  1. Do your research before going to the dealership - In any sales opportunity, it is important to understand the overall cost of your purchase and in the case of a vehicle purchase, the cost vs. the value.  It is easy to read into flashy signage or a deal that sounds great while in the dealership but being prepared with knowledge beforehand will help in making the smartest decision for your future finances. Review your budget and get an understanding of what you can afford. Know your credit score and research what interest rates you can qualify for. The interest rate you will pay is directly related to your score and will impact your monthly payment. Once you have determined what you can afford, be sure you understand the value of the vehicle you are interested in so you do not overpay.
  1. Cost - Understanding the total cost of the car is one of the most important parts in the buying process. Dealerships frequently use creative tactics to make money, and consumers can get caught up in the process. This could lead to a buyer agreeing to a monthly payment rather than having a true understanding of the total cost of the vehicle including taxes, and fees. When you are taking your monthly payments into consideration, don’t forget to include maintenance, gas, and insurance. Once you know the total cost, take a look at your budget and decide what monthly payment you can afford and are comfortable paying.
  1. Loan term and interest rate - As you are navigating the process of applying for an auto loan, always keep the term and interest rate in mind. In this inflationary environment, being mindful of this step is a necessity. The interest rate will impact the total amount you pay over the life of the loan as well as your monthly payment. When shopping for a vehicle, it is important to understand your lender’s guidelines for vehicle age and mileage Loan terms can range anywhere from 12 months to 84 months based on different factors. Understand what loan term works best for you and consider all the different options.
  1. Down payment - A down payment is money you can put toward your purchase to decrease your overall loan amount. Down payments aren’t always required but will lower the overall interest paid.  Consider putting down an amount you are comfortable with if you are interested in a financing situation that allows for lower monthly payments.
  1. Trade-in value (if applicable) - There are two types of trade-ins, paid-off trades that are owned outright by the buyer and trades with a lien, which means you have an active payoff on your current vehicle. If you owe more than the car is worth, you are ‘upside down’ and may be required to put a down payment. The value of your trade-in will go toward your new loan, so it is important to know what your car is worth, and what your payoff is on your current loan, if applicable.

The car you want may not always be the car you can afford. Once you consider everything that impacts your next auto loan, there are auto loan calculators available to determine how much car you can afford[1]. On the Affinity website, you can calculate the estimated price of the car you can afford based on your desired monthly payment, trade-in, down payment, and estimated loan terms. This tool is crucial and will give you a general idea of the amount you will be financing.

Securing A Pre-Approval

With auto loan interest rates continuing to increase, one of the best things you can do before going to a dealership is securing a pre-approval. When applying for pre-approval, all applicants and co-applicants will need to provide contact information, housing status, employment history, and income information. Affinity offers affordable loans for new and used cars, as well as competitive rates if you are looking to refinance. There are three ways to get your pre-approval process started:

  1. Initiating the process via online banking in the “New accounts and loans” tab
  2. Connecting with one of our team members over the phone at 800.325.0808
  3. Scheduling an appointment with our team online or in one of our branches

Pre-approvals benefit buyers because it gives you the ability to walk into the dealership with your financing terms already set. One of the first questions a salesperson will ask when you walk into a dealership is “what monthly payment can you afford”? This is a tactic dealerships use to offer a cheaper vehicle with many add-ons to raise the price to match your monthly payment, or they will offer you a vehicle you can't afford and stretch out the monthly payments for a longer term. A pre-approval allows you to avoid this and focus on locating a vehicle for the right price, not the payments.

Truly understanding all the factors that go into taking out an auto loan put buyers in the driver's seat when purchasing a car. Having a complete understanding of how to navigate the auto loans landscape will help save you time and money. Now that you truly understand the process of securing an auto loan, it's time to start shopping! Learn more about taking advantage of our auto solutions2.

This information is for informational purposes only and is intended to provide general guidance and does not constitute legal, tax, or financial advice. Each person’s circumstances are different and may not apply to the specific information provided. You should seek the advice of a financial professional, tax consultant, and/or legal counsel to discuss your specific needs before making any financial or other commitments.