Financing Your Auto Purchase Online
Many consumers start the auto buying process the wrong way, by getting emotionally excited about a auto that they may not be able to afford. Understanding your auto financing options should not be the last thing you do, it should be one of the first things you do.
The Power of Finance Preparation
As a potential auto buyer, paying with cash gives you maximum negotiating power...you can buy what you want, from whomever you want. But, obviously, most auto buyers are not in that position. For most of us, we need to qualify for a auto loan or a auto lease to afford a new or used auto. Yet, if you have ever been to a dealer, you know that getting into the details of your auto finance options is usually the last thing addressed. This is exactly the opposite of what you want to take place. In order to get the best deal, it is critically important to understand your credit strength, budget, and your auto finance options, BEFORE you visit dealers, and before you even focus in on specific autos that you are considering.
In addition, if you can qualify for auto financing before you visit a dealer (through "direct financing"), you will have more control over the negotiations, and can compare dealer provided auto finance options (often called "indirect financing") with those direct options you already have in place.
Types of Auto Financing You May Qualify For
Once you have followed our advice on Your Credit Score and Report, it's time to think in more detail about what type of auto financing you can qualify for and what you can afford. As we outlined in that article, you can categorize credit scores in different types of buckets, and here we describe in more detail what types of auto financing you may be able to qualify for:
720-850: Excellent or Super Prime: with this type of credit score, you have a very good chance to qualify for a auto loan (on a new or used auto or a auto lease (on a new auto). This type of credit score is usually required for low rate programs offered by auto manufacturers (i.e. 0% financing programs), and you should be able to qualify for auto financing from multiple finance sources, such as banks, credit unions, and manufacturer lenders. In addition, you should be able to qualify for financing online or at a local bank, before you visit a dealer.
680-720: Good or Prime: with this type of credit score, you still have a good chance of qualifying for a auto loan or lease, and you should qualify for auto financing from multiple sources. You should qualify for good rates, but you will probably not receive the absolute lowest rates available in the market from banks, credit unions, and manufacturer lenders. In addition, you should be able to qualify for financing online or at a local bank, before you visit a dealer.
620-680: Fair or Near Prime: in this credit score range, you can expect your options to be a little more limited, especially if you are interested in purchasing a new auto. You may have to buy a used auto, but there should still be some options available to you. In this credit band, you may have difficulty qualifying for financing before you visit a dealer, but a established, local auto dealer should be able to get you approved for a auto loan on a used auto.
550-620: Poor or Sub Prime: if you fall within this credit band, your auto finance and purchase options are very limited. At this level, you will really only be able to purchase a used auto, and your interest rate will be on the high side of what is available in the market. It is very unlikely you will be able to find auto financing options at any source other than working directly with a local dealer that specializes in helping buyers with poor credit find financing. You may also consider auto financing from a Buy Here, Pay Here used auto dealer, which means the dealer provides the financing themselves. Be advised that your auto options will be limited and you will pay a high interest rate. If possible, you should consider trying to buy a low cost auto with cash; and you should definitely shop around to evaluate your options.
Below 550: Bad or Deep Sub Prime: at this credit level you will find very few options, if any, to help you finance a auto purchase. Only dealers that specialize in extremely bad credit auto loans may be able to help you; and if they can it will be on a very low cost auto, where the actual value of the auto will be less than what you pay for it. Your primary option here will be a dealer that specializes in bad credit auto loans such as a Buy Here, Pay Here dealer. If you cannot find any auto financing options, you should consider trying to buy a low cost auto with cash, or waiting until you improve your credit score.
Planning For Auto Financing
As part of preparing for your auto purchase, there are a number of things you can do to help you understand what types of autos you should look for in our Auto Research section:
1) Obtain a copy of your credit reports and get your FICO score to help ensure the information used by potential lenders is accurate.
2) See what types of auto financing you may qualify for, and estimate the associate costs and interest rates.
3) Using our auto budget calculators, evaluate different scenarios and set a maximum total purchase budget, and maximum monthly budget that you are comfortable with.