Let's talk about Financing.
It is a HUGE part of most vehicle purchases but seems to be something that lots of people have many questions about. In fact, it is probably the thing most people ask about. There are dozen of great websites that give you information on types of vehicles, fair pricing, options, and how best to purchase a vehicle, but not any of what financing a vehicle all entails. I am hoping to answer some of those questions with this short piece.
Here at Serwe Automotive, we do have financing available. This is something that you do not always see independent (used) dealerships like ours. For a dealership to qualify to offer financing, we have to have typically been in business longer than 5 years, a good reputation, quality vehicles, and a solid financial footing. At that point, banks will start to consider partnering with an independent dealer. That is why we hold lots of pride in the fact that we do offer this service for our customers.
When as a dealership, we partner with financial institutions, be it Banks or Credit Unions, that is called indirect financing. This is opposed to in-house financing, which is more commonly called, buy-here-pay-here. This you see almost exclusively for cheaper vehicles, and for customers with extremely challenged credit. The reason I say extremely challenger credit is because there are Banks, that we are partnered with that will fiancing people with lower credit. We have personally helped people with 540 credit scores in the past with these banks. I could write pages on what is commonly known as Sub-Prime financing, and at some point will. if you are someone that might have less than stellar credit, please reach out to us and let us help you work through your situation. It is extremely easy to be taken advantage of and even if we cannot help you, we can guide you to what your best options may be.
For everyone else, financing still can be confusing. Here at Serwe Automotive, we try and make the process as easy as possible. What we like to do is have our customers fill out a credit application, found on our website. We take that information, look at what vehicle you are looking at, and match you with the best bank or credit union. Currently, as I write this post (02/02/2021), interest rates are as low as 1.99%. Now those rates are available for short term (36 mo.), newer vehicles (2018 and newer), with a 20% down payment... See how it can get confusing! Most of our customers, with good credit, qualify for 60-75 mo. terms with rates falling between 3.29-3.99% APR.
I hope so far this has been somewhat enlightening on a few of the basic questions we run across when it comes to financing. It is an ever-changing part of our business and something that we find to be a great value that we offer to our customers. I now am going to do some rapid-fire topics and how they can impact your loan...
APR/ Interest rate: This is the "cost" of borrowing the money.
Term: This is the length of time you have to pay the loan back. The term is normally based on the year and mileage of the vehicle you are borrowing against. The typical range is between 36 - 84 months.
Down Payment: They are not always necessary. I would say around 30-40% of the deals we fiance have no money down. In the past, banks would like to see upwards of 20% down on a vehicle, but with interest rates at all-time lows, banks have seen less of a need for a down payment. Some of the benefits of down payments are...
-lower monthly payments
-possibly lower interest rate
-easier to trade out of your vehicle soon
Income: This comes into play when you have other outstanding debts. Banks want to make sure your monthly payment is something you can afford. Your income comes parted to your current monthly debt you have to pay (known as debt to income level). Different banks have different level they allow for DTI and depends on the level of income you have.
Employment: Similar to income, employment plays a role in approval as well. Typically banks will ask for your previous 2 years of employment. What they are looking for is stability. Just because you switch jobs recently does not me that banks will not be financing you. BUT if you change jobs as often as you get hair cuts, banks will shy away.
Residency: This plays a role in DTI just like income when looking at your mortgage payment or monthly rent. As well as employment, if you are moving from State to State or City to City, this will also be a red flag for banks.
Co-signer: Typically co-signers are needed to younger people with limited to no credit experience. It is kind of like job experience. You need a job to have job experience, but you need job experience to get a job. Same thing for credit experience. That is where having a parent co-sign on the purchase will help. Also, for people with less than perfect credit, co-signers can be a way to qualify for a loan as well.
As you can see, Auto loans can be a complicated deal. Next to buying a house, it's the biggest purchase you will make. We are here to help make that process as easy as possible. We hope this post has given a little clarity to the situation. Although we only have scratched the surface, please feel free to get in touch with us with any questions you might have.