5 little-known facts about car loans
That’s why you’ll find experts in many fields and areas of activity, even in auto credit.
These nuances are very often too complex for the average consumer to understand and master. It’s simply not worth it. That’s why it’s important to work with auto financing experts who can help you better present your credit case.
#1 Indirect Auto Loans:
Most consumers are not aware that banks often work with car dealerships to provide indirect auto loans. In this case, the dealer serves as an intermediary between the bank and the consumer. The dealer submits the consumer’s loan application to the bank, which approves or denies the loan.
The bank then pays the dealer for the vehicle and the consumer makes payments to the bank. This indirect lending process can result in higher interest rates for consumers because dealers may add a margin to the interest rate charged by the bank.
The danger for you: Dealing with a dealer that has only one financing partner.
#2 In-house financing at banks:
Some banks offer their customers in-house auto financing, which is different from indirect auto lending. In-house financing typically involves the bank working directly with the consumer to provide the auto loan.
This can result in more favorable loan terms and interest rates for the borrower since there is no dealer markup. However, in-house financing may not be widely advertised or available to all customers, so it is essential to ask your bank to offer this option when looking for an auto loan.
It’s also very often to the bank’s advantage. Not to mention, it’s much more complex for the car buyer.
#3 Benefits of Loan Pre-Qualification:
Many consumers are unaware that being pre-approved by a bank for an auto loan can offer significant benefits during the car buying process. Loan pre-approval allows you to determine how much you can borrow and what interest rate you will be offered before you start looking for a vehicle.
This knowledge can give you more negotiating power at the dealership because you already know the financing terms and can focus on negotiating the best price for the vehicle. In addition, having a pre-approved loan from a bank can help you avoid the higher interest rates that may be offered by the dealership.
#4 Yield Curve and Auto Loan Interest Rates:
The yield curve, which illustrates the relationship between interest rates and debt maturity, can influence interest rates on auto loans. Banks and other lending institutions often use the yield curve to determine their interest rates, including those for auto loans.
A steep yield curve, where long-term interest rates are significantly higher than short-term rates, can result in higher interest rates for auto loans. Conversely, a flat or inverted yield curve, where long-term rates are similar to or lower than short-term rates, may result in lower interest rates for auto loans.
The yield curve is influenced by a variety of economic factors, including inflation expectations, economic growth and central bank policies.
#5 Cross Collateral in Auto Loans:
Cross-collateralization is a lesser-known practice in which a bank uses collateral from one loan to secure another loan to the same borrower. In the context of auto loans, a bank may use the borrower’s other assets, such as a savings account or certificate of deposit, as additional collateral for the auto loan.
This provides the bank with additional security and potentially reduces the borrower’s interest rate. However, it also means that the borrower stands to lose more than the vehicle in the event of default. Cross-collateral clauses may be included in loan agreements, but they are not always explicitly stated or understood by borrowers.
It is critical that consumers carefully read the terms and conditions of their auto loan agreement and be aware of any cross-collateralization clauses that could impact their other assets.
As you can see, it can be very complicated and stressful to find auto financing.
Would you like to schedule an assessment meeting with a CAS Financing customer success manager?