The Main Sources for Getting a Car Loan

Auto financing is the most common way car buyers pay for their vehicle, but not all financing sources are the same.

It really pays to know the different ways to get a car loan, and which sources to stay away from.

Banks

Banks are one of the most popular sources for car financing, with about 40% of all car buyers getting a loan through them. Interest rates can vary considerably from bank to bank since each one calculates risk differently.

Sometimes you can find special car loan rates used to attract new customers, so it pays to call several different banks and compare the different rates.

Captive Finance Companies

Most major car companies have a financing division which lends money to customers that buy their vehicles. They're called captive finance companies and usually offer low interest rates to help sell the vehicles.

Whenever you see extremely low APR rates such as 0% for 60 months, these are only offered through the captives. They lose money on the lending, but make it up with increased vehicle sales.

Credit Unions

Credit unions are finance institutions which are owned and controlled by its members. The main purpose of a credit union is to provide credit at reasonable rates to its members. They're a great resource for auto financing and are used by about 15% of car buyers.

Online Financing

There are many online services such as AutoCreditExpress and MoneyAisle that let you get finance quotes from multiple lenders in one shot. This can be very convenient, although it's still recommended to shop around and compare rates from other sources.

Dealerships

Dealerships don't actually provide car loans directly - they just arrange financing (for a fee). Most dealers have relationships with several dozen financing sources including banks, independent finance companies, and even credit unions.

Sometimes they can get you the best rates, but don't count on them doing so unless you've already shopped around and gotten quotes from other financing sources. Once you've done that, you can see if they can beat your best rate. Otherwise, they'll just pad the interest rates and make a killing off you.

Home Equity Line of Credit

For those who have built up a significant amount of equity in their home, taking out a home equity loan may be a good, low-cost option. Just make sure to keep the loan short and only shop for the loan through a bank or credit union.

Family

For some people, getting a car loan is very difficult. You may have bad credit or not enough credit history. If your only option is paying cash but you don't have enough to pay for a car, a little help from the family can go a long way. (Also see: Best Loans for a First Time Buyer.

You may have an uncle or grandparent who needs to make yearly gifts to save on their estate taxes. This would be a great source for your car payment.

Buy Here, Pay Here Lots

These are independant used car lots that provide car loans directly to buyers. The only thing we have to say about them is: Stay far away! These places prey on people who are desperate for a car and will usually charge outrageous interest rates. Visit Working Cars for Working Families if you have no credit and need help getting a car.

Title Loans

The only thing worse than Buy Here, Pay Here financing. Don't even think about doing a title loan. It's better to deal with not having a car than it is to get a loan this way.