Choosing the Right Car Loan
One of the key decisions car shoppers must make is where to secure their auto financing. The lender you choose can significantly impact your monthly payments and total costs. With so many options available—from dealership financing to credit unions—it’s important to understand how different loan terms, interest rates, and financing sources affect your budget.
Choosing the right loan ensures that you don’t overpay in interest or get stuck with terms that don’t fit your financial situation.
Compare Interest Rates and Loan Terms
Interest rates vary depending on your credit score, loan term, and lender. Generally, the better your credit, the lower your interest rate. However, even with a strong credit profile, loan terms can make a big difference in how much you pay over time.
Shorter loan terms (36-48 months) typically come with lower interest rates and help you pay off the loan faster, but they result in higher monthly payments.
Longer loan terms (60-84 months) reduce monthly payments but increase the amount of interest paid over the life of the loan.
A lower interest rate can save you thousands over time, but finding the right balance between affordable monthly payments and minimal interest is key.
Know the Difference Between Dealership and Credit Union Financing
Car dealerships often advertise low-interest financing, but these offers may come with specific conditions, such as requiring a large down payment or being limited to buyers with excellent credit. Additionally, dealerships mark up loan rates to make extra profit, meaning you might not get the best deal available.
Credit unions only offer loans to members. Their not-for-profit operating structure and emphasis on doing what’s in the best financial interests of members means they typically offer lower rates and fewer fees than dealership financing. In addition to lower rates and more transparent terms, members of credit unions also benefit from a more personalized approach to the auto loan process.
Get Pre-Approved Before Shopping
One of the best ways to strengthen your position when negotiating your car purchase is to get pre-approved for a loan before visiting the dealership. Pre-approval gives you a clear understanding of your budget and prevents you from getting pressured into unfavorable financing terms.
Knowing your limit can also provide leverage in negotiations. Car salespeople really want to make sales, and dealerships might be willing to lower their price to within your budgetary limit. Pre-approval also lets you lock in your interest rate, provided you act quickly and close on a purchase within the pre-approval period.
At Ouachita Valley FCU, we offer fast and easy pre-approvals, allowing you to car shop with confidence.
New vs. Used Car Loans: What to Consider
The type of vehicle you finance affects your loan terms and interest rate. New cars typically qualify for lower interest rates because lenders view them as less risky—manufacturers provide warranties, and the vehicle is in top condition. Used cars, on the other hand, may come with slightly higher rates due to factors like age, mileage, and resale value.
New Car Loan Pros
Lower interest rates due to lower lender risk.
Manufacturer warranties provide financial protection.
More financing incentives from manufacturers.
Used Car Loan Pros
Lower purchase price, saving you money overall.
Slower depreciation—most depreciation happens in the first few years.
Potentially lower insurance costs.
It’s important not to confuse higher loan rates with higher overall cost. People who buy used cars typically spend far less overall due to the lower purchase price of a pre-owned vehicle. Regardless of whether you choose new or used, credit unions like Ouachita Valley FCU offer competitive financing for both, helping you secure the best possible loan terms.
If you originally financed through a dealership or another bank, you can still refinance through a credit union to take advantage of member-exclusive loan terms and rates.
Factor in More Than Just the Monthly Payment
A low monthly payment might seem appealing, but it’s important to consider the total cost of the loan. Longer loan terms may keep your payments manageable, but they also mean paying more in interest over time.
Consider a scenario where a car buyer purchases a $30,000 vehicle with a $5,000 down payment, financing the remaining $25,000. If they choose a 36-month loan at 5.5% interest, their monthly payment would be about $755, but the total loan cost would be around $27,200.
If they opt for a 60-month loan at 6% interest, their monthly payment drops to about $483, making it easier to manage month-to-month. However, the total loan cost rises to roughly $29,000, meaning they’ll spend nearly $2,000 more over the life of the loan.
While a longer loan term reduces monthly payments, it increases the total cost of financing and extends your debt obligation by two years.
Get Your Auto Loan From a Lender That Prioritizes Your Financial Health
One of the benefits of banking with Ouachita Valley FCU is the access members get to our competitive auto loans. Car buyers in North Central and Northeast Louisiana looking for competitive auto loan rates, flexible loan terms, and a straightforward application and approval process should call us at 318.387.4592.
