Your Guide to Car Financing & Refinancing With a Credit Union

New and used car financing is a vital part of life, especially if you live in an area with little to no public transit. Without a financing option, your car options will be very limited and might only include very old cars on their last legs.

Financing a vehicle through a credit union is similar to financing through a bank or another for-profit financial institution. However, credit unions offer more personalized service and may offer lower interest rates and fees since they are non-profit institutions. Plus, since they are member-controlled, credit unions exist to serve you rather than collect profits for outside shareholders.

Whether you have an excellent credit score or are struggling to obtain credit, a credit union can work with you to develop a plan for financing a car. Credit unions finance both new and used cars, making them your best choice in any financing scenario.

Getting Started

A local credit union will usually have a pre-screening form to let you know what types of credit you qualify for. You can fill out this form with your Social Security number, income, and other basic information to determine the maximum loan amount and general terms you qualify for. Although you will need to provide additional paperwork later, this is a good first step for exploring your options.

T&I Credit Union has an easy online form for pre-qualifying. You can include information about the car’s make and model, if available, or you can give us that information later.

If your situation is complicated or you’d rather talk to a credit union officer in-person, you can also call and arrange an appointment. This allows you to learn more about how loan rates work and see how to avoid paying excessive interest over your loan’s life.

Dealing with Bad Credit

If you have a lot of credit card debt, have previously defaulted on a loan, or have little credit history, your credit score may not be high enough to qualify for a large loan. You could also be denied a loan altogether.

One option for dealing with bad credit is taking out a secured loan. This is a loan for the same amount of money you have in a savings account. Credit unions commonly offer this option as a loan that can help rebuild your credit score without creating additional risk for the credit union.

You can also arrange for a spouse, parent, or other trusted individual to co-sign on your loan. Since this requires them to take on some financial risk and cause their credit score to dip slightly, some relatives or friends might not be comfortable cosigning for you. However, it’s an option worth discussing with a credit union loan officer, who might have some suggestions about how you could ask.

A final option is to hold off on buying a car until you’ve paid off credit card debt or increased your overall income. Your credit union loan officer can inspect your credit report and see if you can increase your credit score within a few months. Most adverse events are dropped from your credit report after seven years, so if you’re nearing seven years since a major financial issue, it may be worth waiting a little while longer.

What Rates and Terms to Expect

Interest rates vary based on current market conditions and your credit score. Usually, loans up to 60 months have APR rates as low as 1.99%. Loans up to 84 months typically have rates of 3.75% or more. Used car rates are slightly higher due to the car’s decreased value, and terms often range from 36 months up to 60 months.

Since the loan amount also influences repayment terms, ask for estimated loan repayment terms for larger and smaller amounts. For some families, even a slight difference in interest rates or monthly payments will impact budgeting.

T&I Credit Union also has additional loan protection options available that will affect the overall amount you pay. We offer protection plans that give you financial peace of mind. This additional loan insurance is an essential addition for larger and longer-term loans.

Some lenders also offer GAP insurance that covers the difference between the amount your insurance company will pay for your car and the amount you owe on your loan in case the car is totaled. For new cars, it’s not uncommon to be underwater for a short time. This is when you owe more on the loan than the car is worth due to a period of rapid depreciation. GAP insurance helps mitigate this period of increased risk and can even be expanded to include insurance deductible coverage.

Credit Unions

Choosing a Car

The right car for you will partially depend on how much of a down payment you can afford. Making a larger down payment not only helps keep your overall loan amount lower but may also reduce the overall term and interest. If you can afford a larger down payment, your resulting car options may increase dramatically.

Look for a car that provides a balance of safety features and overall value. Former fleet vehicles or used rental cars are a great option for getting the most bang for your buck, especially if your down payment size is limited. Fleet vehicles and rental cars are also usually well-maintained relative to other used cars.

Dealerships sometimes offer their own special financing packages or advertise 0% introductory interest rates. However, these packages often have hidden fees, interest rate increases, or harsh penalties in case of late payments. Getting a financing offer directly from a credit union is usually a better option since you’ll be able to have a more transparent discussion with an organization that has your best interests in mind. Plus, most credit unions have no prepayment penalties for early payment.

Having a credit union offer in hand may also help smooth over pricing negotiations with a dealership. Dealerships like to see customers with good credit scores and a reliable line of credit, so they may be able to strike you a better deal if they know you’ll be able to pay.

Refinancing a Loan

Since car loans commonly last five to seven years, it’s normal for your financial situation to change for better or worse. If your credit score improves or you want to reduce or lengthen your existing loan repayment term, you may be able to refinance your car loan through a credit union. A credit union will discuss your refinance goals and come up with loan terms that give you the desired monthly car payment and interest rate.

Like with a new loan, loan refinance options will vary based on your credit score and income. The best way to decide the best route for you is to consult with a credit union loan officer who can present the financial products and services you need.

A Community-Minded Credit Union

T&I Credit Union offers a wide range of auto finance options. We even finance motorcycles, RVs, and boats so you can make the most of your time enjoying the great outdoors. Call us today at (248) 397-9456, so you can learn more about how we can help you finance your dream car.

About Jeff Jacobs

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