Car Loans: Financing Is Getting Easier
If you need to get a new car but have been worried about getting financing for it, the Federal Reserve has some good news for you: Car loans are becoming easier to get.
In its most recent survey of bank loan officers, the Fed cites the greatest quarterly easing in auto loans since 1994. Translation: More banks have become willing to make loans to car buyers at lower rates and with less stringent credit limitations.
That's potentially good news for car shoppers - because with April auto sales up 18%, manufacturers are not promoting as many 0% and low-interest financing deals as earlier this year.
Some promotional financing remains, and for certain cars, that might be your best deal, if you qualify. But note that with high-mileage small cars like the Chevrolet Cruze selling briskly, companies are focusing their financing deals on larger cars like the Chevrolet Malibu (above), which now comes with 0% financing for up to five years.
Overall, national rates for four-year new-car loans are down to an average of 3.92%, according to Bankrate.com. But don't just head into the dealership expecting to get that rate. If you haven't done your homework, a dealer may try to maneuver you into a bad financing deal. (See Auto Finance: Watch out for These Dealer Scams.)
As with all borrowing, your interest rate is dependent on your credit score. If you have a FICO score of 740 or above, you will qualify for the best rates. But if your score is just fair - say, between 620 and 660 - you may be closer to paying double-digit interest. So your first step is to check that score. Go to annualcreditreport.com, look over your free report and take the paid option to get your score. That will tell you what kind of interest rate you qualify for.
Once you know your credit score, take these steps toward a new car:
Consider a Down Payment
Making a 20% down payment helps protect you against the depreciation of a new car once it is sold. It helps you avoid owing more than the car is worth. And a loan officer may be readier to approve you if you are putting up some cash.
Get Financing Approved in Advance
If you have a pre-approved loan, you have no pressure to take dealer financing. And the dealer is then motivated to compete with the deal you already have - you may be able to negotiate 0% or promotional financing if you qualify. Before shopping for a car, check for a pre-approved loan with your bank or with a credit union, which often charges lower interest rates.
Check also with online financing sites such as Yahoo Autos, Bankrate.com and MoneyAisle.com. For instance, at MoneyAisle.com, even if you have only a fair credit score (between 620 and 659), you could potentially get a credit union loan at 5.40% on a 48-month loan. On a $22,000 car and $18,000 loan after a down 
payment, that would mean monthly payments of $418. With a top credit score, you could get a rate of 3.36% ($402 monthly payments) on the same loan. With that offer and a copy of your credit score in hand, you could then, for instance, lobby the dealership to give you instead the 0.9% financing being offered on the midsize 2011 Ford Fusion (at right).
Keep Each Part of the Transaction Separate
Dealerships love "payment buyers" who focus only on the monthly payment. That lets them wrap all together the trade-in, if any, the price of the new car and the financing. Negotiate hard on the new-car price after checking on a typical selling price from a website such as Edmunds.com or TrueCar.com. Then resist any pressure to buy add-ons like extended warranties that will push up your costs.
As in sports and public speaking, preparation pays in car buying. Consider selling your old car separately, to avoid trade-in confusion. Get financing approved and negotiate hard. You'll wind up with a car you like and payments you can afford.
Photos courtesy of the manufacturer
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