An auto loan broker can be the key to getting the best rates and terms on a car loan. Auto loan brokers are generally independent businesses that have developed relationships with a wide variety of lenders. Bank car loans can be vastly different from one bank to another, and special rates or terms may be available from a lender that you have no relationship with.
A car loan broker has information on interest rates and qualification guidelines from multiple banks and car loan lenders. With this information, the broker has the tools to shop for the best rates and terms for your auto loan. Often, the car dealership you are working with has an employee that works like an auto loan broker. If not, your auto dealer may be able to refer you to an independent auto loan broker.
If you have good or excellent credit, you'll most likely never consult with auto loan brokers. However, if you have bad credit, then seeking an auto loan broker may be just what you need. If you have had credit problems in the past, or perhaps a bankruptcy, many lenders will try to take advantage of you and offer ridiculously high interest rates on a new or used car loan. Don't be surprised when this occurs. There are some ways to combat this--that's where a good auto loan broker can help you.
Once the broker has checked your credit, they will have a good idea of which lenders will be able to help you. One of the biggest advantages of using an auto loan broker is they can almost always get you approved, regardless of your past credit history. In addition, they know where the best rates are. A loan broker will also be able to tell you how to get those rates. They may advise you to provide a slightly larger down payment or consider a less expensive car, as well as provide other useful tips that will help you reduce the interest rate on your next auto loan.
Loan brokers are middlemen that work between you and the lender. The lender gives the loan brokerage company a lump loan. They give them what many consider a "wholesale" price on the loan. The loan brokerage company then divides out that money. They are out to make money, but they receive their loans at a rate lower than a consumer would.
Direct lenders have their own money, and they are lending it to you directly. If you go with a direct lender, you are cutting out the middle man. The company is still trying to make a profit off of your loan, however. In fact, both the loan broker and direct lender will make a profit off of your loan. Most direct lenders are banks or credit unions that offer loans. Some companies specialize in giving their own loans, but these are few and far between--and are usually actually loan brokers instead of direct lenders.
There are many ways to find an auto loan broker. There may be several in your area. Check your local telephone directory under "auto loans," "brokers" or "lenders." If there are no auto loan brokers in your area, use the Internet to find brokers that service your area. Most of the time, you don't need to actually see the loan broker in person. A loan broker can simply email you the application, have you fill it out and fax, scan or email it back to them.
Ask your friends or colleagues about their last car purchase. It could be that your friend also used the services of a loan broker to negotiate their last car loan. This method usually is the most direct approach, and sometimes provides the most accurate information on a loan broker.
Banks are accustomed to working with auto loan brokers, and will probably have a list of them. See an officer at your local bank and ask them if there are any they would recommend.
Once you have a list of broker names to work with, start the interview and elimination process. Call or email the brokers you are considering and ask some questions regarding their services. Some useful, and suggested, questions to ask are:
- How long has the broker been in business? Longevity is a good sign of success, and suggests a thorough knowledge of the auto loan industry. Look for veterans in the business.
- Does the broker charge a fee? If the broker answers "yes" to this question, forget that broker immediately. Brokers receive substantial commissions from lenders to help facilitate loans and bring the lenders new loan customers. Basically, the lender pays the broker--not you.
- Does the broker work with multiple lenders? Choosing an auto loan broker that has many lender options can help you increase your chances of being approved for a car loan. Also, more lender options means the broker can work to get you a lower interest rate or better payment terms.
Working with an auto loan broker is a little less convenient than applying for a loan directly from the car dealership. However, a broker can usually get you a much better deal than you could get from the dealer. Brokers are normally paid by the lenders; therefore, it does not cost you anything to use their services.
Auto loan brokers make their money from referring customers to different lenders. While this may seem like a conflict of interest, most auto loan brokers are ethical business people that want you to be pleased with your loan, so that you will refer customers to them in the future. They generally work very hard to make sure you can get the best rates and terms available for your loan.
Any auto loan broker will have multiple connections in the lending industry, allowing them to collect offers from car dealership captive finance companies, banks, and credit unions in a short period of time. You can then compare the finance company, credit union and bank car loans you've been offered to find the best deal prior to applying. This all sounds very convenient, but there is also a downside to working with car loan brokers.
- They add a degree of separation. When you hire a car loan broker, the broker becomes the "middle man" between yourself and any potential lenders. If the lenders have any questions which you are not on hand to answer, you might find yourself with less favorable loan terms, or rejected for loans before you even apply. This can reduce your available options, and force you to settle for more expensive or restrictive loan terms.
- They're potentially untrustworthy. While you shouldn't avoid all car loan brokers on this basis, just be aware that getting more people involved in a process involving your personal information does constitute additional risk. You can minimize this risk by getting thorough references for a broker, to ensure he or she is reputable before proceeding.
- They may put fast approval before maximum savings. It's important to realize that a car loan broker will not be personally invested in you. Getting you loan offers is their business, and a broker's job is only to find you lenders which will approve your loan, not to find you the best possible deals. Assuming that a broker has your best interests at heart may cost you money. You should always personally compare the offers you are given to be sure of getting the best deal.
- They may use lenders with restrictive terms. Car loan brokers have connections to a lot of lenders, but this doesn't mean they have connections to all of the lenders which would be willing to give you a loan. Consider asking the broker for a list of all the lenders they submit queries to, and see if there are any they're missing. Even if they've only skipped one local lender, that could be the lender that would have given you the best loan terms.
Car loan brokers can save you time searching for lenders and make it convenient for you to compare your options, but they can also constitute additional and unnecessary risk, narrow your options and cost you money in the long term.