Captive Finance Company Vs. Credit Union Car Loans

If you've ever purchased a brand new car or truck, you may well already have a car loan with a captive finance company and not even know it. Captive finance companies are simply wholly owned subsidiaries of the major automobile manufacturers. For example: GMAC is a wholly-owned subsidiary of General Motors, Daimler Chrysler owns Chrysler Financial and Ford Motor Credit Company belongs to the Ford Motor Company.

On the other hand, credit unions are privately owned, membership-based institutions that perform many of the same functions as a regular commercial bank. Membership is available only to people that meet specific criteria. Examples of such criteria might include: employment at a certain company or governmental agency, membership in a particular group or organization, being a member of a certain ethnic group or residing in a specific locality.

Both captive finance companies and credit unions can be very good sources for new or used car loans. In fact, it is difficult to say that one is better than the other for the purposes of obtaining a new or used car loan. Both have their advantages and disadvantages. Therefore, we will discuss some of each:

If you want the convenience of performing all aspects of a new or used vehicle purchase in a single location, and all at once, then captive finance companies probably offer more advantages in this department. With a captive finance company, the dealership is quickly able to submit your application and receive an approval - usually within a few minutes. Most dealers have a direct line to their respective captive finance companies, and can quickly reach them to communicate any needs or issues.

On the other hand, if you wish to obtain a loan through a credit union, you will probably have to personally visit the credit union and apply for the loan. Some credit unions do allow you to apply by phone; however, you will still need to visit the credit union to complete the needed loan documentation.

When it comes to interest rates, things can become very interesting. In general, credit unions offer the most competitive interest rates available for a new and used car loan purchase. Rates of credit unions are almost always much lower than commercial banks and usually lower than those of captive finance companies. However, this is not always the case.

You may have seen a television advertisement by one of the major automobile manufacturers offering incredibly low interest rates on their new vehicles. Captive finance companies are the ones who actually offer these interest rates to potential customers. If you're able to purchase a vehicle, at a time when these very low interest rates are being offered, then you can indeed save a lot of money. But, these rates are not always available, and at times when they're not available, credit union rates are usually much lower.

Whatever option you choose, be it a captive finance company or a credit union, you should always do some comparison shopping for the best loan terms and rates available. While you're shopping, you may also want to consider online lending sources as well. You can often find very good deals for loans on the Internet.