You’re confident with your selection. Now comes the time to choose how you will pay for the SUV. And unless you have a Scrooge McDuck vault full of cash, then you’ll have to finance it.
The easiest solution is to go to the dealership. Most dealers have a network of lenders for every credit type, so not only can they be a great alternative if your credit is bad, it can drive competition to help you receive the best deal if you have an outstanding credit score.
Of course, dealerships are in the business of making money. Financing is no different in this regard. While most are reputable and will help you receive a competitive deal, there are tricks they do to net them more money from every part of the transaction.
To demonstrate, dealers like to use numbers to entice. Say you are looking to finance a 2017 Ford Escape, it isn’t uncommon for a salesperson to say they can get you into it for a specified monthly payment. Questions you should examine include:
- How did they arrive at this payment?
- Do you have a trade-in? Did you receive the maximize amount for it?
- What are the loan terms? Specifically look for the interest rate and loan term. The longer the loan term, the more you’ll pay.
- How much are you paying for your new SUV? Don’t use the dealership’s sticker price as the guide. Instead, use a resource like TrueCar to find out how much others in your area pay for the same model.
As you can see, you might have to hold dealerships accountable, depending on their financing behaviors. To ease the buying process, you can avoid them altogether as it concerns financing. Here are some viable options you can consider instead.
Peer-to-peer lending has grown in popularity thanks to the financial benefits it offers its borrowers. You can use a platform like Prosper to finance your next vehicle.
How it works: You start by visiting a peer-to-peer lender’s website. Most, like Prosper, allow you to check your rate without having an inquiry land on your credit report. That way it’s a risk-free option to see if you qualify. If you are eligible for an auto loan, you’ll choose your loan term, which varies by provider from three to five years typically. Once you select your terms, investors comprised of individuals and businesses fund your loan. After you receive funding, you can direct deposit the loan into your account then visit the dealership to buy your next SUV.
The good: If you have an average to good credit score, you might be able to find better interest rates for a vehicle loan through peer-to-peer lending than you would with the dealerships. Best of all, you do everything from the comfort of your home. Once you receive the funds, you take a check to the dealership, so don’t have to worry about the hassles of doing financing through them.
The bad: Peer-to-peer lending isn’t suitable for all credit types. Most have credit score requirements where you must meet a certain range–often 640 and above–to qualify. Therefore, if you are trying to rebuild your credit, other options are going to be more suitable.
Instead of having the dealerships do your bidding for you, do it yourself. You can find many different auto loan lenders online.
How it works: Direct lending is where you apply for an auto loan through a lender like Capital One. If you possess average to good credit, you could lock in a lower rate than you would have received through the dealership.
The good: Similar to peer-to-peer lending, this is a smart choice because it places the control in your hands. You choose the loan terms that align best with your budget. If the interest rate offered seems high, consider a local credit union or bank you have an established relationship with instead. Once approved, you can take a check to the dealership, which simplifies the buying process immensely.
The bad: Since there are so many options available, it could become overwhelming knowing who to choose for your loan.
Here at SUVs.com we have our own direct lending partner who provides very good rates and service. Check out our financing section here to learn more.
Financing Tips for Your Next SUV
Even if you go with either of these alternatives, there are certain behaviors you want to employ each time you finance an SUV. Here is a look at them:
- Start by making a large down payment on your new SUV. Vehicles depreciate at warp speed, so it’s important to balance out the equity by placing a down payment of at least 20 percent of the purchase cost, plus taxes and fees. This will also reduce the amount you have to finance, saving you money in total loan costs.
- You should also keep your loan term as short as you can afford it to be. While lower payments sound better initially, it results in more years of making payments on your newer SUV. This is expensive because the longer your loan lasts, the more in interest you’ll pay on it.
- Even when you walk into the dealership with a check, they will try to get you to add features like GAP insurance. GAP insurance makes up the difference between a totaled SUV’s fair market value and what you would owe on the loan. While it’s an important coverage to have, you can find less expensive choices with your insurance provider.
- Another area dealerships will try to get more of your money is with extended auto warranties. These policies do serve a purpose when your SUV’s manufacturer’s warranties expire. At the same time, there’s no reason to roll one of these expensive policies into a loan where you will pay interest charges for it when you can go to the provider and pay for it in cash for much less.