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Where can I obtain an auto loan?

Finger choosing one of many options
Deciding where to borrow money for the purchase of a car can have a large impact on the overall price of a car loan. A diverse range of lenders are in the auto lending industry and each has different methods of lending money. They also have different costs and benefits for borrowers looking to purchase a car. Finding one that fits your needs should be priority number one. Here is a quick breakdown of the auto lenders available to car shoppers:

  • Banks: Banks are the most common source for car loans. Borrowers who have long histories with banks will probably be readily assisted by their bank in obtaining an auto loan. Banks will be inclined to help since they are eager to keep the business of longstanding customers. Also, due to the competitive nature of the banking industry, banks will compete to offer the best loan terms they can, especially now that auto loans are viewed as profitable for banks when compared to current low-demand mortgages.
  • Credit Unions: Credit unions also offer auto loans. Since credit unions are member owned they usually host lower interest rates than bigger banks. Lower interest rates equate to a cheaper form of borrowing and will lower the overall cost of a car loan. Also, since credit unions operate on a local basis, most credit union borrowers get approved faster than they would at other lending establishments.
  • Car Dealerships: Dealerships offer car loans and may be the most convenient lender for car shoppers. Dealerships typically partner with banks, but can also secure financing through major car manufacturers. In order to attract customers dealerships also—often loudly—offer very attractive promotions and deals.
  • Internet Lenders: Online lenders have appeared in the industry, ready to make car loans across the web. Phone calls are frequently a part of the online lending process. Due diligence on the part of prospective borrowers—and checking with the Better Business Bureau—can help determine which online lenders are reputable.
  • P2P Lenders: Peer-to-peer auto lending has also risen in popularity. In peer-to-peer lending, individual investors pool funds together to lend money to qualified applicants. The investors get their money back, plus interest— just like any other lender— while borrowers receive the money necessary to purchase their vehicles. Approval isn’t always simple with this new form of lending, but it may be attractive for some prospective borrowers who are having difficulty qualifying through more traditional means.
  • Family: Family members loaning money can also be an option for prospective borrowers. Borrowers should be sure that the loan isn’t interest free or this may be considered a taxable gift by the IRS. Borrowers may be tempted to ask their family member to simply give them money but the IRS would consider this a taxable gift. Writing up a contract between involved family members is a great way to formalize an agreement and to ensure both parties have the car loan’s terms on paper. However, this type of lending comes with the unique possible consequence of strained relationships should a borrower fail to repay a family member.