Let’s face it, getting auto financing can be a challenging process and it can be difficult to tell where to begin if you are starting from wrong assumptions due to misinformation. At PayLow Rate, we try to make the process as easy and transparent as possible. With that in mind, below are 10 common myths about auto financing.
Myth#1: “Dealerships always give their customers the best financing terms possible”
Fact: Dealerships actually mark up their rates by as much as 2.5%, so if you walked out of the dealership with a 6.5% loan, you likely qualified for a loan as low as 4% from the bank and the dealership marked up the rate without you knowing. At PayLow Rate, we never mark up our rates, so you always get the actual lowest rate that you qualify for from our network of lending partners.
Myth#2: “Once my auto loan is signed, I am stuck with that car payment until I pay it off or trade it in”
Fact: While it is true that a dealership will not allow you to change the terms of your auto loan, you are able to refinance your auto loan with another lender at any time. At PayLow Rate, we partner with a network of lenders so you don’t need to shop around for the lowest rate. We do the heavy lifting for you, and the best part is we don’t charge our customers for our services. This is a great option for people who started with a high interest rate, but have improved their credit score and made regular payments.
Myth#3: “A 0% finance rate will always provide the most savings”
Fact: 0% financing is only offered on current model year new cars as an alternative to a cash rebate (e.g. 0% financing OR $3500 cash back). In some cases, you may actually be better off by taking the cash rebate and accepting the finance rate that you qualify for. For a detailed example of this tradeoff, please see our blog entry on this topic HERE.
Myth#4: “I cannot trade in my current vehicle until I pay it off”
Fact: You can trade in your vehicle toward the purchase of a new vehicle at any time, whether it is paid off or not. The amount of equity (trade-in value of the vehicle minus the amount you still owe on the loan) you have in your trade-in will go toward reducing the new vehicle purchase price. If you have negative equity (you owe more on the loan than your trade-in is worth), then it will effectively increase the purchase price. The lower your interest rate, the more of your monthly payment goes towards your principal. Refinancing your current interest rate for a lower one will help you accrue more equity in your trade down the road.
Myth#5: “I can only refinance my vehicle loan for the amount of the remaining balance on it”
Fact: You can refinance your vehicle loan typically up to 110% of the vehicle value, regardless of how much you owe on it (even if your vehicle is already paid off, you can take out a low interest auto loan against the value of the vehicle). This means you can get cash out if you have positive equity in your vehicle. For instance, if you owe $10,000 on your vehicle loan but your vehicle is worth $15,000, then you are able to refinance for $16,500 (110% of $15,000) which gives you $6,500 cash in your pocket after paying off the original $10,000 loan. A lot of PayLow Rate customers use this option to pay off high interest credit card debt, student loans, or to get cash out to use for a mortgage down payment or other home project.
Myth#6: “Refinancing my car will be as difficult and time consuming as a mortgage”
Fact: While refinancing a mortgage may take 30 days or more and involve seemingly endless paperwork, refinancing your auto loan requires minimal time and effort. Many customers who have good to great credit only need to provide two things: a filled-out credit application, and a driver's license. That’s it. At PayLow Rate, you fill out the credit application online, and you can take a picture of your driver’s license and text it over with your phone. The initial approval can happen in a matter of minutes, and once approved PayLow Rate is able to package all of the loan documents into a concise E-signature email that takes only minutes to click and sign. This online-only approach means you can be on your way to refinancing your auto loan and reducing your monthly payment during your lunch break without ever having to set foot inside a bank!
Myth#7: “If I refinance my auto loan, I will have to pay closing costs”
Fact: Most people are familiar with closing costs from refinancing a mortgage, which can cost thousands of dollars and counteract the savings from refinancing. However, unlike refinancing a mortgage, there are no closing costs associated with refinancing an auto loan, but there may be unexpected fees depending on the lending institution. Some banks and credit unions may charge closing fees or application fees, even if there’s no promise of an approval. Other loan brokers may do the same. At PayLow Rate, we don’t charge any fees for our service. That’s right - nothing out of pocket and nothing built into your loan. We do all of the new title work for you and only pass along the Secretary of State fee which can be as low as $25. So do your homework if you wish - but we’ve already done your homework for you!
Myth#8: “If I refinance my auto loan, my term has to start all over again”
Fact: You can choose the length of the term on your refinanced loan. This means if you have 32 months left on your original 72 month loan and you want to refinance to reduce the interest rate, you do NOT have to refinance to another 72 month loan and start all over again. You have the option to keep the term the same at 32 months remaining, or you can lengthen the term to reduce your monthly payment, or even shorten the term if you want to pay it off sooner. Your PayLow Rate Success Advisor can show you how much interest you will pay in each scenario and make sure your solution is tailored specifically to your situation so you are happy with the interest rate, monthly payment, and term of the loan.
Myth#9: “My credit score is the same no matter which lender I go to”
Fact: There are several variables that go into determining your credit score, and each lending institution can weigh those variables differently. Lenders typically use one of the 3 main credit bureaus as a baseline to determine your score, but may weigh some of those other variables differently to determine the interest rate, or even an approval. For instance, one lender may value home ownership over renting while another lender may place a high value on having a positive car payment history. And to further complicate things, each of the three credit bureaus has multiple versions. So a lending institution that uses Equifax version A may be starting from a different score than one that uses Equifax version B. This high degree of variability can swing a credit score by 20 - 50 points, or more in some cases, so if you only go to your credit union to get your financing, you may not be getting the best interest rate possible. That’s why PayLow Rate partners with multiple lenders, so we can do the extra work of shopping for the best rate for you.
Myth#10: “I can’t save that much money by refinancing my auto loan”
Fact: PayLow Rate customers who refinance their auto loans typically save $60 - $120 each month, which can add up to thousands of dollars over the life of the loan. That’s like finding a wad of $20 bills in your pocket when you take your jeans out of the dryer……...and then that happening again month after month!