Buying a Used Car. First Time Auto Loan. HALP!

AbsoluteZero

So I'm looking at buying a car for the first time. I'm driving a loaner currently and it's soon to see its last days unfortunately. After doing some looking around I've spotted a used car that I like and for now I'm setting my sights on it. A 2007 Chevrolet Impala, 68000 miles, $8950.

What I don't understand though is how the whole financing process works. I've done some researching on the internet and everything seems to recommend getting an auto loan from a third party (as in from a bank and not through the dealership). So I have a few questions... maybe dumb ones but I'd rather not screw this up.

1st... I've seen a lot of places on the net recommending I apply for a loan from an online lender for better rates. Is there any truth to this?

2nd... I don't know 100% that I want to buy that exact car just yet, can I go to banks and simply get pre-approved for auto loans of x dollars at x% apr?

3rd... When the loan is approved, how are those funds then transferred to the dealer? I assume they don't hand you a check.

4th... Is there any reason a lender would not approve a loan for a car from a certain dealer?

5th... What can I expect to pay, typically, in bs like origination fees, etc?

6th... Is it really best to go with a 3rd party lender, rather than going through the dealer?

Also, any tips and suggestions you guys might have on getting a good auto loan would be greatly appreciated!

Daenris

1. This is probably true, but shop around and look at rates at different places. It's hard, because generally you'll only ever see their "best case" rate, so if your credit isn't 100% perfect or whatever, you'll get a different rate.

2. Yes, you can get pre-approved for an auto loan. Generally -- at least in my experience -- the apr has depended on the eventual car you do purchase (mostly year if I remember correctly).

3. This probably depends on the lender. In one case I was in fact just mailed a "blank check" type thing to take to a dealer to purchase the car.

4. I don't think so. They're approving the loan to buy a car, not to buy a car from a particular dealer.

5. I don't think I've ever paid anything on a car loan besides interest on the loan itself. There will be tax, title, license, and document fees at least from the dealer. These depend on state.

6. Yes. Dealers want as much of your money as they can get, so will generally have higher APR loans that may be easier for people with bad credit to get. If you have decent credit and don't anticipate any problems getting approved for a loan, do it somewhere other than the dealer.

Iceman.USAF

I'll add in my own answers, though Daenris nailed it pretty well.

1. Lots of online banks will offer better rates. Lots of brick and mortar banks will too. You've just got to hunt around. I wouldn't pay anything over 6% though.

2. Many banks will pre-approve you for $xxxx at X.X% apr. There are many stipulations that come with that though. Some will be for ANY car, some will be only for new or CPO (Certified Pre-Owned) cars, etc. Make sure you're clear on your banks terms before you sign for the loan.

3. In most cases, the bank WILL hand you a check and you will fill it out. My bank (USAA, which is admittedly different) basically gave me a check good up to $20,000. It had several levels of repayments tied to it, so lets say I only spent like $5,000, then its a 3 year plan. If I used the full $20k, it's a 5 year plan. I just made the check out to the dealer and bam, done.

4. Yes, if you find the car you want and your bank doesn't want to give you the money for that dealer, they have that right. Will it happen? Probably not. Like Daenris said, you're their customer not the dealer.

5. Fees can range. Tax, title, and license can alllll be included in your loan. Basically you just add your final 'purchase price' together with all of those. Your dealer can then write a check on your behalf to your state DMV for the taxes and such. If its a new car some dealers have DMV reps right there, so that might be the case.

6. Almost always yes. The except MAY be 0% APR loans some dealers off. Probably wont get that from a bank.

AbsoluteZero

All very helpful, guys. Much appreciated.

Soooo... then do I go to the dealership and cut a deal for the car, THEN apply for the loan (since then I'd know exactly how much I need)? Or do I apply for the loan first, then go haggle with the dealership?

Wezoin

Get pre-approved. It'll make it alot easier for you knowing what your limit is and gives less room for the dealer to offer you a deal, send you to get approved, and then refuse to admit they made that offer when you come back. Also, they are pretty desperate for sales, and are used to deals falling through so to sell something sooner/on-the-spot they are sometimes willing to give a better deal.

Disrupter

How do pre-approval with cars work? I know with houses they usually ask what your looking for and approve in that range. Example, I originally got pre-approved at 159, but when i found houses i liked more they bumped me up to 200 and seemed to be willing to go much higher...

So, not sure if they will approve you for the max with a car, since they clearly didnt for me with a house.

Iceman.USAF

Generally they'll issue you a check that says something along the lines of "Not to exceed $xxxxx dollars." I'm not sure how changing that would go. I'm not sure I'd want to let myself be talked into changing it either. Set yourself a limit BEFORE you're in a pressure filled situation, and stick to it.

Sentry

Also, you should be aware of the loan to value ratio for you car. A lot of loans require the cost of the car to be within 10% of the actual value of the car, which can be problematic when considering fees like tax and title, which may result in you putting down a larger down payment then you were expecting.

pacbowl

Don't forget about insurance. A lot of financial institutions will require you to insure the car for the length of the loan, since it is technically their car until it's paid off.