Arsenal Credit Union Reveals Best St. Louis Auto Loan Deals
The interest rate, term lengths and member service offered are important considerations when shopping for an auto loan. Auto loan rates are at historic lows, however, not every institution can promise the same support to its members. An auto loan is a serious financial commitment to make, so it’s important to know who you are working with and that your lender is on your side.
Arsenal Credit Union is just such an institution. We sat down with the St. Louis-based credit union to ask how borrowers can obtain the best financing rates in the area, and what considerations they should be mindful of along the way.
SaintLouisBankingRates: How do St. Louis’ auto loan rates compare to the rest of the U.S.?
Arsenal Credit Union: St. Louis is a competitive market for auto financing. Rates are no longer driven necessarily by a specific location because technology allows for a loan decision, funding and servicing to take place just about anywhere. You can find incredibly low auto rates at credit unions from coast to coast.
SLBR: What is the ideal auto loan term length? Is it possible to finance a vehicle for too long?
ACU: The ideal loan term should be about cash flow, lifestyle and affordability. A borrower should not over-extend.
For example, if you buy a different car every 36 months, plan accordingly. If you trade in your vehicle in such situations but stretch the loan term as long as possible to get a lower payment, it could hurt you in the long run because you typically haven’t paid down the principal as much; more than likely, you are going to be “upside-down” on the payoff. This can lead to you rolling the existing debt into a new vehicle, and so on.
If you’re the type of person who intends to keep his vehicle for years, it doesn’t hurt to take a longer term. Remember, a lot of makes and models are still on the road well after the odometer reaches 100,000 miles.
Ideally, a person should opt for the shortest-term loan that he or she can afford.
SLBR: How does Arsenal Credit Union determine its auto loan rates offered to members?
ACU: Overall, rates are based on what local competitors are charging, availability of money to lend, deposit and investment rates, and various other market considerations. Individual borrower rates may vary. Many financial institutions, including us, lend on a tiered basis, making financing available for most borrowers.
SLBR: What can a borrower do to reduce the interest rate on his or her existing St. Louis auto loan?
ACU: Rate is generally commensurate with risk. Risk is considered mitigated with a strong FICO score (payment history and debt composition), comfortable debt service (affordability), collateral value (down payment, equity), and vulnerability (future value, income and debt service).
While many people spend time researching cars and haggling on the purchase price, they may not give as much thought to the financing end. They get so caught up in the excitement of buying a new car that they take the first loan offer presented to them at the dealership. As a result, they may be paying a higher interest rate than other available alternatives.
Moving the loan to another financial institution could save a person several hundred dollars or more over the life of the loan. We offer free financial calculators on our website to help people do the math, and we’re always happy to do calculations for people who call or visit us.
SLBR: What are three steps an auto loan applicant in St. Louis can do to ensure he/she is offered the lowest possible rates when shopping for a new auto loan?
ACU: Shop rates & terms first. You can do this online or by making phone calls to various financial institutions in the area. Many banks, however, make it difficult to compare rates and terms because they don’t clearly disclose this information on their respective websites, while many credit unions do. Borrowers should also be aware that the lowest rate advertised by some financial institutions may apply to very short terms only, such as 36 months. While this may be worthwhile to someone not concerned with a large monthly payment, terms this short are impractical for most people. Arsenal Credit Union’s best rate applies to terms up to 72 months!
The second step is to be prepared with potential manufacturer special financing rates at the dealership in lieu of a rebate. The 0% could be enticing; however it could cost you more money over the life of the loan. Taking the rebate off the top of the purchase price and opting for a low-rate loan from a credit union is often the better route to take.
The third step is to look for application fees and avoid any fee that is not paid to a third party such as for titling or licensing. Arsenal Credit Union does not charge any loan application fees, while some banks charge $25 to $100.
SLBR: Are there vehicle characteristics, such as model or year, that can affect auto loan rates?
ACU: The age of the vehicle, mileage, and the amount requested vs. the value of the vehicle can all affect rates. Generally, older models are considered a higher risk, but there are exceptions.
SLBR: What is the difference between financing a new car and a used car?
ACU: Typically, new cars and short-term auto financing terms drive a lower interest rate. It is common knowledge that most new car models depreciate in value quickly during the first 12 months of ownership. Many financial institutions charge higher rates on used vehicles compared to new ones. Arsenal Credit Union, however, offers the same low rate on new and used autos, as long as the vehicle is not older than six model years.
SLBR: How many times can a person in St. Louis refinance his/her auto loan? Is there a disadvantage to multiple refinances?
ACU: Most vehicles depreciate in value, so the amount of time between refinances and the value of the collateral do correlate. Many financial institutions have restrictions on “in-house” refinances. There’s no limit to the number of times a person can move his or her loan from one financial institution to another. This can become costly is if there are any additional fees involved, or a loss of credit protection coverage if such insurance was purchased from the previous lender to cover that specific loan.
SLBR: What are the advantages and disadvantages of paying off an auto loan early?
ACU: An early payoff means money was saved in terms of interest charged. Arsenal Credit Union doesn’t have any pre-payment penalties with its loans; however, this is something to look for when paying any installment loan earlier than scheduled.
Also, in the current auto loan rate environment, it is always best to see if you are paying a higher rate on another household expense. For example, if you have a credit card with a $3,000 balance and are paying an annual percentage rate of 15% vs. an auto loan with a $3,000 balance at 6% APR, pay off the former first.
SLBR: What are some questions auto loan applicants should ask to ensure they’re receiving the best deal?
ACU: Flat out ask the question: Is this the best deal available to me? It is always best to start with a financial institution you trust and have an established relationship. This ensures that it is offering you the best product, and it can inform you of any additional options to lower the rate. Also, do your homework; most local newspapers show a rate table for large purchases. If you don’t have a frame of reference to start with, you won’t know if you are getting the best offer for your purchase.
SLBR: How much should a person expect to contribute toward an auto loan down payment?
ACU: This can vary depending on the borrower’s credit situation. If you have impeccable credit, you may just need to save for ancillary expenses such as sales tax, but even this can sometimes be rolled into the cost of the vehicle. However, if you are on the other end of the spectrum, it is best to see what you qualify for within your household budget. At Arsenal, we always ask our members what payment range they want to stay around, and this also gives us an idea of the down payment needed.
SLBR: How does credit affect the auto loan rate an applicant is offered?
ACU: This is a large factor in determining what rate a borrower will pay when financing a vehicle. Most institutions tier their rates on credit scores, loan to value, debt to income, and term. All of this will play a part in the rate extended to the borrower.