Don't like having to deal with dealerships hiking up interest? Don't like having to go in and chat with a loan officer at your local bank? Then applying for an online auto loan might be right up your alley.
The advantage of online auto loans is that you can check out many loans all at once and, often times, find lower interest rates than you can anyplace else. In a recent study of the market in which 6.5% was the lowest interest rate available from banks and credit unions, 3.49% was found with an online auto loan. Why is this? Well, if you apply for an auto loan online, then no actual loan officers or brokers have to get involved. This means fewer people who have to get paid. Now most online auto loans have certain restrictions in order for you to get the lowest interest rate, such as having payments automatically deducted from your checking account each month or applying online. Again, this is a cost saving method for the bank by which it has to employ the least number of people to look at your online auto loan and, consequently, passes that savings on to you in the form of lower interest.
While online auto loans are definitely easier and often cheaper, this is not always the case. Many online auto loans are made available at an identical rate to what the credit union or bank is making it available if you walk through their doors, so be sure and shop around. Additionally, there are times that auto dealerships have access to 0% interest which banks won't make available, which can be a very good deal. However, be sure and read all the fine print on 0% interest deals, as it often times will only apply to luxury cars or more expensive cars than you would have otherwise considered.
Another thing to be aware of as you look around at different online auto loans is that many of those forms you fill out are neither short nor immediate with their answers. Many of the forms are actually fully as long as any car loan sheet you would fill out at a dealership. And many times they may take hours to days to get back to you with the results. As such, be sure and take a few days to really search the web for the best deals.
One last thing that you want to consider very carefully-and which many Americans never think about-is not applying for every online auto loan. Why is this? Because every time you have a credit check in the form of pre-approval for a loan, you sustain a small ding to your credit history. While each of these dings is fairly small, if you do enough of them, you can significantly impact your credit history in a negative way. Why is this? When you apply for too many online auto loans or too much financing in general, it shows up on your credit history as if you are trying to apply for all the credit you are checking. This doesn't translate to banks as though you are being a savvy shopper, rather it translates to them that you are trying to amass a large amount of credit all at once. Banks see people amassing a lot of credit forms at once as a time bomb waiting to blow…a huge credit risk that will eventually decide to max out all of these forms of credit. And yes, this goes for all of you who try to get that low introductory discount on your Sears purchase or Lane Bryant purchase by signing up for their credit cards. You can easily ding up your credit by just having a whole wallet full of extra unsecured credit…which may make your interest rate higher when you're applying for online auto loans.
