Buying is an Investment
Buying a car is a major investment. To get the best deal, military service members and their families need to be well-prepared buyers, learn how to avoid scams and shady sales practices, and take advantage of the special offers and protections available to military buyers.
If you looking for help to fund your car, Car Loans Of America is here to help.
So the time has come to purchase that vehicle you’ve had your eye on — but what kind of loan should you get to pay for it? Any quick search on the Internet brings up literally hundreds of companies that offer loans, and some also offer “military car loans.” What are these military car loans about, and what advantages do they offer? Read on.
The main differentiator between a military car loan and a regular car loan is simple: the military car loan is only for those who are currently serving on active duty or are a military retiree (20 years or more served). But what sets them apart from the usual car loan?
Military car loans generally have lower interest rates than other types of loans. Here’s a quick example about the power of interest rates: If you take out a $15,000 loan to be paid off within four years at a 10% interest rate. You’ll end up paying $380.44 a month, or $18,261.12 total when all’s said and done.
If you have the same exact loan at a 7% interest rate, you’ll end up paying $356.19 per month, or $17,241.12 total. A few percentage points equal a few hundred bucks a year. Which can make a big difference when you’re trying to balance your budget.
Low Down Payment
Military car loans can offer a lower down payment compared to regular loans. Which means you’re required to pay less money up front. This can come in handy if you don’t have a lot saved up to buy your vehicle.
Easier Approval – If your credit rating is lower than average, or you have a limited credit history. You may have an easier time getting approval with a military car loan compared to a regular car loan. In most cases, you can apply for a loan and get approved online.
Longer payment periods – Military car loans are also known to have relatively longer repayment periods. Which means that you’ll have lower monthly payments.
Additional discounts and rebates – Some lending companies also have discounts and rebates if your car loan is used to buy a new vehicle.
Having noted all the advantages of military auto loans, take heed: these loans may not be for you if you fall into one of the following categories:
If you have enough or nearly enough money to buy a car outright – If you can pay for the full amount for your vehicle up front without putting yourself in financial hardship. The amount you’ll save on interest rates alone ($7,000-$8,000 from the above example) makes it worth it. And if you almost have enough but not quite. It’s worth it to scrimp and save for a few extra months. Put yourself on a budget plan and contribute more money each month to your “auto fund.”
Loan Risks – They may call them military auto loans, but these loans are offered by private financial institutions. So you’re subject to the same rules and potential penalties as a civilian taking out a loan. On top of that, an auto loan, unlike an unsecured debt. Cannot be written off by filing for bankruptcy. If you end up defaulting on your loan. It will severely damage your credit rating and ability to take out loans in the future.
Tips to Getting a Military Car Loan:
- Know which vehicle you want to buy before applying for a loan. This will also help you determine exactly how much of a loan you want.
- Do some comparison shopping – Don’t apply for a loan from the first institution you run into. Check a few places out, and see if they offer favorable terms for your specific situation.
- Get your proof of eligibility in order – Make sure you have your military ID and proofs of service handy. You’ll also need your social security number and permanent address.
- Your contact information – The institution you’re taking out the loan from will want to keep in touch with you. No matter where you’re stationed, so be sure you have several addresses where you can be contacted at (i.e., your family’s home, your base).
- Your credit report — Get a credit report that you can hand off to the lending institution. Some lenders may do this for you, but you can also get a free credit report at freecreditreport.com.
- The sign-off – If you are out of the country or cannot sign your loan in person, be sure that you assign power of attorney to someone to sign on your behalf, as well as a copy of your driver’s license. Some states may also require notarization
More Tips for Getting a military auto loan
Make a Budget
Getting a new car is exciting. Sometimes, the desire to get your dream car can lead you into paying more for a car than you should. Be sure that a car expense fits into your household budget. Account for all the costs that go into buying a car, including what you’ll pay for maintenance, insurance, gas, and registration.
When negotiating the price of a car – don’t focus just on the monthly payment. Of course, you need to commit a monthly payment you can afford, but using that number as your negotiating point will get you into trouble. A dealer will simply extend the terms of the loan to lower the monthly, effectively keeping the total cost of the car the same or higher. In the worst-case scenario, you could be stuck making payments on a car that no longer runs.
Pay Attention to Credit
Most vehicle purchases are financed. The most important factor affecting your ability to secure a low-interest rate on this loan is your credit score. Don’t wait until you’re ready to buy a car to pay attention to your credit.
Check your credit regularly so you can take the right steps to improve your credit score. If you have bad credit, it may be wise to put off buying a car, or buying a cheap, used car as a stop gap. Don’t commit to a high-interest loan, such as the ones offered by “buy here, pay here” car lots.
Shop for Financing
Decide on your vehicle-financing plan before you visit the dealer. Shop around for financing options before you arrive at the car lot so you can compare what the dealer offers with other offers you have received. Be sure to check with a local credit union or a lender that specializes in military car financing.
And don’t just get a quoted rate – you should also ask to see your credit score from anyone who pulls your credit. When you know your credit score before you visit the dealer. It helps you negotiate the best financing terms. Dealers confronted with a knowledgeable buyer will be less likely to take advantage of them.
Price Shop in Advance
There is so much information available online today that there is no excuse for being ill-prepared when you first visit the car lot. You can find specific pricing information, including the Manufacturer’s Suggested Retail Price and the dealer’s invoice price, listed online at sites like www.kbb.com.
It is immediately obvious to a car salesperson if you are an informed buyer or not. The more up-to-date you are on prices, the harder it is for a salesperson to overcharge you.
Shop for Insurance
It is not only the price of the car and the car loan interest rate that you need to shop for. Make sure to comparison shop for your car insurance, too. There can be a wide price difference between one insurer and the next.
Also, pay attention to the amount of coverage you obtain – don’t buy more than you need. Inquire about any discount that could lower your premiums. Insurance companies commonly have discounts for drivers with clean accident records and for current customers for other types of insurance with the company. Military service members may be eligible for discounts, too.
Be sure to read consumer reviews available online. Reviews can help you:
Find the right car. You can read about the features of cars that interest you and see satisfaction ratings from car owners.
Find the right car dealer. Check out the reputation of any car dealer you’re considering at sites like the Better Business Bureau. You can also do a search for the name of the dealer and the word “complaint.”
Special Factors for Military Car Buyers
Military car-buyers must be extra cautious when securing an auto loan. Their special circumstances make them a prime target for both good and predatory lenders.
Fortunately, there are also special resources for military servicemembers and their families. The Consumer Financial Protection Bureau recently opened the Office of Servicemembers Affairs (OSA). The OSA is an important tool to help you stay informed about your financial rights and to protect you from abusive practices.
When buying a car, the OSA says it is important to understand that:
- Lenders realize that your military service requires you to keep your finances in order.
- You’re easy to locate, so it is easy to collect from you.
- You have a steady, reliable income that can be garnished if you don’t pay as agreed.
- Many military car-buyers are first time buyers with little experience making big financial decisions.
Further, the OSA recommends that you consider the unique risks that you face as military personnel when taking on a car loan:
- An overseas deployment or a change of duty stations can create financial stress and unique financial difficulties when you may lack the adequate resources to resolve them.
- Your loyalty to your service can make you a target for predatory lenders that emphasize their ties to the military.
Use the Special Resources Available
As a member of the military, you may have access to some help that is not available to the general public. Take advantage of it. Speak with an on-base financial advisor or see if you are eligible for any of the resources available through Military OneSource.
Before you sign it, see if an expert can review any sales contract a dealer presents you to ensure that you’re not being taken advantage of or sold unnecessary extras.
Check your credit. Improve it, if needed. Use your knowledge to show you’re an educated borrower.
Comparison shop, not only for the car itself but also for the other products you’ll need, including insurance and car financing.
Read reviews so you find the right car at the right price and to avoid dealers with a bad reputation. Take advantage of any special offers for military members. As well as the resources available to you so that you understand your rights and how to protect yourself.
Military service can trounce your credit score and this can have an effect on your ability to borrow for years after you leave active duty. It can be hard to keep track of bills when you’re deployed and you might easily miss one or two. Building your credit with a secured credit card or a gas or department store card might not be feasible while you’re overseas. So you’ll have to start from scratch when you get home.
If your income derives largely from a federal stipend, such as if receiving a living allowance while you go back to school on the GI Bill, lenders may be concerned if it might end during the life of your loan. If you’re receiving a pension, however, this isn’t much of an issue, as that’s unlikely to cut off at any point.