In this time of economic uncertainty many are putting off a major purchase such as buying a car. Why incur even more debt? But while the high price of gasoline might dissuade you from purchasing a gas guzzling sport utility vehicle (SUV), you probably don’t have the luxury of giving up driving entirely.
So if you are in the market for a new car, you’ll need to deal with the fact that it is harder than ever to get a loan. In better times, the major automobile manufacturers established their own financing to help people buy a car without having to leave the lot. These services typically don’t offer the best rates, but their threshold for extending credit has typically been lower than actual banks.
What many don’t realize is GMAC Financial Services and Ford Credit, are not only the largest companies dedicated to automotive financing but in fact are large financial institutions that process more credit than many banks.
Dealers have long provided a number of financing options. While those options haven’t gone away in the current financial crisis, the financing arms of the major automobile manufacturers are being more careful than before in providing credit.
GMAC Financial Services has responded to the instability of the global capital and credit markets by implementing a “more conservative purchase policy for consumer auto financing,” according to a recent press release.
Among the changes – you will now need a credit score of 700 or above to even qualify for a car loan from GMAC. Credit scores typically range between 300-500, meaning that many people who need a car won’t be able to get financing.
Before you even venture on to the lot, you should know your credit score. If you don’t know what it is, you’d better find out now. You’ll want to make sure it is both up-to-date and accurate. Try a service such as FreeCreditReport ($12.95/month for credit score and monitoring) or myFico (all three FICO scores and credit reports).
GM dealers are paying more to provide financing (an increase of 75 basis points) so they are going to be a lot more careful about who they are providing credit to and how much credit they are providing. Those shrill cries of “no down payment required,” are quickly becoming a thing of the past. GM customers can no longer borrow in excess of the dealer’s invoice price so must pony up 10% down on the purchase of a new vehicle. New limitations on loan terms are also making it more difficult to buy a car (60 months is typical).
If you have a high enough credit score, you may want to consider shopping around for the best car loan you can find rather than taking the dealer up on the factory financing. See this how-to video to learn how to find a great deal on a car loan. Just remember, you better get dealing before you can get wheeling.