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Compare financing costs.
If you're in the market and have decided to purchase rather than lease, you'll find several financing options. These days, more and more dealers are offering low-rate loans or cash-back rebates.
While it's nice to have choices, they can be downright confusing — and expensive. In the final analysis, you may be better off with conventional auto financing from your credit union. Here's why:
Plan A
The low rates that most dealers advertise are for short-term loans. For example, one dealer offers 1.9% financing, but that's only available on two-year loans. A new $20,000 car with a $2,000 down payment (10% down) will require financing $18,000. This translates to an astounding $765 monthly payment — out of reach for most buyers.
The same dealer offers other options, which become less attractive as the loan term lengthens. The dealer's three-year loan has a 4.9% rate, while its four-year loan has a 5.9% rate, and its five-year loan has a 6.9% rate. Financing $18,000 on your $20,000 car at the dealer's 5.9% rate for four years results in a monthly payment of $422 — a more realistic outlay for many budgets.
Plan B
On the other hand, if you choose the dealer's rebate plan, you forego the low-interest-rate loan, but get a $2,500 cash rebate. Adding the rebate to your down payment can make credit union financing very attractive — because the larger down payment reduces the amount you need to finance.
So which alternative is best — taking the dealer's low-rate loan or the credit union's loan with the dealer's cash-back offer? To find out, refer to the tables below. They show the minimum cash back (expressed in dollars per thousand you finance) needed to match or improve on the dealer's offer.
Look at the four-year loan table to see how it works: Assume you can get a credit union loan for 8.5% (check today's current rates). The table shows that with a dealer rate of 5.9% (rounded to 6% in the example) a dealer discount of $47 per thousand financed equalizes the financing options.
In other words, if you are going to finance $18,000, a dealer rebate (or discount you negotiate) of more than $846 (47 x 18) makes the credit union loan the best option.
The dealer's $1,500 rebate is much more than the $846 break-even rebate, so the credit union loan would be your clear choice.
Regardless of the route you take, know the "hidden costs" in dealer financing options:
* First, dealers' low-rate loans and rebates almost always are available on slower-selling models. These cars may have lower resale values.
* Second, dealers' low-rate loans can have bigger prepayment penalties and can require bigger down payments.
* Third, dealer financing plans usually are limited to dealer stock. That means you may have to sacrifice the color, style and/or options you want. Unwanted options can add 25% to 30% to the sticker price of your car.
So don't be smitten by auto dealers' low-rate advertising — contact Alabama Credit Union first to explore financing options.
How to use the tables:
Find where the credit union rate and dealer rate intersect; multiply that number by the thousands you're financing (i.e., 12.9 for $12,900). If the answer is less than the rebate, the credit union loan — using the rebate to increase your down payment — is the better choice.
When a rebate is better than a three-year dealer loan
|
|
|
|
|
1%
|
2%
|
3%
|
4%
|
5%
|
6%
|
7%
|
8%
|
|
5.0%
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$59
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$44
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$30
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$15
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*
|
*
|
*
|
*
|
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5.5%
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66
|
51
|
37
|
22
|
$7
|
*
|
*
|
*
|
|
6.0%
|
73
|
58
|
44
|
30
|
15
|
*
|
*
|
*
|
|
6.5%
|
80
|
65
|
51
|
37
|
22
|
$7
|
*
|
*
|
|
7.0%
|
86
|
72
|
58
|
44
|
29
|
15
|
*
|
*
|
|
7.5%
|
93
|
79
|
65
|
51
|
36
|
22
|
$7
|
*
|
|
8.0%
|
100
|
86
|
72
|
58
|
44
|
29
|
15
|
*
|
|
8.5%
|
106
|
93
|
79
|
65
|
51
|
36
|
22
|
$7
|
|
9.0%
|
113
|
99
|
85
|
72
|
58
|
43
|
29
|
15
|
|
9.5%
|
119
|
106
|
92
|
78
|
64
|
50
|
36
|
22
|
|
10.0%
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$126
|
$112
|
$99
|
$85
|
$71
|
$57
|
$43
|
$29
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When a rebate is better than a four-year dealer loan
|
|
|
|
|
1%
|
2%
|
3%
|
4%
|
5%
|
6%
|
7%
|
8%
|
|
5.0%
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$77
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$58
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$39
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$20
|
*
|
*
|
*
|
*
|
|
5.5%
|
86
|
67
|
48
|
29
|
$10
|
*
|
*
|
*
|
|
6.0%
|
95
|
76
|
58
|
39
|
19
|
*
|
*
|
*
|
|
6.5%
|
103
|
85
|
67
|
48
|
29
|
$10
|
*
|
*
|
|
7.0%
|
112
|
94
|
76
|
57
|
38
|
19
|
*
|
*
|
|
7.5%
|
121
|
103
|
85
|
66
|
48
|
29
|
$10
|
*
|
|
8.0%
|
129
|
111
|
93
|
75
|
57
|
38
|
19
|
*
|
|
8.5%
|
137
|
120
|
102
|
84
|
66
|
47
|
28
|
$10
|
|
9.0%
|
146
|
128
|
111
|
93
|
75
|
56
|
38
|
19
|
|
9.5%
|
154
|
136
|
119
|
101
|
83
|
65
|
47
|
28
|
|
10.0%
|
$162
|
$145
|
$127
|
$110
|
$92
|
$74
|
$56
|
$37
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How to use the tables:
Find where the credit union rate and dealer rate intersect; multiply that number by the thousands you're financing (i.e., 12.9 for $12,900). If the answer is less than the rebate, the credit union loan — using the rebate to increase your down payment — is the better choice.
Apply now for a low-cost Alabama Credit Union auto loan. 
Credit Union Consumer Facts, © 1997 Credit Union National Association, Inc.
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