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I'm looking to buy a used car* for the first time in my life.

I already know the price range I'm looking at (Under $10,000) and the loan term I'd prefer (5 years) and the down payment I'm willing to make ($2,500), so I know what type of loan I'd be looking for**, but my chief concern is if I'm going about this wrong.

I've been looking for a car with the intent of getting the loan after I've found the car I want - should I instead talk to my credit union about the auto loan I'm willing to make, then shop for a car based on the loan I can get?

*Please note this is not about which car I should get, but about how I should go about getting an auto loan.

**This also isn't about the terms of the loan - just when I should be looking to get one.

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You have a good start (estimated max amount you will pay, estimated max down payment, and term)

Now go to your bank/credit union and apply for the loan. Get a commitment. They will give you a letter, you may have to ask for it. The letter will say the maximum amount you can pay for the car. This max includes their money and your down payment. The dealer doesn't have to know how much is loan. You also know from the loan commitment exactly how much your monthly payment will be in the worst case.

If you have a car you want to trade in, get an written estimate that is good for a week or so. This lets you know how much you can get from selling the car.

Now visit the dealer and tell them you don't need a loan, and won't be trading in a car. Don't show them the letter. After all the details of the purchase are concluded, including any rebates and specials, then bring up financing and trade-in.

If they can't beat the deal from your bank and the written estimate for the car you are selling, then the deal is done. Now show them the letter and discuss how much down they need today. Then go to the bank for the rest of the money.

If they do have a better loan deal or trade in then go with the dealer offer, and keep the letter in your pocket.

If you go to the dealer first they will confuse you because they will see the price, interest rate, length of loan, and trade in as one big ball of mud. They will pick the settings that make you happy enough, yet still make them the most money.

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  • First car, so I won't be able to get trade-in unfortunately. But all good advice. I would like to ask for one point of clarification though - tangentially related to the original question - if I find out that a friend or family member is selling their car, can I still use a car loan from my credit union? Or will they not allow me to use the loan to pay for a non-dealership car?
    – Zibbobz
    Jul 7, 2015 at 15:06
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    Ask. They may want extra info to make sure that you aren't overpaying for the car. Also make sure that all the paperwork transferring ownership is done correctly. The dealership knows the process you two people may have to do research.
    – mhoran_psprep
    Jul 7, 2015 at 15:11
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Yes, you are correct to go to the credit union first. Get approved for a loan first.

Often, upon approval, the credit union will give you a blank check good for any amount up to the limit of the loan. When you buy the car, make it payable to the dealer, write in the amount and sign it. Enjoy the new car!

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    I am not so sure about this. The bank will want to know that the price of the car matches its worth. The bank will place a lien on the car for the amount of the loan. They want to make sure they can make back their money if the buyer defaults.
    – mkennedy
    Jul 7, 2015 at 23:40
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    I've done it myself. The credit union gave me a blank check valid up to a maximum amount.
    – Rocky
    Jul 8, 2015 at 14:08
  • Wow! I never would have believed it! Thanks for letting me know.
    – mkennedy
    Jul 8, 2015 at 16:03
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    +1 - This is how it worked for the loan we got for the last (new) car we bought. Even better, we got an exceptionally good rate (1.89% for 36 months) by setting up automatic electronic payment as part of the loan application--the monthly check could never be late. We walked into the dealership with the blank check marked with the maximum amount, wrote a personal check for the down payment and wrote the loan check for the balance. The dealership sent the required title paperwork for the lien to the bank.
    – Rick Goldstein
    Aug 12, 2015 at 20:39
  • Rocky and @RickGoldstein: Were your loans secured by a lien, or unsecured? The blank check makes more sense (to me) for an unsecured loan.
    – jpaugh
    Nov 11, 2016 at 3:29

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