Prepare me for applying for an auto loan!

March 1, 2009 1:00 PM

I'm a student, looking to take out a first time auto loan for a car. I want a used car, and would like to spend no more than $3,000. My credit is alright, not stellar, and I have student loans. What can I expect in this process, and how can I better my chances of getting a loan?

I'm going to apply through USAA. One thing to note is that I bank through USAA for the most part; however they don't have any local branches. Therefore I deposit my work checks in a Wells Fargo branch (I have an account with them as well), then transfer the money to my USAA account. So that balance fluctuates pretty heavily. Will this impact me negatively? For example, the current balance in my USAA account is very small, about $100, but I have a little more than 2.5k in my Wells Fargo account. Or is all of this negligible and they only base loans on credit score? I really need a car, and I'm hoping this works out.

posted by thatbrunette to shopping (13 answers total)

Unfortunately, most of the auto loans I've taken out (two banks, a credit union, and a dealer) have had a minimum loan amount of $5000 or $7500. Be sure to check on this before you move forward.
posted by tybstar at 1:18 PM on March 1, 2009

If you have trouble getting a loan, it sounds like you could just pay cash for the used car.
posted by zippy at 1:23 PM on March 1, 2009

I'm a USAA member and hold an account at Wells Fargo, too. The one thing that I love (love!) about USAA is their customer service. Have you tried calling them and asking these questions? I've often called them just with questions, and they have always been able to help me right away. Sometimes I ask them for information, without wanting to take action right away -- and they are completely OK with that, too. The number is 800-531-8722.

On their website, after you log in, you can see the rates. These depend on your credit score (which is divided into Excellent, Good, Fair, and Needs Improvement). So, that's what determines your rate. After you log in, you can also see what they need to know to make a decision about the loan:
* Your employer name and your pre-tax income,
* The amount you want to borrow
* If you are trading in a vehicle, your current monthly loan payment amount
* If you are refinancing a loan, your Vehicle Identification Number (VIN), mileage and 10-day payoff amount

I've not gotten a car loan with them, but have gotten another type of loan. Like you, I had a checking account with Wells Fargo and other accounts with USAA. They were able to verify balances at Wells Fargo with my permission (if I remember correctly).
posted by Houstonian at 1:28 PM on March 1, 2009

If you have $2.5k in your wells fargo account, why not save up for a little longer and buy it with cash? Car loans, as a general matter, are somewhat undesirable, since you're paying for a wasting asset on credit. Paying cash = saving money.
posted by craven_morhead at 1:58 PM on March 1, 2009

Yeah, if you're only looking for a $3,000 car, you might as well save up and pay in cash.

If you're buying from a used lot you may want to check out their own financing, but be aware they may have really lousy terms.

Do you have any credit cards? I haven't applied for one in years, so I'm not sure what if any options there are, but if you got a card with a good intro rate with a $3,000 (or more) limit, you may come out better paying for the car with a card, and then paying the balance off during the six month intro rate... in fact, check with your credit union for their credit card options.

Not sure if you've thought about leasing a car, but if you can afford a few hundred dollars a month you may come out better buying an inexpensive new car, or a factory recertified one, rather than buying a $3,000 clunker that may leave you stranded and need expensive repairs and upkeep.

Or, buy the $3,000 car, but keep an emergency fund for when the transmission falls out.
posted by wfrgms at 2:13 PM on March 1, 2009

If you're set on going the loan route, you'll probably need to get a personal loan, rather than an auto loan. As others have said above, a car loan is usually for more than $7,500 and for a car that is no older than n years old (where n is something like 5).

A personal loan is unsecured, which means it requires good credit and generally has a higher interest rate than an auto loan (perhaps 9-12% instead of 5-6%). I've done this in the past when I needed a car and didn't have the cash, and it worked well. The upshot is it's simpler, since there are no liens involved. Then just pay it off as quickly as possible to avoid paying a bunch of interest.
posted by knave at 3:26 PM on March 1, 2009

Or is all of this negligible and they only base loans on credit score?

When they run a credit check, they'll be able to see all of your bank balances and debt balances. I'm fairly certain it's irrelevant where your money is currently on deposit.
posted by knave at 3:28 PM on March 1, 2009

What Houstonian said ... call USAA and hit them up with questions. Honestly, they're the best outfit you can be with for this and everything else.
posted by Cool Papa Bell at 3:50 PM on March 1, 2009

When they run a credit check, they'll be able to see all of your bank balances and debt balances.
Just debt balances. Deposit accounts don't show up on a credit check.

It would surprise me if USAA penalized you for not having much money in your checking account with them--pretty presumptuous of them to assume that they're your primary deposit account--but yes, you shoud call.
posted by phoenixy at 4:26 PM on March 1, 2009

Oops, thanks for the correction phoenixy.
posted by knave at 4:40 PM on March 1, 2009

I agree with many who say to pay for this with cash and forget getting a loan. Just not worth it. Forget someones idea about leasing. Very bad idea. Don't know about USAA's credit policies but I would be surprised if they are loaning money in that small of an amount. Banks simply don't make money on loans that small. They have little enthusiasm for these type of products. They do like loans on 25k Suv's. They have to go through the same due diligence on both a 3k loan and a 25k loan. Just pay cash for an amount that small. If you have 2500 then save another 500 and be done with it. Easy to say and probably harder for you to do but ultimately the better path...
posted by wts111 at 6:08 PM on March 1, 2009

Save your money, pay cash.
posted by charlesv at 8:50 PM on March 1, 2009

The problem with paying right out with cash is that I'd hate to be stuck in a situation where I was completely broke; which is where tossing out at 2.5k would leave me. I don't mind spending down, say, half of that, but I'd so much prefer to make payments (even with some interest) than potentially screw myself in the long run.

Thanks for the info, and the number Houstonian. I'll give them a call tomorrow and see where I stand. :)
posted by thatbrunette at 8:51 PM on March 1, 2009