By Steven Cole Smith
Give credit where credit is due: Financing for Florida auto customers is a lot easier than it was less than three years ago.
"We have ample credit available," says Marc Cannon, senior vice-president of the Fort Lauderdale-basedAutoNation, which owns the country's largest auto dealership network. "And it continues to improve."
That wasn't the case in 2008 and 2009. Financing institutions, stung by loans made to customers who defaulted, tightened restrictions that limited who qualified. This was a major reason why new vehicle sales tanked during this period, and used vehicle sales rose -- people couldn't finance a new car, and often had to buy a used vehicle either with cash or loans from a "buy here, pay here" used car dealership.How bad was it? Claes Bell, banking and auto reporter for the North Palm Beach-based Bankrate.com, an online clearinghouse for consumer financial information, cites a survey taken in December of 2008, the height of the financial crisis, that says the approval rate for new auto loans was just 46.3 percent.
"Now, it's way up," Bell says, to 74.5 percent, citing the same study from June of this year. And while new vehicle sales haven't been as strong in 2011 as predicted early this year -- due mostly to the still-struggling economy, and the shortage of vehicles caused by theearthquakes and tsunami in Japan -- neither manufacturers nor dealers are complaining.
Interest rates have also come down. Bell points to the most recent survey by the U.S. Federal Reserve that pegs the average interest rate from a commercial bank on a 48-month new car loan at 5.81 percent in May of 2011. The national average for 2007, for example, was 7.7 percent.
Bell says there are three central sources for new-vehicle credit: Banks, credit unions and the auto manufacturers themselves. Which is best? It can vary with every purchase. For that reason, Bell suggests buyers shop for credit before they shop for a car or truck.
"That allows you to walk into the dealership in a stronger position," he says.
Dealers may offer financing through the manufacturer -- typically at rates discounted by a contribution from the manufacturer, to help its dealers move cars -- or from banks and credit unions that the particular store has a relationship with.
There is no right answer as to where to get credit, except for one: The lender that costs you the least. Bankrate.com has some online tools that help you survey loan rates, and figure up payment schedules. For instance, the site surveys banks and credit unions in geographical areas, and provides specific data as well as averages. The average interest rate for a 60-month new-car loan in Orlando and Fort Lauderdale, for instance, is 5.2 percent. In Tampa, it's 5.065 percent. In Tallahassee, 5.432 percent.
Dealers invariably have multiple outlets for credit, including area banks and their own manufacturer's financing arm. Chad Rogers, general manager of Classic Mazda and Holler Hyundai in Orlando, says that when the manufacturers are offering attractive low-interest deals, the majority of the dealership financing goes there, "especially the customers with the top-tier credit ratings."
Otherwise, his dealerships maintain close ties to several banks, and even credit unions are becoming more aggressive in seeking business outside their captive credit union membership. "We've had several credit unions reach out to us and ask to be considered as a finance source," Rogers says.
Indeed, credit unions should not be overlooked: Bankrate.com's Bell cites figures from a Datatrac survey from last March that said the average U.S. interest rate on a 60-month new car loan from credit unions was 4.12 percent, compared to 5.46 percent from conventional banks.
Not all attractive manufacturer-backed finance deals are on slow-selling, unpopular models, or models that are about to undergo a major design change in the next model year. This time of the season, low-rate financing might be offered to simply clear the 2011 inventory to make room for soon-to-arrive 2012s.
Example: The two best-selling cars in the U.S. in 2010, the Toyota Camry and -- finishing the year slightly behind the Camry -- the Honda Accord, both currently have low- or no-interest financing. The 2011 Accord, for example, has a 0.9 percent race for 24 to 36-month loans, and 1.9 percent for 37 to 60-month loans. The Camry has 0 percent financing for 36, 48 or 60-month loans, and may include $500 "bonus cash back."
There is, as with all these deals, fine print involved. Sometimes you must purchase a vehicle that is on the dealer's lot, and take delivery by a certain date to qualify. Often these deals "cannot be combined with other offers," as Toyota says, meaning that if there is, say, a separate rebate offered, you can't take that and the financing.
And part of the fine print from the Honda Accord offer is also typical: "Not all buyers may qualify. Higher rates apply for buyers with lower credit ratings." In other words, if your credit rating isn't very good, you may still qualify for financing, but not at the bargain advertised rate.
For vehicle that offer either a hefty rebate or low-interest financing, you'll have to do your homework to see which suits you best. The 2011 Chevrolet Malibu, for instance, offers 0 percent interest for a 60-month loan, or a $2,500 rebate. The 2011 Ford Fusion is available with 0 to 1.9 percent financing depending on the loan length, or a $2,500 rebate.
All these deals can vary geographically. Check out the manufacturer's website -- typically the manufacturer's name, like Ford.com, Toyota.com or Honda.com -- and they will ask for your zip code before the site will list special financing or rebates in your area. Sometimes, you can also find incentives that aren't publicized. Ford, for instance, has a $500 rebate for police officers who are members of one of two national police associations, and $500 for active or recently-serving military personnel.
The bottom line: Shop for credit just as you do a new car or truck.