Car Loans 101: Our Lending Expert Answers Top Questions
Posted: March 15, 2024
Whether you’re in the market for your first car or you’re considering upgrading your wheels, we’re here to make the auto loan process easy. We chatted with an expert, our senior vice president of Consumer Loan Services, Joe Kozinski, to give you the inside scoop on all things car loans.
In our conversation we discussed the auto loan process, the difference between leasing and buying a car, interest rates, loan terms, down payments and more. Let's fill in those gaps! Read on to build confidence in your car buying journey.
What is a car loan, and why is it needed?
Joe: There are a lot of ways to finance a car, but a car loan is the most common choice. By securing the loan with a vehicle (in other words, using your vehicle as collateral), you're going to get better terms on your loan. These better terms could be a lower interest rate or a longer duration to repay the loan. If you don't have all the money up front to pay for it in cash, a vehicle loan provides a way for you to buy a car. Our members need vehicles every day, and we provide great financing options to get the vehicle they want.
Can you explain the difference between a car loan and a car lease?
Joe: When you're leasing a car, you're essentially renting it. You will have some restriction in the lease agreement regarding mileage and could have others such as maintenance during the lease period. In every case, at the end of the lease term you are turning the vehicle back to the dealer or manufacturer.
Very often, as your lease term is expiring you have an option to buy the vehicle outright or to pursue a lease buyout loan. This loan allows you to finance the purchase price of the car you leased
A loan is different because you own the vehicle. Over the life of your loan, you have the option to pay additional funds to pay it off sooner or even to refinance the loan to either pay less interest or potentially lower your payment. But the biggest difference is at the end of the term you own the vehicle.
If our readers have an older vehicle, when should they finance a new car?
Joe: This is an individual choice. Many individuals who have auto loans with us finance a new vehicle every two years. They typically like to have a newer vehicle and don't want to deal with repairs that can happen on older cars. Others prefer to hold on to their cars for as long as they can. It is really a personal choice.
Personally, I think about how much am I having to spend on the car to keep it running? How much time is my vehicle in the shop? And how much is the car worth? Eventually you get to the point where it is just too much time and money to fix.
Where should first-time car buyers start?
Joe: I think it's a good idea to start by deciding what you can afford by analyzing your budget and getting pre-qualified or pre-approved for your loan. Landmark has a great pre-approval option.
After that begin your research, consider new vs. used, gas, electric or hybrid, and find a model that fits your needs and consider the overall cost to own the vehicle. The U.S. Department of Energy and U.S. Environmental Protection Agency have developed a fuel economy website that can help. This website features updated fuel economy data and allows side-by-side comparisons.
Then begin shopping, not only at dealerships but also on insurance quotes. Rates can vary considerably based on vehicle type and between providers, so shop around to find your best option.
How should a car buyer begin the auto loan process?
Joe: Our website is a great place to start. Here you will be able to get pre-approved for your vehicle loan, learn about dealerships we work with using our Dealer Locator tool and find information regarding interest rates, refinancing and debt protection.
Do you work with people who don't have much credit history?
Joe: Definitely. For individuals who do not have a lot of credit, a cosigner is a great option. Since the cosigner is backing up the borrower, we do consider their credit history and ability to pay in assessing the loan application.
We also have a first-time car buyer program. It’s designed for someone who might be getting their very first full-time job and need a vehicle to get to work. These loans have different payment options.
How much should a car buyer save for a down payment?
Joe: Down payments vary and are one of the many attributes Landmark considers when evaluating a credit application, but they are not required.
What impact does a down payment have on a loan?
Joe: The more money you put down, the lower your loan amount and lower your loan payment will be. Our website has a Car Loan Calculator as well as a Auto Refinance Calculator so you can easily see your estimated payment based on rates and your intended down payment.
Do you have any tips or recommendations about picking the right loan term?
Joe: There are a lot of options and loan features to consider when selecting your loan. Are there fees to apply or fees if you pay off the loan early, what terms are available based on the vehicle age or mileage, what advance rates are available based on credit, and overall, what is the APR (Annual Percentage Rate) or finance charge for the loan? All these items need to be considered to find the best loan for each unique situation. And if you need any help assessing your options, we're always here for you.
Do you have to be a Landmark member already in order to get an auto loan from Landmark?
Joe: No, you do not. We’re the number one auto lender in Southeastern Wisconsin,* and every day we close loans for individuals who previously were not a member. It’s a great way to become a Landmark member and experience all the benefits membership provides.
Do you have any final tips on how to make the car buying and auto loan experience go smoothly?
Joe: Start by thinking about your budget and how much you can afford to spend each month on your car loan, then get pre-approved before you start shopping, either online or at a dealership. Don’t forget to think about the cost to own that vehicle which includes fuel economy, insurance and annual maintenance. Then begin your research, considering new vs. used, body type, etc. This small amount of effort before heading to the dealer will make the experience better for you and help with making the correct choice.
Ready to jumpstart your car buying journey? We’ll help you step on the gas by making the auto loan process less of a process.
* #1 Auto Lender in SE WI designation is based on the number of vehicles purchased from franchise and independent automobile dealers titled in the third quarter of 2023 gathered from AutoCount USA Inc. information as of September 30, 2023, utilizing WI Dept of Motor Vehicles title data for financed vehicles. Southeastern WI means Dodge, Jefferson, Kenosha, Milwaukee, Ozaukee, Racine, Walworth, Washington, and Waukesha counties.