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Your Car-Buying Knight in Shining Armor

There are lots of ways to buy a car—and as many pitfalls—but here’s an option you might not have considered.
By Johns Hopkins Federal Credit Union

Picture this: A car with no oil leaks, A.C. that works, no rattling noises, and every assurance you’ll be break-down free for a long time.

That, of course, is called buying a new vehicle. But if you are overwhelmed by the worries of financing, loan applications, complex contracts, and, of course, getting a good deal, you might consider this route: a credit union.

We talked to the experts at Johns Hopkins Federal Credit Union (JHFCU) and discovered the most important things to consider when using this option to apply for a car loan.

How does a credit union work?

Credit unions are financial institutions, very similar to banks in what they offer, but 100 percent different in how they treat their customers/owners. A credit union is a financial cooperative and all members are owners. So instead of trying to profit from customers to pay stockholders, credit unions exist solely to benefit members.

How do I become a member?

Each credit union has a charter that defines its “field of membership,” meaning the group it serves. Those groups are pretty large these days and can serve employees of organizations such as Johns Hopkins or the state of Maryland, or geographic areas. Check with your employer about access to a credit union or visit the National Credit Union Association’s online search tool.

Is there a pre-loan process?

Figure out first what you need: Find your desired vehicle, features, and price, then talk to your credit union about pre-approval. A great option is a Blank Check loan. Basically, you’re approved and given a blank check to take to a dealer and can earn a rebate. If you use the blank check from the credit union to buy a car, don’t let the dealer talk you into putting it through their system, as you might not qualify for the loan rebate.

What are the qualifications for loan approval?

One of the most important elements is your ability to repay the loan, based on your debt-to-income ratio. That’s the amount of payments from other loans you already pay divided by your monthly income.

The second element is your record of making payments, also known as your credit history. Lenders will get credit records from credit bureaus to see how you’ve repaid other loans. Your credit history can affect your interest rate.

What are the most important things to consider when applying for a loan?

The interest rate is important. Typically, lower is better, but not if there are “tricks,” like limiting your choice to certain cars, or if a car is more expensive because you don’t qualify for a manufacturer’s rebate.

A great option is a Blank Check loan. Basically, you’re approved and given a blank check to take to a dealer.

Dealers will try to add products including warranties or Guaranteed Asset Protection (GAP), which covers the difference in the amount you finance versus the cash value of the vehicle if you have an accident. The products can be worthwhile, but first compare prices with your credit union. Also consider your auto insurance—check with your company on the cost of a new policy (and it’s good to shop that around, too).

Tell us how you provide educational services to your clients (i.e. budget planning).

As a credit union, we educate our members. There is AutoSmart for comparing prices and an auto-loan calculator to determine expected payments. With our Blank Check auto-loan program, we encourage our members to qualify for the loan first, so we can help them decide what payment fits their budget.

So really, how does one go about buying a car? It’s not like you just walk in, pay, and leave.

Buying a car can be both exciting and nerve-wracking. It’s one of the biggest purchases most people make. A first few things to consider are:

Who will be using the vehicle? Is it just for your work commute or will you be carting five athletes and their gear?

Where will you drive and park? Do you have long drives, zip around the city, or parallel-park often?

What features would you love to have? Think heated seats and steering wheels, upgraded stereo sound, etc.

What’s your budget? This will determine your options for new versus used, make, model, etc. You’ll need to calculate the monthly payment and ensure it’s in your budget.

Consider what you can do to reduce the price—are you trading in a vehicle, or do you have cash to put towards the purchase in order to borrow less?

Test drive a few vehicles to make sure they feel right.

How important is a poker face on the dealership floor?

It is important to never act like you need the car when talking to the dealer. Make sure you’ve done your research, because they’ll do all they can to close a sale. Always be ready to walk away and don’t let them persuade you into anything. Focus on the actual price of the car, avoiding discussion of monthly payments. Ask questions about additional charges and always compare these with credit-union offers.