You're likely familiar with the services provided by a stockbroker for investments or a mortgage broker when buying a house, but many car shoppers aren't aware that they can utilize a broker in a similar fashion for their car loan. Working with an auto loan broker is especially helpful for car shoppers with bad credit who have had trouble getting approved for an auto loan or have only gotten offers for outrageously
What is an Auto Loan Broker, Exactly?
An auto loan broker takes your application, checks your credit score and then submits your application to various lenders within their network of connections including banks, credit unions, and the finance arms of automakers to find you the best offer. There are large online auto broker companies as well as smaller, independent auto brokers. Most of the time, you won't be required to meet with the broker in person as everything can be done digitally including submitting your application and seeing your finance offers.
The majority of car shoppers with good or excellent credit go directly through a lender or get financing through the Finance and Insurance office at the dealership. They don't have as much of a need for a broker as someone with compromised credit since they can find good deals on auto financing going it alone. Getting a car loan with bad credit is an entirely different story.
Bad credit can cause your application to be rejected time and time again since lenders see you as a risky borrower. When you do get approved, it is usually for a very
Choosing an auto loan broker should not be a decision you make on a whim. You'll want to check the broker's history and credentials to make sure they are trustworthy. You'll also want to confirm their fee structure. Some brokers charge you a flat fee for the service while others offer a free service to the borrower and work off the commission from lenders.
The Pros of Using an Auto Loan Broker
The first benefit of working with an auto loan broker is that it can protect your credit score. When you apply for auto financing on your own, your credit score can take a hit each time your credit history is pulled by the lender. The auto loan broker will only run your credit once and submit your application to lenders within a quick timeframe so your score won't suffer multiple hard inquiries.
Secondly, the broker will get your application onto the desks of a wide range of lenders, meaning you'll have a better shot of getting approved with much less time and effort on your part. You'll be able to shop around for the best offer with just one loan application.
Finally, auto loan brokers can act as a consultant for the car shopper. They will assist car buyers with poor credit by advising them on how they can improve their shot at approval by recommending a down payment amount, car type and loan terms.
The Cons of Using an Auto Loan Broker
Even if there is no fee for the car buyer, working with an auto loan broker isn't completely foolproof. According to CarsDirect, the fact that the broker acts as a middleman can occasionally get in the way of loan approval or the best possible interest rate. The concern is that the separation between lender and borrower means some questions about the borrower's history may be left unanswered or the borrower's qualifications may be misrepresented.
Auto loan brokers usually have a large network of lenders that they work with, but that doesn't mean you won't be able to get a better rate from an outside lender that they do not have as a connection. To get around this, you'll be able to ask where your application was already submitted and then see if there are any additional options that can get you a better deal. Another consideration is that auto brokers work off commission and may prioritize a fast approval over finding you the best possible car loan rates.
Whether you choose to utilize an auto loan broker or apply for auto financing on your own, you'll benefit from shopping around for the best interest rates and getting pre-approved before going to purchase your vehicle.