Don't Let Dealer Financing Steer You in the Wrong Direction

How to balance affordable auto loan monthly payments with long-term value

By Navy Federal February 29, 2016

The lure of zero percent interest may send you racing to the car dealer. In fact, a super-affordable payment on your dream car or truck could shift your car-buying into high gear, but it pays to slow down and think carefully. Those special dealer offers could mean forgoing a factory rebate or paying top dollar for the vehicle. Moreover, an auto loan term as long as 10 years featuring low monthly payments could end up costing hundreds–or thousands–of dollars more in interest over the life of the loan.

So how do you balance affordable monthly payments, a good deal on a vehicle and a great rate on an auto loan? Here are some tips:

Before You Buy...

  • Research vehicle pricing. Before you go to a dealer, check out the range of prices for the vehicles you're interested in. Some resources include Kelley Blue Book, Consumer Reports and Edmunds.
  • Know what you're willing to pay. Figure out how much you can put down on the vehicle and how much you can afford to pay each month. Be sure to include additional costs such as insurance, gas and maintenance. You should know what monthly payment you can afford as well as the full amount you want to borrow.

At the Dealership...

  • Consider pre-approval. Having financing in hand before you visit the showroom or used car lot can help you negotiate your best deal and stay within budget. Visit Navy Federal to get your auto loan pre-approval.
  • Negotiate. Use what you've learned about vehicle prices to negotiate the deal. Avoid discussing monthly payments. The dealer may focus on low monthly payments to persuade you to buy a more expensive vehicle.
  • Watch out for costly extras. The salesperson may try to talk you into extras like extended warranties, undercoating, alarm systems and glass etching.
  • Read the contract carefully. Make sure everything you've agreed on, including the final price, is included.
  • Be prepared to walk away. Don't allow the dealer to pressure you into making a quick decision.

When Arranging Financing...

  • Beware of financing pitfalls. Avoid variable-rate financing unless you can afford the highest possible payment (and make sure you know what the highest possible payment is). Find out if the loan includes prepayment penalties in case you decide to refinance or sell the vehicle before the loan term is up. Don't accept conditional financing—be sure the down payment amount, interest rate, loan term, monthly payments and the total cost of the loan are finalized and in writing. Ask if there is an application fee. Note that many dealers will encourage you to use their in-house financing, but in most cases, you'll get a better deal financing through your credit union.
  • Take advantage of Navy Federal's free Auto Buying Program. Skip the hassle of negotiating price and loans with a dealer. Research your vehicle online or simply locate a participating dealership.

Sample Loan Rates and Terms*

Longer loan terms may provide lower monthly payments, but they generally cost more in total interest paid over the life of the loan.

$15,000 Loan

Term Rate Monthly Payment Total Interest Total Paid
36 months 1.79% $428 $805.50 $15,805.50
60 months
2.39% $265 $1,492.50 $16,492.50
72 months
2.49% $225 $2,241 $17,241

$20,000 Loan

Term Rate Monthly Payment Total Interest Total Paid
36 months 1.79% $571 $400 $20,400
60 months 2.39% $354 $2,390 $17,390
72 months 2.49% $299 $2,988 $17,988

We'll Help You on the Road to a New or Used Vehicle

Navy Federal offers great rates and terms on new and used vehicles. Online, by phone or in person, we'll help you figure out monthly payments that fit your budget. Visit Navy Federal to view current auto loan rates and estimate your monthly payment.

*Rates and terms are for example only and are subject to change. Loan rates are based on credit history and may be higher. Website addresses other than are provided for information only and are neither affiliated with nor endorsed by Navy Federal Credit Union.

This article is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.