Action Steps
The best contacts and resources to help you get it done

Compare business auto loan rates

The key determinant for most loans is the interest rate. To get the most out of the loan, compare the rates of several auto financing companies. Some companies can vary as much as two percent, which amounts to thousands of dollars over the lifetime of the loan.

I recommend: Count on comparisons from third-party providers of business auto loans, such as Bankrate. There, you can compare the interest rates across the board for lenders in your area. MSN Money is another third-party company allowing you to compare loan rates by area, interest rate and term length. Additionally, you can visit the websites of various auto loan lenders and request specialized quotes for interest rates and compare them with others. Bank of America provides interest rates quotes on their website.

Talk to an automotive finance company about fleet financing

Businesses requiring several vehicles, even just two, may qualify for fleet financing. Specialized companies exist to help with this type of loan structure. Fleet financing lowers interest rates, spreads terms over a longer period and offers affordable closing costs to businesses. Fleets are generally two or more of the same type of vehicle sold at the same time requiring auto financing.

I recommend: Work with lenders offering commercial auto loans and management for fleets. Consider a fleet management company such as Enterprise Rent-A-Car. They offer fleet management services, financing and leasing options. This option can help free up capital for the business. Businesses wanting a traditional loan can consider CFF Equipment Financing & Leasing, which is designed to work with businesses requiring a range of trucks, cars, and other vehicles.

Look toward all types of business car financing

To find the best auto finance company, consider all types. National companies are available, as are local banks. Also work with auto dealers to determine if they offer a financing option appropriate for your business needs. By comparing the loan options from several sources, you can improve your chances of getting the best loan possible. The differences can be substantial, including lower interest rates, different terms and various loan limits.

I recommend: Investigate options in auto finance online. Most national companies offering business car loans allow you to get a quote online. Capital One Auto Finance is a national lender offering small business car loans. Nearly all auto dealerships have in-house lenders including Ford Credit. To compare local auto loan rates for your business, use a third-party website like Credit.com.

Helpful advice for making the most of this Guide

• •  Make comparisons to get the best auto finance rates. Most companies provide online quotes to make the process easier for business owners. The savings can be substantial, which means more capital and less debt for most businesses.
• •  To get the best rate on auto financing your business, use auto loan calculators to help you see the differences between loans. One key is the down payment. Determine the best down payment allowing you to pay less in the long term, but still giving you enough capital to manage your business.

Guide to Auto Finance

Consider the options of automobile financing before signing on the dotted line

By Michael Berman

Action Steps
The best contacts and resources to help you get it done

Get current rates of auto finance lenders

Know what the interest rates are with automobile finance companies and banks before entering the dealership so that you're prepared to 'haggle' with the dealer. Rates can change on a daily basis, so it's advisable to check them just before taking out an automobile loan.

I recommend: Many websites give current interest rates for automobile financing. Some, such as Bankrate.com also include rates for less than perfect credit and give you links to automobile financing companies and banks. Another good source of information is Yahoo! Finance, which narrows down the rates to your area.

Check with national automobile finance companies

To remain competitive, many national automobile finance companies have cut their rates. This could be an attractive option if you have good credit.

I recommend: Join the American Automobile Association (AAA) and possibly get a discount on financing your car. AAA deals with banks and auto financing companies so you don't have to. One of the top auto finance companies for those with less than perfect credit is Credit.com.

Deal with the dealer for flexible auto financing

Many times automobile dealers offer incentive deals with lower interest rates than you can get from banks or finance companies. You can find good deals in newspaper advertisements, but often these are just available to those with perfect credit. Dealers tend to be more flexible with their automobile financing programs.

I recommend: Check out the latest rates for General Motors cars at the GMAC website. There are tons of other car makers that have their own auto finance companies including the Ford Motor Co., Chrysler, and Toyota.

Fix your credit before you talk to auto finance lenders

Check with the three major credit reporting agencies for any discrepancies on your credit reports, and dispute these errors for a chance at a lower interest rate from auto finance companies.

I recommend: Contact Experian, TransUnion and Equifax to obtain copies of your credit reports.

Helpful advice for making the most of this Guide

• •  If you can afford higher payments, take out a shorter term loan, which often has a lower interest rate. Automobile financing usually runs from 36 months to 60 months.

Action Steps
The best contacts and resources to help you get it done

Know auto finance costs in new versus used vehicles

Purchasing new or used vehicles is an option for most businesses. The outright cost difference for used vehicles is lower, but these vehicles may offer a shorter lifespan to the company. A used auto finance company's loans may require an appraisal to insure the value of the vehicle. Costs for used cars can be up to 50 percent lower than new vehicles.

I recommend: Get a business auto loan from companies specializing in used car loans. Capital One Auto Finance offers loan rates on used vehicles from 36 months to 72 months for small business owners. The vehicles purchased must be from franchised dealerships to qualify. Interest rates on new car loans through car financing companies are often lower by one-to-two points. Businesses can save money by getting a new auto loan through companies like California Bank & Trust. They offer 24-to-72-month loans up to $100,000 for any size and type of business.

Notice the automobile finance costs

As you look for the right auto finance company, take note of all costs relating to the investment. Finance costs include the cost of the vehicle, ranging from $10,000 up to $50,000 or more for new vehicles. Trucks and vans can be more. Interest rates can range from six percent up to nine percent, but change often. Closing costs can be one-to-three percent of the sale price.

I recommend: Compare banks offering Small Business Association loans. These are federally insured loans for business assets that may include business auto loans if the vehicle is considered necessary equipment. These are often at a lower rate than standard loans. KeyBank offers SBA loans. Bank of America offers SBA-backed loans. US Bankcorp offers SBA loans for car loans considered business equipment, up to a 90 percent loan to value ratio.

Find auto financing companies specializing in commercial fleet financing

Fleet financing is an option for businesses that need a large number of vehicles. An automotive finance company may specialize in larger fleets, but some companies offer financing to small- and medium-sized businesses. Fleet costs are usually more affordable to the business in the long term, as interest rates may be more affordable. Fleet leasing may also be an option through several of the auto manufacturer's financing companies.

I recommend: Locate commercial auto loans for fleets through companies working with the size business you have. For small- and medium-size businesses needing fleet service, Commercial Fleet Financing is a lender with a variety of loan products to select from, including fixed rate and TRAC leases. CFF Equipment Financing & Leasing provides financing for a range of vehicles including cargo vans, moving vans, tractors and trailers.

Helpful advice for making the most of this Guide

• •  Look for auto finance online. Many of the finance companies offer online quotes for businesses. This is one of the best ways to compare the pricing and costs of auto finance.

Action Steps
The best contacts and resources to help you get it done

Dealer financing and bank financing

Dealer and bank financing simply refer to where your car loan originates from. With bank financing, sometimes called direct financing, you apply for a loan directly through the bank. Car dealers also offer financing options at attractive rates, typically for those with good credit. It's important for a consumer to consider all options before making a decision.

I recommend: Philly.com discusses the difference between dealer financing and direct financing.

Pre-payment penalties

Some lenders include a pre-payment penalty in their car loan. This means that if the consumer were to pay the loan early, they will also have to pay additional fees. This happens more with longer or high-interest loans. If you plan to try to repay your loan early, make sure that there is no pre-payment penalty.

I recommend: TheDollarStretcher.com talks about pre-payment penalties, along with an example and suggestions for what to do.

Pre-approval

Some people apply for pre-approval for a car loan before they shop for a car. The bank will tell you how much you can afford, which helps you to decide which car is right for you.

I recommend: Credit Loan talks about the benefits of getting pre-approved for a car loan, particularly for those with bad credit.

Repossession

When you get an auto loan, the bank uses the car as collateral against the loan. If you default on the loan, the bank may repossess, or take away, the car in order to recover its costs. To avoid repossession, talk to your lender if you encounter financial difficulties.

I recommend: The Federal Trade Commission explains repossession and what a consumer can do to avoid it.

Leasing or buying

Those that are interested in financing an automobile should decide whether they want to lease or purchase the car. When you purchase a car, you own the car when you finish making payments. When you lease a car, you make smaller payments, but you do not ultimately own the car.

I recommend: Learn the pros and cons of both leasing and buying through Investopedia.

FICO score

Your credit, or FICO, score is a measure of your credit-worthiness, which lenders use to determine whether they will offer you a loan and what your interest rate will be. The higher the credit score, the lower the interest rate.

I recommend: Learn about credit scores from MyFICO.com, the official site of the Fair Isaac Corp.