Donald M. Ferguson, director of minority dealer development relationship marketing and diversity at GMAC Financial Services, answers TNJ’s questions on auto financing.
Q: Does my personal credit rating matter when I am financing a vehicle for my business?
A: Normally, your personal credit is not reviewed when you’re buying a vehicle for your business. If, however, your business does not have sufficient credit to support the amount you are requesting and you offer yourself as a co-buyer, then your personal credit comes into play.
Q: How do I determine whether to finance or pay cash for a vehicle for my business?
A: Whether to pay cash for a vehicle for your business or to finance it normally is determined by the amount of capital you have to invest in another business asset, in this case, a vehicle. Most business owners would ask their accountant or whoever prepares their taxes. What’s best for you is to first make sure you have sufficient capital to run your business.
Q: How are interest rates determined for businesses with little or no credit history?
A: Interest rates are negotiable. Before starting the process, you should understand what the rate structure is in your area. Shop around: ask the dealer, your local bank and credit union. Find out if the vehicle manufacturer has any special financing rates. A co-buyer’s credit may support a more favorable financing rate.
Q: Does the length of the loan influence the interest rate?
A: Absolutely. Most lenders have higher rates for some of the longer-term loans. A 48-month finance contract rate may be lower than one for 60 months for the same individual.
Q: Can I pay off the loan early?
A: You can always pay off a loan early, although there may be a penalty for doing so, depending on your contract with the lender. With GMAC financing, for example, there is no penalty for paying off early.
Leasing is an entirely different matter. If there are early lease termination clauses in your contract, make sure you read and understand them. GMAC has a “Lease Pull Ahead” program whereby you can turn in the car before the end of the lease contract now and get a new one without any sort of a penalty.
Q: Can I ever make a balloon payment at the end of the loan instead of a down payment?
A: You can structure your deal the way you want to. Just make sure that you are able to pay the balloon when your contract matures. GMAC’s SmartBuy financing option, for example, enables the registered owner of the vehicle to pay the balloon and completely own the car at the end of the contract term. Now, before you rush off and pay for the car, make sure you look at all of your options. Under SmartBuy, you can pay off the car, pay a vehicle return fee and return the unit, or even refinance the car.
Q: Can I get a better finance rate if I buy several cars or a fleet of vehicles?
A: It depends on you, your credit background and your lender. Let’s say your credit is not so good and you want to borrow $25,000. After you get an approval and your interest rate, you decide you really need $125,000 and ask if you can get a lower rate.
Well, based on your credit history, the lender may believe they have a much higher risk and therefore increase the rate. I suggest you look at some of our tips on rates and financing at www.SmartEdgeByGMC.com .
Q: What penalties can I expect if I want to return a leased vehicle early?
A: There should be language about early termination in your lease contract. Read this language before you sign the contract. If you determine you want to lease a vehicle and plan to keep it for two years, then you should investigate a two-year lease. You should have some idea of the number of miles you plan to drive with the leased vehicle.
Q: Can a car loan be secured using collateral?
A: Most lenders will consider the car you are purchasing to be collateral. Normally, the lender will request that a lien be placed on the title, perfecting their interest in the car. This lien is released when the car is paid in full.
Q: Should I use a bank or dealer financing?
A: You should look at both options. If you are a banking customer, your bank may be able to give you a direct loan and the rate may be lower than the
dealer’s, depending on your credit. On the other hand, your dealer may have special finance rates for new and used vehicles that he can pass along to you, again, depending on your credit.