When applying for an auto loan, should I take the first one or shop around?

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If I apply for an auto loan, do I have to take it right there or can I wait and look around?

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Answers (1)



This is a great question and the answer is very short…. Shop Around!!  Let me explain that a bit further and also give you some additional things to consider as you are in this exciting, and sometimes stressful time of buying a car.


You definitely want to shop around to find out who can give you the best loan so the cost of buying the vehicle is the cheapest it can be.  You are the most important person in this process so make sure you are doing what is best for your financial life. 


In addition, here are a few other auto purchase tips that can help as you make your decision.

  1. Do you have a down payment?  Having at least a 15%-20% down payment can help avoid a situation where you own more than the vehicle is worth, finding yourself "upside-down."  On average, a new vehicle loses 11% of its value the moment you drive if off the lot.  If you don’t have a down payment, consider delaying the purpose of the vehicle, if possible, while you save for the down payment.  If that is not an option, strongly consider point 2 below.
  2. With less than a 15%-20% down payment, consider getting Guaranteed Asset Protection (GAP).   If you didn’t make a 15-20% down payment on your vehicle (or if you don’t have specific savings of the same amount), you can find yourself owing more than your vehicle is worth.  The example below shows how this can happen when you finance the entire amount and experience a total loss requiring you to pay off your vehicle note. 


Guaranteed Asset/Auto Protection (GAP) can help pay for a shortfall. Don’t take a loss - bridge the gap. In the event of a total loss it may leave you making the remaining payments on your current loan (as seen above) in addition to the cost of obtaining a new vehicle.  Also, GAP is something that you can negotiate with the dealer and the price can vary greatly so shop around.  Make sure you understand the features of the policy. 

3.  Buy an affordable vehicle by keeping in mind Total Cost of Ownership.  As you shop, keep in mind insurance costs, maintenance costs, as well as gas mileage.  The cost of purchasing the vehicle is just one part of the decision.  Avoiding unnecessary spending is important not only when choosing your make and model and the bells and whistles that come with it, but also when deciding if it's even time to go car shopping at all.   Take a look at USAA’s Auto Affordability Tool to help you make a decision.

4.  Avoid overstretching your payments with long loan terms.  There are two major drawbacks to longer term loans. First, the longer the term, the more you'll pay in interest. Second, because early payments are comprised mostly of interest rather than principal, you increase the risk that over the coming years, your vehicle will be "upside down." This could be a major disappointment if, upon selling your car a few years down the road—or if it's totaled—you have to come up with additional funds just to pay off the remaining balance.  With that in mind, it’s best to keep your payments to 60 months or less.

5.  Don’t buy new when used might work.  Since new cars lose a big chunk of their value the moment you drive off the lot and during the first couple of years, buying a used car may be a smart move. You can gain extra peace of mind by choosing one that comes with a warranty—or you can buy a warranty of your own. Some Certified Pre-Owned vehicles come with an additional warranty to give you that peace of mind.  Either way, consider having a trusted mechanic inspect it before buying, and get a vehicle history report, which some dealers will supply at no cost.

6.  Keep the vehicle purchase and your trade in value discussion separate:  Dealerships often want to discuss them at the same time making it easier to mask just how much they are offering for your trade-in.  Start with the value of the new vehicle purchase and leave the trade in answer for later.  Once you and the dealer have agreed to a purchase price (not a loan payment since those are easily manipulated with loan terms), you can then present that you want to trade-in the vehicle.  Come equipped with a fair value by using sites like Kelley Blue Book or an estimate from a place like CarMax and see if they will match it.  If the dealer does not want to give you a fair deal on your trade-in, walk away.

7.  Shop around for your vehicle at different dealerships:  Once you have found the vehicle that you want and is affordable for you, shop around.  You might find that a different dealership in town or in a nearby town is offering a better deal.  If you don’t like the “haggle” aspect of auto buying, you can always use USAA’s Car Buying Service which will give you a good price and you can just walk in and walk out, no haggling required.



There is plenty of great auto buying advice located at USAA’s Auto Learning Center.  The affordability tool can help you compare different vehicles to help you compare total cost of ownership.  Keep in mind that after the new car smell fades and the excitement is gone away, the financial obligation is still there for years to come.  Don’t let a decision made in the moment hamper your future financial goals.