How Captive Finance Companies and Credit Union Auto Loans Differ
Car buyers who need to finance part or all of the sale of their next car or truck can choose from a wide menu of auto loan lender options, including borrowing from a captive finance company or from a local credit union. Contrasting these two types of loan agreements and the car loan rates that may be attached to them will help buyers understand more about how to choose the best options for a business car loan or a personal financing agreement.
The Captive Finance Company Car Loan
It's important to recognize that a captive finance company is, first and foremost, the financing arm or component of the corporate structure for an automaker. Many auto manufacturers have their own captive finance companies. The role of the captive finance company is to help customers get financing and other financial services for buying that automaker’s vehicles.
Some specific types of loan agreements come along with the idea of using a captive finance company for auto financing. Buyers who will profit the most from dealing with a captive finance company are those who know they want to buy from a specific manufacturer.
Another common element of getting premium car loans from a captive finance company is what's called a manufacturer's warranty or a certified pre-owned vehicle loan. Certified pre-owned vehicles are inspected thoroughly by a manufacturer and approved for resale according to the standards set by the automaker. Some buyers like to look at certified pre-owned vehicles, where a captive finance company can help with detailed lending arrangements that will include transferable warranties, dealership return options, or a lot of other features for facilitating long-term borrowing.
The Credit Union Auto Loan
In contrast to a captive finance company auto loan, borrowing from a credit union is quite a bit different. A credit union is not generally affiliated with any specific automaker. In fact, with some credit union auto loan options, it's not necessary to specify what make of car will be purchased until the actual deal is made.
What a credit union focuses on is a local preferred customer base. Individuals who are members of a local credit union, or whose employers participate in the credit union, can often get favorable personal loan interest rates, including premium auto loan agreements that they can use at any dealer's lot to secure financing for their next car or truck.
In borrowing from a credit union, an individual or family will want to look at how their membership may benefit them, and how the interest rates for auto loans from that credit union compare to those from local banks and other established lenders.
General Auto Loan Agreements
Both a captive finance company and a credit union represent established lenders with a reputation to uphold. These two loan options are likely to provide a borrower with professional agreements offering predictable loan clauses and reasonable standards for repayment. However, some of these loan options may include excessive risk-taking. It's important for the buyer to look out for any loan agreement types that may become troublesome years after they are signed. These include 100% financing loans with no down payment, as well as long-term loans stretching out over seven or eight years. Always evaluate the specific terms of a loan to make sure they are in your best interest.