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Captive Finance Companies vs Credit Union Auto Loan Lenders: Which Is Best for You?
For those looking at various auto loan options, it’s good to know the key differences between a captive finance company loans and credit union auto loans.
Here is a guide to help you choose how to finance your next purchase.
What is a Captive Auto Loan Company?
A captive finance company is a subsidiary entity of a larger corporation that manufactures and sells a product to the general public. In the case of automobiles, a captive finance company offers loans to consumers who want to buy their parent corporation’s vehicles. Some popular and well known captives are General Motors Acceptance Corporation (now Ally Financial), the Ford Motor Credit Company and Mazda American Credit. Most often, car consumers who can’t get approved for a typical bank loan will apply to one of these types of corporations in order to buy their respective company’s cars.
Generally speaking, there is no lender who knows about the products of a car maker better than its captive finance company. These share a unique relationship with a manufacturer that can sometimes be helpful in getting specific financing deals for the cars and trucks that the company produces.
When going directly to a captive finance company, car shoppers know they are getting the standard deal that other customers generally get according to their credit risk. They are likely to have a very basic standard set of interest rates and issue a large amount of auto financing loans from a kind of “boilerplate” agreement.
A captive finance company hands out auto loans “from a distance.” Where those financing through a dealership can sit down and talk directly to dealer representatives, it’s tougher to do this with a captive finance company. Customers who feel alienated with this may prefer to sit down at the dealership and hash out financing as a regular part of the overall purchase.
A lot of car loans made at dealerships can be traced back to captive finance companies but in many cases, the buyer can choose to avoid the dealership and go directly to the captive finance company for financing a vehicle.
What is a 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.
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, including 100 percent financing loans with no down payment and long-term loans stretching more than seven years.
