2012 is the year of the cheap auto loan

Right now is the best time to borrow money for a car perhaps ever in my lifetime, whether you’re talking about new or used. We are almost certainly at record low interest rates for car loans, especially from credit unions.

For example, two of the credit unions I’m members of are doing 1.99% and 2.95% on 48-month auto loans. Of course, those are the headline rates for those with good credit.

What many credit unions typically do is scale the interest rate based on credit score. So a top-flight borrower will get those marquee rates of 2% or 3%, while someone with dinged credit may get 7% or 8%. Push the loan longer than 48 or so months and the interest rate is likely to go up further.

When it comes to the question of financing, there are really two markets for car loans: People who do it the right way and people who do it the wrong way.

The right way is to get preapproved for a car loan at a credit union, online bank or even a traditional bank as a last resort. The wrong way is to do your financing at the auto dealership. Unfortunately, about 80% of car buyers do it the wrong way.

The only times you should consider financing at the dealership is if they’re offering a special factory subsidized lease; or you’ve done your homework and you have a quote on a loan from elsewhere and the dealer beats it.