The US military has an advantage when it comes to buying a car. Many lenders offer special military auto loans that work like regular auto loans, but on better terms. If you are in the military or have retired, chances are you will qualify. Here’s what you need to know.
Auto loans: an overview
Unlike personal loans, auto loans allow you to borrow money only for the purpose of purchasing a vehicle. Auto loans are secured loans, which means that you borrow money at a fixed interest rate that will not change over time. The vehicle serves as collateral for the loan, so if you don’t make the payments, it could be foreclosed by your lender.
What could be better with military auto loans?
Military auto loans are better than conventional auto loans in several ways:
Easier to get approval. It is not difficult to get a car loan even if you have a mixed credit history. If you have military degrees, however, it’s even easier. Military auto loans are generally available even for military personnel with a credit score below the threshold for regular auto loans. In addition, the approval process is generally faster.
Lower interest rates. Lenders typically offer reduced interest rates for military auto loans, such as a 0.25% to 0.50% discount on their standard rates. A lower rate could save you a lot of money in interest payments over the life of the loan.
No early repayment penalty. If you prepay a military car loan early, your lender won’t charge a prepayment penalty like the one that might be applied to regular car loans.
Lower down payment. You can pay less up front for military auto loans, with some programs offering loans without a down payment. This saves enough for a purchase, although paying less up front means you’ll pay more interest in the long run.
Longer repayment period. Regular auto loans tend to have terms of 36, 48, or 60 months, with shorter-term loans offering lower interest rates. Military auto loans offer even longer options for repayment periods.
How to qualify for a military car loan
To obtain a military loan, you must provide proof that your military status qualifies you for the loan. If you are an active duty military member, you can provide your active duty military ID card. You will also need to provide contact information, including a local address for where you are currently parked. You may be asked for contact details of your family members who can handle your loan matters if you are deployed overseas. Retired military personnel may be asked to provide proof of their military record, such as discharge papers.
Disadvantages of military auto loans
The same risks that apply to all auto loans apply to military auto loans, the most important of which is the risk that you may not be able to make your installment payments. Defaulting on your loan could hurt your credit score and make it more difficult for you to borrow money in the future.
The ease with which the military can get a car loan makes it even more important to be careful and think about the purchase. Your loan may be less expensive due to your military status, but the other costs of owning a car (maintenance, insurance, parking, and fuel) are unlikely to be cheaper.