Get a Car Loan While in the Military

As you a member of the Army, Navy, Air Force, Marines, or Coast Guard who is in the market for a new or used vehicle? Government-guaranteed auto loans don't exist, but there are certain advantages--and pitfalls--to financing a vehicle as a member of the armed forces. Much of this article applies only to US Military personnel but some steps may apply to the armed forces of other nations.

Steps

  1. Review your Credit Report for Errors. Up to 79%[1] of consumers have errors on their credit reports, and this number may be higher for military personnel. Changes of station, coupled with multiple deployments, make it easy for your credit report to be updated incorrectly, or not updated at all. If you find any issues, you can file a dispute to have them removed under the Fair Credit Reporting Act (FCRA)[2] or other appropriate organisation. This process ensures you have the cleanest credit report possible, ultimately leading to an easier, more affordable lending experience.
  2. Join a Military-Friendly Bank or Credit Union. As a military service man or woman, you are eligible to join a number of different banks and credit unions that cater to members of the armed services. Examples include USAA Bank, Navy Federal Credit Union (FCU), Air Force Federal Credit Union (FCU), PenFed, Armed Forces Bank, Abbey National etc. These financial institutions have long histories of offering military personnel affordable interest rates and solid customer service, and their staffs have experience assisting those dealing with the financial hardships common to military life.
  3. Ensure you meet the Lending Requirements. Approval criteria vary from one lender to the next, so check with your bank or credit union. In most cases you will need an income of $1500 (or equivalent) to qualify for a loan. Fortunately, this income requirement is typically met even as a new private, seaman, or airman. Lenders typically prefer you to be on the job for at least 24 months prior to approval, but they often waive this requirement for military personnel since your contract guarantees how long you will be employed (enlistment duration)[3]. The same goes for time at residence. As far as credit score, military-oriented lenders may be more lenient, since the federal government allows wage garnishments of military personnel in case of default.
  4. Submit your Auto Loan Application. Most lending institutions now allow you to submit this online, which makes the process quite painless. Make sure to answer each question as accurately as possible, as your information will be subjected to a validation process, the failing of which could be grounds for automatic rejection. Most banks respond to your application with a decision within one business day, and if you have good credit and income, your approval could be instantaneous.
  5. Bring the "Blank Check" You're Issued to the Dealership. Unless you apply for your loan already knowing which vehicle you want, your lender will issue you what's often referred to as a "blank check." This term is a little misleading, because in all actuality it only approves you for a set amount. For example, $20,000, $25,000, $30,000, etc. You will give this document to your dealership finance person, and they will work with your bank or lender to finalize everything.
  6. Select a Vehicle that meets Lender Requirements. Your bank or credit union will likely impose a few criteria as far as the age, condition, and mileage of the vehicle you want to purchase. In most cases, they require you to select a car with less than {{safesubst:#invoke:convert|convert}}, that's no more than seven to eight years old. Depending on your credit score, you will probably be able to finance six to ten times your monthly income. However, it is typically best to spend no more than 50% of your annual income, or six times your monthly income, including any down payment.
  7. Make sure the Purchase is Final. This is especially important if you opt for dealer-arranged financing, as you could find yourself subject to a "spot delivery" or "yo-yo" scam[4]. This where the sale is not final, but rather conditional on the dealer finding a buyer for your auto loan. Unfortunately, junior military members are often targeted with type of scam. If you've confirmed that the purchase is final, enjoy the drive home in your newly-purchased vehicle!

Tips

    1. British Armed forces personnel may be able to purchase Tax Free Cars whilst on tour outside of the UK. NAAFI Financial Services may be able to assist with finance for such purchases.

Warnings

  • Avoid "buy here pay here" financing. This is a lending approach wherein the dealer act as both seller and lender, approving consumers for financing with no credit checks. Unfortunately, the interest rates are exceptionally high, if not extortionate, and the down payment requirements are often north of 30% of purchase price. What's more, "BHPH" dealers are notorious for predatory lending tactics.

Things You'll Need

  • Military ID
  • Social Security Number
  • Proof of Income
  • Proof of Insurance
  • Down Payment

References

  1. ↑ USPIRG: Errors in Credit Reports
  2. ↑ FTC: Disputing Credit Report Errors
  3. ↑ MAF: Special Considerations for Military Personnel
  4. ↑ CFPB: Spot Delivery and Yo-Yo Scams
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