Military car loans: what you need to know before signing

When it comes to buying a car, the US military has an advantage. Many lenders offer special military auto loans that work like regular auto loans, but with better terms.

If you serve in the military or are retired, chances are you can qualify for a military car loan with a competitive rate.

5 Benefits of Military Auto Loans

Military auto loans are better than conventional auto loans in several ways:

  1. Easier to get approved. Military auto loans are generally available even to military members with credit ratings below threshold for regular car loans. The approval process is also generally faster.
  2. Lower interest rates. Lenders typically offer reduced interest rates or military car loans, such as a 0.25% to 0.50% discount off their standard rates. A lower rate could save you a lot of money in interest payments over the life of the loan.
  3. No prepayment penalty. If you pay off a military car loan sooner, your lender will not charge prepayment penaltylike the one that can come with regular car loans.
  4. Lower deposit. You can pay less money up front for military auto loans, with some programs offering loans with no down payment. This makes it easier to save enough for a purchase, although paying less up front means you’ll have to pay more interest in the long run.
  5. Longer repayment period. Regular auto loans typically 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.

Disadvantages of military auto loans

The same risks that apply to all auto loans apply to military auto loans – most importantly, the risk that you won’t be able to make your installment payments. Defaulting on your loan could hurt your credit score and make it harder for you to borrow money in the future.

The ease with which military personnel can obtain a car loan makes it even more important to be careful and thoughtful about the purchase. Your loan may cost less because of your military status, but the other costs of owning a car — maintenance, insurance, parking fees, and fuel — probably won’t be less.

How to qualify for a military car loan

Each lender has their own set of qualification criteria. However, you will generally need to complete the following steps to qualify for a military car loan:

  • Proof of your military status, such as your active duty military ID or military or discharge papers if you are a retired service member.
  • Your contact details, including a local address for where you are currently stationed.
  • Contact details for family members who can handle matters related to your loan if you are deployed overseas.

The bottom line

When you’re ready to apply for a car loan, shop around to make sure you’re getting the best deal. Consider checking your rates with military credit unions, such as Federal Navy and USAAas they offer car loans on competitive terms to current and retired members of the armed forces.

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