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‘Blank check’ auto loans flexible

By Claes Bell, CFA ·
Wednesday, August 24, 2011
Posted: 12 pm ET

It's true that the general economy is in dreadful shape, but there's seldom been a better time to get an auto loan. The Bankrate national average for a 60-month new-car loan is but a few basis points off its all-time low, and I've been seeing a lot of 60-month auto loan rates of 2.75 percent or less lately. Beyond that, loan-starved lenders are also offering a variety of products to entice borrowers to sign on the dotted line.

One such product is a so-called blank check auto loan, currently being offered by banks such as PNC and Capital One. With a blank check auto loan, the lender approves a borrower up to a certain amount, then sends them a cashier's check with the amount left blank. The borrower then can take the check to an authorized dealer and fill in any amount up to the approved maximum to purchase a new car.

Like all pre-negotiated auto loans, blank check auto loans offer auto buyers a couple of valuable advantages at the auto dealer over traditional, dealer-arranged financing.

Most importantly, they allow a buyer to focus on price, the single most important component of an auto purchase. Auto dealers often try to get buyers to focus on numbers like monthly payments, loan term, interest rates and other variables in a car deal, rather than price, because that's the best way for them to protect their profit margin on the car in question. But if you have already locked in a low auto loan rate on an indefinite amount, those choices are already made, freeing you to focus solely on maximizing the discount off the MSRP you can negotiate.

Plus, since you haven't actually taken the loan out unless you use the bank's check, if the dealer is willing to offer a lower interest rate, you can always take them up on it.

But where these blank check auto loans are especially convenient is that once you've negotiated the best possible deal on the car you're interested in, you can simply write in the amount and finalize the sale, without having to call your bank back for approval.

The only downside I can see is that in the event a dealer manages to upsell you on a more expensive model, you may be bushwhacked by a higher payment than you expected. To prevent that from happening, you'll likely want to spend some time with Bankrate's auto loan calculator and set a maximum price you can afford to pay well before stepping on to a dealer lot.

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Jon G
August 25, 2011 at 1:49 pm

As Mr. Bell points out, one very important thing to remember is that the loan amount your bank may approve for you may be substantially higher than you have any realistic chance of affording. I think I'd tend to use one of the loan calculators BEFORE going ot the bank... then make sure the bank doesn't "pre-approve" you for anything more than the amount you've decided upon. Getting into a vehicle that's way over your head gets to be a real drag after a couple years of those payments.

Michelle Horne
August 25, 2011 at 12:11 pm

I tried to calculate a new car loan. The auto loan does not work correctly. The calculator does not keep the correct auto loan payment in the empty spot. Please fix the auto loan payment calculator.