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vgajic/Getty Images September 21, 2022 Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our loans reporters and editors focus on the points consumers care about most — the different types of lending options, the best rates, the best lenders, how to pay off debt and more — so you can feel confident when investing your money. Bankrate logo Editorial integrity
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. When you opt for dealership financing, you’re using the dealer as a middleman between you and a lender. Often, this results in higher interest rates — and may afford you less protection as a consumer. A dealership is certainly a convenient place to get an auto loan. You won’t have to fill out separate applications, and you can take care of it after you have found the perfect ride. But it frequently doesn’t make the most financial sense, especially if you have good credit and an established bank or . What dealer financing is
Both independent and franchise dealerships — dealers that work directly with a manufacturer — offer in-house financing. This may be through a finance company owned by the manufacturer, the dealership or a third party. No matter the situation, it all boils down to financing offered to you through the dealership. When you buy a car, you will be able to fill out an application for an auto loan. If you are approved, you can use this loan to finance your car. Dealer financing is typically by most experts. Dealers make a good amount of money off in-house financing because they mark up the rate you’re offered. For example, if you could qualify for a loan at 7 percent through a bank, you may receive an offer of 9 percent through dealership financing. The best course of action is to get outside financing first. Banks, credit unions and online lenders all offer auto loans at competitive rates. Once you’ve been approved for another loan, it’s easier to negotiate a good deal with dealer financing if that’s what you want. Otherwise, you’ll be at the mercy of whatever finance company the dealer uses. How dealer financing works
Dealer financing is designed to maximize convenience. You will typically be able to find, test drive and buy a car all on the same day. And while experts frequently recommend , if you know you’re going to finance through the dealership, the steps are simple. Find and test drive cars
Unless you are absolutely pressed for time, visit multiple dealerships. Your day spent test driving cars should be separate from your day negotiating price. You are under no obligation to do everything at once, and in fact, it may get you a better deal if you spread it out. Salespeople may try to pressure you into a quick sale by citing scarcity. But if you are looking for a common trim on a common make and model, you will be able to find the exact same car again if it does get sold. So, if you are set on financing through a dealer, don’t be swayed by flashy pitches designed to squeeze more money out of you. Meet with the dealer s finance office
This is the crux of negotiation. Don’t show your hand too early, of course, and keep the focus on overall cost rather than monthly payment. It’s best if you show up . This gives you more room to discuss exact terms. If you haven’t gotten a loan from an outside source, don’t worry. You’ll just need to reject offers for add-ons that you don’t want and don’t need. Ideally, your negotiations should center around the and the terms of the loan. Once you have reached an agreement, you’ll fill out the finance paperwork. The dealer will send it to lenders it works with to see if you qualify for the loan. Review offer and sign the paperwork
Here’s where you need to . Some dealers may sneak in a clause that says your purchase is “pending approval” — and may still be up for change. Don’t close the deal or drive off the lot until you confirm that you have been approved by the lender at the rate you have been quoted. Keep an eye on other details as well. But if you like the interest rate and terms you have been given, it’s time to sign the paperwork. Work out how the titling process will go and what you’ll need to send the lender. After that, it’s your car to drive and make payments on. Who dealer financing is best for
Getting a loan through a dealership may be your best option if you . are the most common method to obtain a loan. Because the dealership and the finance company that lends money are owned by the same lender, there’s less overall risk. You’ll have an easier time buying a car, but it comes at a cost. These dealerships frequently require a large down payment and may quote you a high interest rate. However, most franchise dealerships — dealers that work directly with manufacturers — also have a captive finance company. Similar to buy-here, pay-here dealers, a captive finance company works directly with the manufacturer and dealer to make financing easier. This makes it a good option if you haven’t qualified with an outside lender. But dealer financing may also be the best option if you’re looking to take advantage of and leases. These are extremely difficult to qualify for, but if you do, you can drive away with a steal by using the dealer’s captive finance company instead of a bank or credit union. Alternatives to dealer financing
If dealer financing doesn’t quite work for you or you would like to explore other options, consider these alternatives: Traditional bank: Banks generally offer competitive terms on auto financing to consumers with excellent credit. A lower credit score doesn’t mean you will automatically be denied a loan, but the borrowing costs will likely be substantially higher. Credit union: Auto loans from credit unions generally come with lower interest rates than you’ll find with traditional banks, and the lending criteria is a bit more flexible. However, you will need to be a member of the credit union you are seeking a loan from to apply. Online lender: You can shop for the best deal on an auto loan from the comfort of your home. It’s easier to compare your options, and you will likely get a much better deal than you would financing through a dealership. The bottom line
At the end of the day, dealership financing isn’t the worst option. However, you should already have financing from a bank or other lender before you fill out a credit application at the dealership. This gives you more room to negotiate your auto loan. If you don’t qualify for outside financing, dealerships may be able to set you up with a loan. Just understand the costs, pick an affordable car and calculate your monthly payment to ensure you won’t be strapped for cash. Learn more
SHARE: Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites. Related Articles