To save money, consider securing outside financing before going to the dealer. By doing so, you can prevent the dealer from increasing the loan rate as compensation for its part in the process.
Obtaining a preapproval can also protect you from luring add-ons like service contracts or extended warranties.
Direct Dealer Financing
One advantage of dealer-arranged financing is that it allows you to handle all the loan paperwork in one place. Also, it can be easier to qualify for a car loan through a dealer if you have a low credit score, as dealers may have access to lenders that are less strict about their requirements.
If you decide to go this route, getting preapproved for an auto loan is a good idea before you visit the dealership. This will give you a clear picture of your credit terms, including an interest rate, maximum loan amount, and repayment schedule.
Dealerships that offer this type of financing are known as buy here, pay here (BHPH) dealerships. They typically have a network of lending institutions they work with, and they can provide loans to buyers who traditional banks or credit unions would need to approve. However, these loans have higher interest rates and often have more restrictive terms.
Dealerships often work with third-party lenders to offer customers financing. This is known as dealer-arranged financing, and it’s a popular choice for people who may have trouble qualifying for an auto loan with a traditional lender because of their credit score or financial history. The dealership will often charge higher interest to compensate for the risk associated with servicing the loan and making payments to a third party.
It’s best to get preapproved for a loan before visiting a dealership. This will give you room to negotiate because you’ll know the exact terms you’d qualify for. It also helps you avoid surprises because you won’t have to wait for the dealer to arrange your financing. In addition, you’ll know exactly what your annual percentage rate (APR) will be and can shop for the most competitive rate. This will help you save on the cost of your car over time. You can also learn about any additional fees you’ll face. Visit https://www.turnerkia.com/ to learn more.
If you need better credit, dealerships that offer in-house financing can be a good option. These lenders usually specialize in approving car buyers with less-than-stellar credit and are more likely to approve people who have been turned down for traditional loans. In-house loan approvals are often quicker than if you went to your local bank or other lender.
However, in-house financing usually comes with higher interest rates than you might find at a third-party lender. Additionally, the dealer can offer limited vehicles, which may not fit your specific needs.
Another potential drawback of in-house financing is that the dealer may be reluctant to report your loan activity to the national credit bureaus. This could hurt your credit score if you are working to improve it. To avoid this, you should always ask if the dealer reports to the three major credit bureaus. If not, you might be better off choosing a different lender that does.
Other Financing Options
Dealerships may also offer manufacturer financing, often 0% interest for a short period. This type of loan typically requires excellent credit. Using dealership financing can save time because you don’t have to apply separately with a bank and complete more paperwork. However, it can be more expensive because the dealer often marks the lender’s “buy rate” as compensation for handling the financing.
If you use dealership-arranged financing, the dealership will shop for loans from different financial institutions and automakers’ finance companies. They’ll choose one to present to you. Remember that their interest rates aren’t necessarily competitive with those of banks or online lenders. Plus, dealer-arranged financing only applies to cars on the dealer’s lot. That can limit your purchasing power if you’re interested in other vehicles. Also, dealers often have to add extra fees and terms, like more extended loan periods, to make their financing profitable.