Financing Through the Dealership

Car loans can be financed in many different ways. You could do any or all of the following:

• Borrow from family and friend
• Obtain money from a bank or credit union
• Take out a home equity loan
• Finance from the dealer

It is a big decision to finance a car. So, you need to carefully consider all of the funding sources available prior to making a commitment. If you decide to finance through a dealer, pay special attention to the process.

Dealer Financing

The biggest advantage to financing through the dealer is the convenience. You avoid the work of having to contact banks, do research and compare financial deals. However, there are a couple of things about financing through a dealership you might want to consider:

• A Profit Center- Dealerships, by all accounts, make a significant profit on arranging financing. It’s another revenue stream for the dealership. That’s why they are glad to do it. They can sell the loan to a third party or make money on the loan themselves.

• Financing and Selling- Selling and financing a car are two separate functions. When a dealership does both, they can control all aspects of the transaction, sales price, interest rate, down payment, trade-in allowance and all of the other ancillary costs that go along with it

Separate Financing and Selling

As a consumer buying and financing a car at a dealership, you want to separate the selling and financing processes. Each one is a separate negotiation. In fact, you want to wrest control of biggest factor in the car purchase—the price—in your favor.

That seems obvious, but it doesn’t always work out that way. The price of the car needs to be determined before you even begin to discuss financing it. Plus, the total price of the car needs to include all dealer charges, options, taxes and fees.

The price that remains after you subtract any trade-in and/or down payment, is what you are financing. That is where the negotiations begin for the financing part of the deal. You’ll want to determine the interest rate, terms, annual percentage rate, and total amount you will pay for the financing the car.

When you take out a car loan through a dealership it is a process where you really need to perform due diligence. As inconvenient as it may be to research and compare all of the available car financing options, it’s a task you need to accomplish. It could save you hundreds of dollars.