Is Auto Dealership Financing Worth the Convenience?

Dream Car FinancingIf you’re in the market for a new car, not only must you find a vehicle that fits within your budget but also find financing to pay for it. Some options include paying the full cost from your savings account, negotiating a personal loan with your bank, or signing up for a leasing agreement. Yet another option is to take out a loan directly at the dealership. There are a number of pros and cons to auto dealer loans, which are worth looking at in greater detail before you sign on the dotted line.

Benefits of Dealer Loans

One of the primary reasons why you might be tempted to finance with your car dealer is the sheer convenience of it. To negotiate a personal loan with a third party lender, you’d have to order, deliver, or fax an array of documents back and forth. You may have to drive to multiple locations as well to sign the paperwork, which can make purchasing your car a long and drawn-out process. By contrast, when you finance with the dealer you can often drive off the lot on the very same day. The dealer may offer their own financing, or they may arrange it on your behalf for added convenience.

Another potential benefit of dealer financing is the possibility of an extended term contract on a used vehicle. You may not be able to immediately afford a new Ford Kuga, for example, but if you’ve spotted a used Ford Kuga for sale on and gotten in touch with the dealer, they may be able to work out a long-term financing contract. Banks and credit unions tend to only offer extended-term financing for new vehicles, which may be out of your price range. Although you’ll pay more in the long term in the form of interest payments, going through the dealer could be a good option if you have a low monthly budget. Auto dealers may also be able to arrange financing with a higher loan to value ratio, if you have little deposit to put down initially. They tend to be more willing to work with you even if you wouldn’t meet normal lending criteria.

Potential Drawbacks to Consider with Dealership Financing

At times, auto dealer loans get an unfair reputation for having much higher interest rates than banks. However, this can be deserved at other times. Even the difference of one percentage point can really add up over time, so be sure to compare all rates carefully. Auto dealer rates tend to be higher because they act as a middleman between the consumer and the bank, which is why going straight to the bank can often yield lower rates. Auto loans at dealerships also tend to come with add-ons that you may not want or need. Be sure to read through all paperwork carefully to identify and avoid these extra financial products.

The Bottom Line

In many cases the issue of bank vs. dealer financing boils down to trust. If you have already arranged loans with a representative at your bank in the past, you may trust them to carry out auto financing as well. By contrast, a dealer representative will be a stranger who is also trying to sell you a car. Yet it’s worth looking closely at dealer financing, as many options offer low rates and the added convenience of swift approval and minimal paperwork. No matter where you take your business, always read the fine print carefully and only agree to what you can afford and fits within your budget.

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  1. Good post! Typically it’s best to get financed through a bank or credit union, but if you have really good “Tier 1/A” credit and are buying a new car, dealer financing can sometimes be cheaper. Captive finance wings like Ford Motor Credit, Toyota Financial, etc, often offer 0-1.9% APR financing deals that are meant to incentivize buyers rather than make profits from financing.

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