Vehicle Financing

At the dealership

If you decide to finance your vehicle purchase in-house at the dealership, it pays to know how the system works from that end.

Essentially when you agree to purchase a vehicle under finance, the dealership sends your contract to any number of lending institutions who will then assess your application and decide if you are credit worthy (mostly based upon your credit report). As a rule, these dealerships will first apply to the institution that offers them the best deal: commissions on the loan amount, handling fees etc. The dealership’s interest is not on getting you the best deal, but on getting the dealership the best deal. They will have pre-arranged deals and kickbacks from any number of lending institutions. If you are deemed to be a credit risk by the lender, and therefore declined for a loan, the dealership may apply to other lending institutions where the interest rates and other fees are not so attractive. They still get a very decent commission, but you’ll end up paying more money for the privilege of the loan.

So think very carefully about using an in-house dealership finance program. Make sure you are aware of the current market interest rates, and check carefully the setup fees and other charges that are imposed to take out the loan. One key aspect to check is the APR (Annual Percentage Rate). This gives you a very good indication of the overall cost of the loan. Even if you can’t get finance from traditional sources, like banks, at least find out what their general APR is so that you can compare it with the dealership’s offering, but bear in mind that your credit history will go a long way in determining the offers that are available to you. Walk away if you are not happy as you might be surprised that the dealer might be able to find a better deal for you if there is a sale going begging.