Think Twice Before Financing at the Car Dealership

financing a new car

Buying a Car on Credit?

Not many people are in a position to pay cash when buying a car. Even if you’ve negotiated an excellent trade-in deal, there’s usually a hefty financial gap which needs bridging. This, of course, means taking out credit.

It can be tempting to use a finance package arranged by the dealership where you buy your vehicle. It’s convenient, quick, and if you have poor credit your application is more likely to be approved than at a mainstream bank. However, there are many reasons why you should think twice before taking out car dealer finance.

Limited Range of Packages

You’re unlikely to find a truly competitive finance package at an auto dealer. Most of the options are aimed at customers with poor or bad credit ratings, and who have limited choices to go elsewhere. If your history allows you to shop around, you’ll almost always get a better interest rate elsewhere. If you have poor credit, a specialist online lender may offer a cheaper alternative. Either way, shopping around is usually a smart move.

Exploiting Your Enthusiasm for a New Car

If you’ve reached the point of discussing finance, it’s clear to the dealer that you’re sold on the car and that the deal is nearly done. This means they can safely exploit your enthusiasm and offer you a less-than-attractive deal. They may even go so far as warning that any delay in arranging finance could mean losing the car altogether, as they have other interested buyers due to visit, and so you need to act quickly and take the package they’re offering.

Unreliable Verbal Offers

The car dealer may insist that finance will be no problem, you’re sure to be approved, and so you might as well sign up to buy the vehicle you’re looking at. However, always, always get a loan offer in writing before going any further. As soon as you drive the car from the lot, you have a legal obligation to go through with the purchase agreement you’ve signed.

If you only have a verbal offer of finance, there’s still a chance it could fall through, and this will leave you in a predicament. You could be forced into accepting a different, extremely expensive finance deal, simply to fulfill your agreement. What’s more, some of the more shady dealers use verbal agreements as a hurrying tactic, seeing the wait for formal finance as a possible way of losing the deal.

Monthly Car Payments Can Be Deceptive

When you take both vehicle and finance from the same source, it’s easy for an unscrupulous dealer to massage the figures in their favor. Always check carefully that the total cost of your finance is within the range you’re willing to pay for the car, and that you’re not just focusing on your monthly repayments. Also, ensure that no “optional” extras have been added on to the loan amount. Once you take interest charges into account, these extras can work out to be far more expensive than you think.

The Car Salesperson Commission

Lastly, auto dealers can make a nice profit out of selling finance, often as much as they make on the car sale itself. Because of this, they have no incentive to offer you an excellent deal if they think the sale is already in the bag. Considering that they can add up to two and a half percentage points to the lender’s standard interest rate, these packages are often far better for the dealer’s bank account than for yours.

Auto dealer finance packages can offer a lot of convenience, but if you have a good credit rating, they’re not likely to offer you the most competitive rate. Even if your credit history means you probably need to explore dealer finance, be wise to the drawbacks and pitfalls, and still fight to get the best deal you can.

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