Getting a car loan doesn't have to be a nightmare, even with bad credit.

Three Things your Dealerships Won’t tell you about your Car Loan

last updated December 30, 2013 by

More than eighty percent of car buyers in the United States do so with some form of financing, with the remaining minority purchasing their cars upfront in cash.  Car buyers who purchase cars with financing packages are the main source of revenue for car dealerships, although there are many things that they aren’t told about their car loans.  If you receive financing through your car dealership, you are paying a price for the convenience and ease of taking out a loan in the same place that you buy your car.  Dealers view financing as yet another way to make a profit on customers, so there are some things that you might not know about your car loan.

Your Dealership Makes Money based on your Loan Choice

Dealerships usually receive some type of incentive pay from lenders that give car loans to customers of the dealership, so salespeople at the dealership are looking at their own bottom lines rather than your best interest when they arrange your financing.  Very few dealerships have their own in-house financing departments; most contract auto loans out to third party firms that pay them various amounts based on what type of loan terms are negotiated.  Obviously, if a loan company makes more money from your loan, they offer more of a commission to the dealership, so the dealership has an incentive to steer you towards high cost loans with little upside for the consumer.  If you are dead-set on financing your car at the dealership, make them clarify whether or not they receive incentive pay from the loan originators.

Lower Monthly Payments are NOT always good

Since consumers that finance their cars see the monthly payments as their main way of gauging a car’s cost to them personally, they tend to view car values in terms of monthly payments.  Dealers encourage this by advertising monthly payments rather than advertising the actual retail price of the cars that they are selling.  However, there are easy ways for the dealership to make a monthly payment look more attractive while actually increasing the price of a car.  Extending a loan over 4 years instead of 3 might chop $100 off of each payment, but it can also add more than $1200 to the loan over its term because of the increased number of payments.

You get a better deal by shopping around

One thing that car dealerships definitely won’t tell you when you are looking for an auto loan is that it is almost always better to get your loan and your car from two different places.   Shopping around for you auto loan will help you find a loan that fits your individual financial situation, and you are likely to find a lower interest rate and more favorable payment terms.  Make sure you look at different sources for your auto loan.  After getting a quote from your dealership, go to your bank or credit union to see what their rates are.  Finally, fill out the form on Complete Auto Loans to see the low interest rates that you can get by going through an online lender.