How Car Finance Works Better with Car Dealers

Aside from buying a home the most expensive purchase you will make in your life is a car. Buying a car can take a big part of your budget. Before you look for a car it is important to know your limitations. When deciding on the price for your car you need to know how much your down payment is going to be. If you want a long car finance arrangement then you will need a minimum down payment. How a car finance company works is one of the most misunderstood concepts when it comes to buying a car. The following article will help you determine what car finance is and how you pay for car finance so that you can find the best car finance deal.

The Role of the Car Dealer

The car dealer is an individual business that has a franchise with one or more manufacturers of cars. The dealers buy their cars from the manufacturer with loans from a bank or finance company. In order to pay off these loans and their interest the dealers need to sell cars. Dealer will get a commission on any car finance deals that are provided by finance companies or banks. So dealers prefer customers that need car finance.

Dealers aren’t responsible for financing the cars they sell or lease. Rather a dealer will have a preferred list of finance companies and banks that work with them to provide car finance for customers. As a part of their service, the dealers will arrange car finance for the customer. The approval of a loan is not made by the dealer even though they may screen a customer’s credit score. The dealer is simply the middle man for car finance. They take the application and pass it only to the bank or finance company and once the arrangements have been made the dealer is no longer in the finance picture.

Sometimes a dealer will check a customer’s preliminary credit through one of the three major credit reporting agencies. This isn’t to approve or deny a loan rather it is to determine the customer’s credit problems to see if they should continue with the transaction. A separate check is performed by the company approving the car finance loan and this is often more thorough than the preliminary check done by the dealer.

Your Credit Score

After the car finance company or bank check your credit score you are placed into one of three categories. The “A” category is for those who are considered prime customers. This is for individuals with a FICO score over 680. If you are in this category you will get cheap car finance with the best interest rates. These are referred to as guaranteed car finance loans.

Next there are those with a credit score between 620 and 680 who are considered in the “B” category. These are near-prime customers who can have up to five percent higher interest than those who have a better credit score.

Lastly those with a score below 620 are considered sub-prime customers in the “C” category. In this category you will have a hard time finding a company that will approve you for car finance. If you are approved you will likely find that your interest rate is very high.

If you are a first time buyer or if you have no established credit then you will need to use a co-signer who has good credit history. A co-signer can help get your financing approved, but they will have no part in the purchase unless the buyer defaults on their loan. The co-signers are not listed on the vehicle ownership or registration.

Finding the Best Car Finance Deal

Looking for online car finance loans can be the easiest way to get a good deal. This allows you to compare offers and determine which lender has the best loan available. Some banks and credit unions may occasionally have a special deal on car finance that you can take advantage of. There are many car finance options available to you and you should take the time to compare several before making a final decision.

It is always best that you negotiate the price of the vehicle before you mention that you want to apply for a car finance loan. If a dealer knows ahead of time that you need car finance they may try to back you into a corner by offering you a lower rate on a higher price or a lower price at a higher rate. If you choose to use a car finance lender through the dealer then you may also be able to negotiate your interest rate. Often a dealership will have several different preferred sources for loans ranging from local banks to the car manufacturer’s credit company. Each of these sources will have different interest rates and if you negotiate the dealer can get you the lowest available rate.

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