Monday, June 17, 2024

Why Do Car Dealers Want You To Finance Through Them

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The Alternative Choice Close


This tactic is one of the most popular, says Dan Seidman, CEO of consulting and sales-training firm Got Influence? and author of The Ultimate Guide to Sales Training. Youre offered a choice of two things, such as: Would you prefer that model in blue or red?

Good car salespeople never ask yes or no questions, because they dont want to give consumers a chance to say no. The salesmans secret: Both choices are available. In the car business, you sell whats on the lot, Seidman says. A smart consumer might say, I want to look at everything you have.

Your strategy: Take a lesson from the political arena and dont answer the question youre asked. Deflect the question by responding with something on a different topic.

If a salesperson tries to box you in with the alternate choice close, dont take the bait. Youre relaxed, youre leisurely, youre not ready to make a decision, Seidman says.

Give The Car One Final Inspection Before You Drive Off

If you haven’t done this already, give your car a careful once over. If you notice any scratches, dings or any other issues, request to schedule time with the dealer to get them repaired at no cost, according to RealCarTips. You can even do this after you’ve signed the contract and received the keys — just be sure to do this before you drive off the lot.

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Some Dealerships Check Credit Illegally

The vast majority of salespeople will move on quickly when you don’t agree to a credit check, opting instead for other add-ons, such as upgraded floor mats, useless undercoating, and extended warranties. But some will do an illegal credit check anyway against your wishes. Believe it or not, providing your driver license for a test drive can provide all the information necessary to run your credit. No you don’t need to provide a Social Security Number for someone to run your credit.

While you are out for that test drive, someone at the dealership could be working the numbers in order to find out how to undercut the financing you already received.

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Reason #: A Bank Can Preapprove You For A Car Loan

Some banks offer you the ability to apply for preapproval. If youre preapproved, the bank will let you know the loan amount, rate and terms youre conditionally approved for.

Keep in mind that preapproval isnt a guarantee of loan approval or that youll receive the same estimated rate and terms youll still need to finalize and submit your loan application. But it can give you a good idea of the terms you may be approved for by various lenders so that you can find the best deal.

Its worth noting that some automakers finance companies also offer the ability to apply for preapproval but youll be limited to buying one of the automakers vehicles. For example, if youre preapproved for a loan from Lexus Financial Services, youll only be able to use that loan to buy a Lexus at a participating Lexus dealership.

Once You Choose A Car Learn About Dealer Financing

Why Do Car Dealers Want You to Finance Through Them?

Once you have your car picked out and an approval in hand, it makes sense to consider financing options available through your dealer. The dealer will have its own car loan application, and is likely to send your car loan application to multiple lenders. Each lender will pull your credit report, just as your bank did. Theyll then send the dealer their offers.

If you get a great financing offer that way, you could see if the bank might want to improve its terms to win your business. You can also try asking the dealer to knock down the price of the car a little.

Sometimes, dealerships will offer financing to buyers with lower credit scores. The dealer might also give you extra incentives for using their financing, like a 0% interest rate typically for a shorter period of time, or discounts on optional features to your car such as a security system or seat warmers.

Just be aware that if you choose financing through your dealer, you wont have control over who ultimately provides the loan. So if the lender doesnt have nearby locations, you wont be able to handle questions or problems about your loan in person.

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Dont Give The Dealership Your Car Keys Or Your Drivers License

It is almost as anachronistic as a pocket watch, but some dealershappily fewer than ever before, according to Christopher Sutton, vice president of automotive retail at J.D. Powerstill engage in tactics designed to keep you in the showroom until a deal is made. A couple of the tried-and-not-so-true tactics revolve around test-drive vehicles. Before a test drive, the salesperson might ask for your car keys and/or your drivers license as security. Then, when you return and want to leave without buying, the car keys or the license will go missing. We dont see it that much anymore, Sutton told us, referring to abusive dealer tactics. And I think the advent of ratings and reviews online . . . has contributed to that.

Yes, a wise dealership needs to determine that you have a valid driver’s license before allowing you to take a car out for a test spin, but they don’t need to take it from you and hold it as some sort of deposit. It should be enough for them to know your identity and your address. Since you have typically parked your own car at the dealership, there is the strong likelihood you will return. Further, when you go on the test drive, it is obviously good for you to have your driver’s license in your possession.

After You Get The Car

If you financed the car, understand

  • The creditor has a lien on the cars title until youve paid the contract in full.
  • Late or missed payments can have serious consequences. Late fees, repossession, and negative entries on your credit report can make it harder to get credit in the future. Some dealers may put tracking devices on a car, which helps them find the car if they have to repossess it. Ask the dealer if it plans to put a device on your car as part of the sale, what the device will be used for, and what to do if the device sets off an alarm.

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Financing Through A Bank

Bank financing involves going directly to a bank or credit union to get a car loan. In general, you’ll get preapproved for a loan before you ever set foot in the dealership. The lender will give you a quote and a letter of commitment that you can take to the dealer, saving yourself some time when finalizing the contract. Having a specific approved loan amount on paper could also keep the car salesperson from trying to persuade you to include add-ons that you don’t need.

Depending on the bank or credit union, you can apply for preapproval online or at a local branch. You may need to provide information about the vehicle, which could cause some delays if you’re not yet sure what you want.

The rate offer from a bank or credit union will be the true interest rate and doesn’t include any markup, which can happen when you work with a dealer. In general, though, the rate quote you get isn’t a final offer. When you head to the dealership to purchase the car, the lender will run a hard credit check and review your full credit report before approving your application and determining your loan rates.

One thing to keep in mind is that your options may vary depending on whether you’re buying a new or used car. Some banks and credit unions have limits on the vehicle’s age and mileage, and new vehicles may qualify for lower interest rates in general.

Can Anyone Qualify For Zero

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Dealerships love to offer 0% financing as a way to get customers in the door, but it can actually be quite difficult to qualify for one of these loans. They are typically only offered to buyers who have excellent credit. The only people who get the deal are the ones the dealership thinks will pay on time or maybe even early. By being choosy about who gets the deal, carmakers can ensure their temporary discount is low risk and profitable.

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How To Apply For Preapproval

Depending on the bank, you may be able to apply for preapproval online, over the phone or at a branch. Youll likely need to provide some personal information, such as your Social Security number and birthdate, as well as employment and income details. The bank may review your credit with a hard inquiry, which could ding your credit scores by a few points.

Wait to begin the preapproval process until youre serious about starting your car loan shopping. Multiple hard credit inquiries within a time frame of 14 to 45 days will only count as one, so it makes sense to do them around the same time.

Once youre preapproved and identify the loan that best fits your needs, you can head to the dealership with your preapproval documents.

Reason #: A Bank Wont Pressure You To Buy A Car

Its all too easy to head to the dealership, fall in love with a car and make an emotional decision to buy it right then and there without comparing your financing options. Dealers may even pressure you to finance through them so they can close the sale and receive compensation for arranging the financing.

Dealers may also offer a certain car price or loan terms if you finance through the dealership, or use tactics like lengthening your loan term to lower your monthly payment .

You can help take some of the pressure and emotion out of your decision by shopping around for a loan and applying for preapproval with various lenders, including banks, before you set foot in a dealership.

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The 7 Ways Dealers Can Rip You Off With Car Financing

Car dealerships that work with bad credit and repos ...

They know most car buyers don’t take time to research financing options so they are likely to pass hidden fees into the car loan without anyone making a fuss.

What most people don’t realize is that dealers do not finance the car loans. They simply arrange financing using their relationships with banks, financing companies, and in some cases their manufacturer’s captive finance company.

Since they’re middlemen, they get a piece of the pie. Here’s how dealers typically screw over car buyers:

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Never Buy These Extras

Rust ProofingThis is pure profit for them. They charge $800 and up for it, and how do you know if it’s even on the car? Most cars have 6 year/100,000 mile rust warranties, so you don’t need this. Tell them you don’t want it and if they say it’s already on the car, tell them you’re not paying for it.

Fabric ProtectionCan you say ScotchGuard? It’s cheap and easy to do it yourself so don’t let them rip you off.

Paint ProtectionDon’t waste your money on this junk. My friend who worked at a Chevy dealer said it comes in a $5 bottle. It’s just wax and they make promises about it lasting for years. No car wax lasts for years.

Know Your Credit Score

If you need to finance your car purchase, your credit score and history will majorly impact your monthly payments. Before you start shopping for a car, pull your credit reports and credit scores from the three major credit bureaus: Equifax, Experian and TransUnion.

RealCarTips points out that dealerships act as middlemen and when they make you a loan offer, they mark up the rate you qualify for so that they will profit from the transaction. Knowing your credit score will give you an idea as to what type of rate you should be getting, so you can spot inflated quotes.

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Shop At Larger Dealerships

In March 2015, Popular Mechanics interviewed an anonymous car salesman who gave away some of his best car-buying secrets. Shopping at a larger, popular dealership will help you get a better price on a car, according to this expert.

“The larger dealers move a ton of inventory each month, so they can afford to sell a few cars at ‘Back of Book’ or $100 to $200 under invoice,” he said.

Reason #: A Dealer May Mark Up Interest Rates


With dealer-arranged financing, the dealer essentially shops around for you, gathering different offers from financial institutions such as banks, credit unions or the automakers finance company. But the dealer may raise the interest rate of the loan they present to you.

This markup compensates the dealer for handling the financing and could result in you paying hundreds or thousands of dollars more over the life of the loan. Lenders may allow dealers to add up to 2.5% to the interest rate, according to the Center for Responsible Lendings November 2015 report titled Road to Nowhere: Car Dealer Interest Rate Markups Lead to Higher Interest Rates, Not Discounts.

Lets say a lender quoted a 4% interest rate on a $30,000 loan with a 60-month term. Over the length of the loan, youd pay an estimated $3,150 in interest. But if the dealer marked up the interest rate to 6.5% on that same loan, youd end up paying an estimated $5,219 in interest a more than $2,000 difference.

If the dealer quotes you a rate thats significantly higher than other auto loan rate estimates youve received, consider trying to negotiate the rate with the dealer.

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Get Your Own Financing

If paying cash for a new or used car isn’t an option, then skip the dealership financing and shop around for your own car loan. That way, you can take your time to find the best rate — not just what the dealer offers — and you can be clearer about the terms and cost of your financing.

Also, take some time to understand what your car loan interest rates will be like so you can be ready for the expense.

Get An ‘out The Door’ Price

Sometimes a dealer will offer you a low quote, only to add additional charges later that bump up the sales price. Always let the dealer know you want an “out the door” price, which includes all the taxes and fees associated with the purchase of a new car. That way you won’t waste time settling on a number, only to be surprised by a much higher price later, according to Edmunds.

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Dont Fall For The Waiting Game

Aaron Miller with Thrillist points out two waiting-game tricks dealers often play. First, he says the dealer acts busy to create a position of dominance by making you feel that his time is more valuable. Second, waiting and spending a long time on the lot will result in you feeling tired and overwhelmed. When you get in that state of mind, you’re more likely to settle instead of continuing to negotiate the best car deals.

Why Does My Car Dealer Want To Buy Back My Car

A Guide to Buying a New Car With Bad Credit  Yes, It

Last week I got a letter from our local car dealer offering to buy our 2012 Sante Fe and giving out big incentives to purchase a new 2016 Hyundai vehicle. I recall opening a similar letter last year. It went something like this:

We want to buy back your Sante Fe.

As you may know we have a certified pre-owned program. There has been a North America wide shortage of good, clean vehicles, in particular the Sante Fe. We have selected you because of your vehicles year and service history . It turns out the Sante Fe is in high demand!

We can offer you finance rates as low as 0% and rebates as high as $5,000 PLUS you are eligible for an additional loyalty credit of up to $1,500, AND all 2016 new models will be sold at the dealer invoice price!

The deadline is May 31, 2016. With all of these incentives, we are extremely confident that we can help move you into a new Hyundai while maintaining a payment at or below your current budget!

The letter includes an exclusive PIN code so I can go online and tell them about my vehicle as well as my desire for whats next.

All of this sounds very exciting but our Sante Fe will be completely paid off in four months and I have no desire to trade it in for another car payment. New car smell may be sweet, but not as sweet as being car-payment free.

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