When choosing auto financing the cutomer may have two options : direct lending or dealership financing
Direct Lending may offer you
- Comparisons- You have the chance to shop around and ask lenders directly about their terms before you agree to purchase a specific vehicle
- Credit terms in advance – By getting financing before you purchase a vehicle, you will know your rate and terms when you start your shopping
In dealership offered financing, you get your financing through the dealership where you are purchasing your vehicle. You and a dealer will enter into a contract where you buy a vehicle and agree to pay the amount financed and the finance charge. The dealer may in return the contract to the bank , finance company or credit union, that services the account and collects your payments.
Dealership financing may offer you:
- Convenience- Dealers offer vehicles and financing in one location, and often have extended hours including evenings and weekends
- Multiple financing options – The dealer’s relationships with multiple banks and finance companies may mean it can offer you a range of financing choices
- Special Programs – Dealers sometimes offer manufacturer-sponsored, low-rate or incentive programs to buyers. The programs may be limited to certain vehicles or may have special requirements, like a larger down payment or shorter contract length. These programs might be only certain credit rating statuses.
Before you Buy or Lease a Vehicle.
Determine How Much you Can Afford
Before you finance or lease a vehicle, take a look at your current financial situation to make sure you have enough income to cover your monthly living expenses. Then, if you want to finance a vehicle, know the total amount you will pay. This will depend on several factors, including the price you negotiate for the vehicle, the Annual Percentage Rate (APR), which may be negotiable, and the length of the credit contract.
Finance or lease a vehicle only when you are able to take on a new obligation. Check the overall cost of the purchase of lease. Consider the monthly payment in finance or lease negotiations.
The only time to consider taking on additional debt is when you are spending less than you take home. The additional debt load should not cut into any amount you have committed to saving for emergencies and other top priorities. Saving for a down payment or trading in a vehicle can reduce the amount you need to finance and reduce your financing costs. In some cases, your trade in vehicle will take care of the down payment ton your new vehicle.
If you owe more on your vehicle then its market value, you have negative equity in your vehicle. This is a consideration if you plan to use your vehicle as a trade in. The longer your new credit contract, the longer it will be before you have positive equity in the new vehicle – that is, before it is worth more than you owe. If you have negative equity, you may need a bigger down payment to try and cover some of the inequity in you current vehicle and to get a qualification loan call from a lender. If you take all of the negative equity into your new loan, your monthly payments will increase. If you have negative equity, consider paying down the debt before you purchase another vehicle.
When You Apply For Financing
Most dealerships have a Fiance and Insurance (F&I) Department that will explain to you your fiancneing options. The F&I Deparment mangaer will ask you to complete a credit application that will include :
- Social Security Number
- Date of Birth
- Current place of residence and length of stay
- Current and previous places of employment and length
- Sources of Income
- Total Gross Monthly Income
- Current Debt Obligations
Most dealerships will get a copy of your credit report, which has information about your current and past credit obligations, your payment record, and data from public records. For each account, you credit report shows your account number, the type and terms of the accounts and the credit limit. This also includes Credit limits, most recent payments and balances owed. This also includes creditors summary of past due information, legal steps and and any collection obligations
The dealership will submit your application of credit to one or more potential lending institutions. They will determine their willingness to buy your contract
The finance company will evaluate your credit application using automatic techniques, like credit scoring, where the factors like your credit history, length of employment, income and expenses may be weighed and scored
The potential lender will not deal directly with the customer when you finance through a dealer. It bases its evaluation on your credit report and credit score, the completed credit application, and the terms of the sale, including trade in or down payment. The potential lender will decide whether it is willing to buy the contract, notifies the dealership of its decision along with their stipulations of the loan and guidelines
Your dealership may offer manufacture incentives, such as reduced finance rates or cash back on certain models. The dealer will also check to see if you qualify for any additional rebates or cash back. Generally these discounted rates are non negotiable, and it may be limited by the consumer’s credit history, and may be available only on certain makes and models
Dealers who promote rebates, discounts or special prices will show you if or how you qualify for the incentives or discounts. For example, some offers may include recent college graduates, military members etc. These are set by the manufacturer passed to the dealer and the consumer must meet the requirements to gain the extra rebate.