It is nearly impossible to say that all car dealerships will finance a vehicle; however, most dealerships have lenders that they have dealt with for some time and have negotiated preferred treatment for their potential customers. Many new car dealerships also work with “captive lenders” – companies that lend on their own vehicles. For instance, Ford Motor Credit provides loans on Ford vehicles.
Having the dealership finance your loan can take a bit of hassle out of the car buying process, but it is not always the wisest choice that you can make if you want to save as much money as possible. Dealerships offer financing just as much to line their own pockets as for the convenience of their customers.
Dealer Rate Padding
It is legal in every state for a lender to add a percentage point or so to a buyer’s loan as a commission for arranging financing. So, if a lender is willing to offer you a loan at 8 percent, the dealership is allowed to tell you that the interest on the loan is going to be 9 or even 11 percent. The dealership then puts the difference in their pocket. This can cost you several hundred dollars over the life of a loan. The CFPB (Consumer Financial Protection Bureau) has lately been looking into this practice, in order to ensure that no bias is at play, but this is a widely-accepted practice among dealers and has been for decades. To some degree it is understandable – the dealer F&I (Finance & Insurance) manager must deserve some compensation for arranging your loan. However, this may not be the best approach if you want the lowest rate possible.
Your best auto financing option may be to deal directly with a lender. Start by applying for a loan with the bank or credit union that you deal with on a regular basis. The best starting point is the institution where you have your checking and savings accounts. If the traditional options deny your loan, look for an online broker (like us) that can help you find a lender willing to fund your loan. There are plenty of lenders who specialize in lower credit scores and other loan obstacles. The money you could save by arranging your own loan is often well worth the effort.