Car Buying

Is Dealer Financing the Best Option?

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Image: LovePHY/Shutterstock

We live in an age where nearly every purchase is on borrowed money. Bank loans, credit cards and financing options dominate the market and are promoted every time you turn around. When it comes to buying a car, you’ll often find that you have many options. Option number one? Pay cash. While many people don’t have the excess cash lying around to put down on a car, doing so will often sure that you get a great price. Option number two is to finance through a bank, or a credit card. Sometimes, banks can actually give you great interest rates – often depending on your credit history and approval. Financing through a bank isn’t a bad idea when you need a really low interest rate for a longer period of time. The last option? Financing through the dealer. What’s the point of doing that, though, when you can finance through a bank? There are some things to consider that may make financing through a dealer a little more appealing.

Is There an Interest Perk?

If a dealer doesn’t promote as low of an interest rate as your bank does, they have to make it appealing to you somehow, right? If it’s not promoted, you can always ask about an interest perk. Many dealers will guarantee financing (upon approval) for a certain period of time with no interest at all! In other words, you may be able to secure financing through your bank with a 5% interest rate, but the 9% interest rate with the dealer won’t apply until after one full year. You’ll need to determine what’s more appealing to you, in this situation, a lower interest rate, or delayed interest application that allows you to put more money toward the principle payment (hopefully allowing you to pay your truck off faster).

Is There a Discount?

Most dealers want you to finance through them, so they’ll provide some incentive if you do. Many dealers will sweeten the deal, either via a promotional advertisement, or privately in order to get you to choose their financing option. Some dealers will even request you finance through them if you have cash in hand, with the incentive that you’ll get a 5% discount and be able to pay on the deal immediately once you leave. If you’re interested in saving a bit more, ask what kind of discount the dealer will give you to finance through him.

Is a Down Payment Required?

One last thing to consider when you determine whether or not financing through a dealer is right for you? Whether or not a down payment is required. Banks don’t usually come with conditional approvals when it comes to purchasing a car (though a down payment may mean you secure a lower interest rate). Dealers, on the other hand, may be conditional in terms of their approval; in other words, you may finance through them if you can put down a certain amount, often just a percentage of the car’s value.

At the end of the day, financing through the dealer isn’t always a great thing, but it’s not usually a bad thing, either. It’s a decision that you’ll certainly want to investigate to determine if there are any interest perks, discounts, or other appealing conditions that may make it helpful in your car buying experience.

Landry loves baking and all things sweet, including putting too much sugar in her coffee. You'll usually find her with a good book and noise canceling headphones on.