Understanding The Complex World Of Financing From A Car Dealer

Posted on: 10 November 2015


Applying for credit when attempting to buy a car can be a confusing and difficult experience for many people, especially when it applies to something as important as a vehicle and financing it through the dealer. Thankfully, the following information should help you understand your options more fully.

Why Car Dealers Offer Low Financing Options

When you go to a car dealer, you're likely to notice that they are very excited about getting you to sign a credit deal or to get credit through their own financing. Why are they so up in arms about this? Basically, it helps stimulate sales and ends up making them even more money.

How? Think of the last time you when car shopping. You may have noticed that dealers constantly advertise on having the lowest available financing. They offer these low rates to incite you to purchase directly through them, instead of utilizing a third-party loan. In that way, they eliminate the middle man, can offer lower rates, and make more money.

Car Credit Checks Won't Impact Your Credit Score

Car shopping is often a harrowing experience for many people because they are concerned that the constant credit checks a dealer make before offering loan options will impact their credit score. That's because credit scores can be impacted by a person or a company checking it too often. However, you can rest easy knowing that your credit score is unlikely to be seriously impacted by these inquiries.

Why is this the case? Simply put, your credit score is usually only highly impacted when you apply for new credit. Someone simply asking for your credit score, without using it to credit more credit, has almost no impact on your score. However, should you try to apply for a car loan, your score will be affected.

Knowing About A Lien

When purchasing a car directly from a dealer, you will be subject to what is known as a "lien." Few car owners truly understand what this term means. Essentially, a lien states that whoever holds the lien on your loan (in this case, the auto dealer) actually owns your vehicle. And if you fall behind on your car payments, they reserve the right to repossess your car.

This situation is not as bad as it may seem: in fact, it can benefit you to purchase a vehicle directly from the dealer instead of trying to purchase a used car from a non-dealer. For example, a non-dealer car may already have a lien on it. As a result, if you give the seller money for the car, you are now in possession of his lien, instead of the car. This makes it impossible to obtain a title without removing the lien first.

Removing a lien requires paying off the lien, confirming with the lender that it has been paid off, confirming the loan repayment with the DMV, and obtaining a new title. This is all before you can even legally drive the car! Obtaining release from a dealer lien still requires this process at the end of your loan repayment process, but you'll be able to drive your vehicle for years until then.

Now that you better understand car dealer financing a little bit better, you can make the best decisions possible. Don't be afraid to bring up any of these points to your dealer or to haggle on the pricing. They are usually more than willing to listen to suggestions. For more information, talk to a car dealership in Peterborough.