What Exactly is Dealer Financing and How Does it Work?
Many people turn to dealers that offer what is referred to as “dealer financing” when they have been turned down for a regular car loan. While the idea of guaranteed auto financing with no credit check can be very appealing, it’s not a very good option and can be hazardous to your wallet.
Let’s take a look at dealer financing and how it works…
The most common term for dealers that finance their own cars is called “buy here, pay here financing”. The way this works is that the dealer holds the title to the car and acts as a “lender” in a way.
They aren’t actually loaning you any money for a car, they are just keeping ownership of it until you’ve paid it off. No credit check is required and as long as you have a down payment, you can get “financed”.
This does come at hefty price, though…
Normally, you can expect to pay 50%, 100% or 200% more for a car than it’s actually worth at retail price. This is because the customers that patronize these types of establishments feel that they have no alternative. They don’t have enough money to pay for a car with cash, and can’t get approved for financing anywhere else.
Also, the interest rates that are charged for dealer financing can be higher than those charged by major credit card companies, pawn shops or payday loan companies. 30% is very common, which results in your paying more for interest each month than for the car itself.
An overpriced car with outrageous interest rates? Not a good deal at all, although many people have used dealer financing to obtain transportation.
What are the alternatives?
There are special finance programs available through some sub-prime lenders that will allow you to obtain auto financing based on your monthly income.
Rather than your credit score being the main factor in being able to get a loan, your simple ability to repay the loan is taken into consideration. Some sub-prime lenders don’t even pay attention to your credit score, which can be a good thing if it’s low. You’ll find some sub-prime lenders that offer their services online.