Everyone knows that financing through dealerships can be a tricky business, especially when faced with so many different choices, rates, and additional features. But how much time do buyers spend researching their dealership financing options?
Most people want to ensure great rates for their auto loans, but very few borrowers make the effort to look beyond the inflated rates, 0% financing options, and the negotiation tactics that so often crop up in dealership financing situations. Do these financing choices really offer the best "return on investment" for your money, lifestyle, and budget?
Financing Through Dealers: 3 Things Buyers Need To Know
Financing your vehicle through a dealership is not necessarily a bad thing. You may discover that dealership services provide many things that private sellers simply do not. However, some circumstances take place behind those closed consultation doors that can either make or break your dealership financing experience. Here are three vital things you need to know about financing a vehicle through the dealership.
1. Beware of 0% Financing
For the most part, auto dealers assume that you will want to finance through their company. They are usually willing to negotiate prices, benefits, and some features with the intention of ‘hooking’ you into a great deal. Of course, dealers make most of their money from loan interest payments, meaning that added fees or heightened interest rates are in their best interests.
So why is it important to be wary about 0% financing?
The sad and disappointing truth is that added interest costs and upgrade fees are already "built-in" to a loan with 0% financing. Instead of selling you a $24,000 car with 3.0% interest, dealers will offer a $27,000 car with 0% interest.
The bottom line is that financing a 0% loan through a dealership may cost more than financing through a local credit union like Best Reward Credit Union. That’s even with a higher interest rate!
Unfortunately, 0% financing loans sound much better on paper than they do in the real world. Be sure to accurately evaluate your current financial standing to determine if 0% financing loans are right for you.
2. Check for Inflated Rates
One of the common financing tactics used by auto dealers is found with inflated rates. Upon reaching the question of financing, some dealers may offer an initial interest rate that is much higher than the one you were initially approved for. Of course, this means that you are paying much more for something that costs much less.
For example, if a dealership offers you a loan with a 5.5% interest rate, do not immediately close the deal. You may have been approved at 4.00% without even knowing it!
It is a good idea to shop around for multiple loans, taking the time to ask each lender for both the APR (Annual Percentage Rate) and the interest rate of the loan. This will allow you to compare APR's (which include any additional fees) against one another, and determine the best financing plan moving forward.
3. Be Willing to Negotiate
Negotiation is one of the fine arts of financing. However, most borrowers choose to steer clear of the process for fear of rejection or embarrassment.
Negotiations begin with asking many questions. Be sure to ask your dealer what the interest rate would be if converted to APR, or vice versa. Asking about hidden fees, closing costs, and other details are also recommended. This will give you a better idea of the total cost of financing through a particular dealer.
Sometimes the best negotiation is not in what you say, but in what you don’t say. Silence is considered to be one of the most powerful negotiation points for buyers. By deflecting unwanted answers and "voicing" your opinions, you have a much better chance of securing your preferred financing terms.
Ultimately, if an auto dealer refuses to reduce their prices, negotiate terms, or reveal the true costs of their financing, you can always walk away. There is nothing that says you can’t shop on your own terms elsewhere and find a better deal in the process.
Finance With The Team At Best Reward
The stress of securing financing for your vehicle can be a point of anxiety. Thankfully, the process doesn’t need to be complicated. By doing your research early and securing financing ahead of time through Best Reward Credit Union, you can hop into the driver’s seat more cost effectively and with less anxiety.
How Auto Loans Work