In-house financing car dealerships provide car loan options to customers and facilitate the purchase of a vehicle. There are a number of things you should watch out for and understand before signing loan agreements at a dealership.
Advantages of In-House Financing
The primary advantages of in-house financing with an auto dealership directly apply to people whom outside lenders may consider high-risk. A high-risk financing applicant typically has bad credit or a credit history that is deemed lacking. Most car dealerships that provide in-house financing offer loans with lenient credit requirements. The ability to get a financing application approved opens the door for higher-quality cars that many people cannot afford to pay for out of pocket.
There is also the added advantage of convenient one-stop shopping. Instead of needing to work with the auto dealership and a separate lender, you can combine the sales and financing process. Once you have decided on a car to purchase, you stay at the dealership to finalize your financing. Most dealerships will compile your loan options while you are shopping, which further streamlines the experience.
Additionally, in-house financing car dealerships may use promotional interest rates and other loan incentives as sales tools. This practice is much less common, if available at all, with outside financing avenues. Essentially, the dealership may use the financing package while selling you the car to help close the deal.
Disadvantages of In-House Financing
The first disadvantage of in-house financing dealerships is the lack of a “cooling-off” period. For most people, buying a car is exciting. The time spent away from the car being purchased gives an excited shopper some time to carefully consider the reality of buying a car. Without some time to think about his decision, an interested buyer might haphazardly sign on for monthly car loan payments that he cannot afford with his budget.
Escalated interest rates are another disadvantage of in-house financing. The willingness to work with high-risk loan candidates means that financing packages from an in-house financing dealership will come with strict payment terms (usually based on a weekly or bi-weekly schedule) and higher interest rates than normal. As your credit rating improves, refinancing your auto loan may become an option. However, even after refinancing, the final amount that is paid for the vehicle may be much more than what the car is worth when the total paid interest is considered.
What to Watch Out For
A budget should be decided on before anyone sets foot on a car dealership’s lot. This is especially important when shopping at a dealership that combines the buying and lending processes. By keeping a firm budget in mind, you can avoid spending more than you can afford. Accurate assessments of your credit rating and projected income will help you settle on the appropriate budget for a car purchase.
Make sure you read and understand every word of the financing agreement. A financing contract with a dealership is just as binding as a contract with an outside lender.
If you do not understand a certain part of the contract, you should ask questions. By doing so, you can be sure the financing agreement matches up with what the sales rep told you.
Lastly, before committing to a car dealership, you should shop around for a reputable one. There are likely several trusted and credible auto dealerships in your area; do your research and pick a seller with a good reputation and great financing packages.
Now that you are aware of the benefits and drawbacks of in-house car financing, you can make an informed buying decision when it is time to purchase your next vehicle.
This guest post was submitted by Alan “Big Al” Caruthers works at Shabana Motors in Houston, TX. They specialize in in-house financing for those with bad or no credit.
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