Pros and Cons of Financing a Car Through an Auto Dealership: What Consumers Should Know
When purchasing a new or used car, financing is often a consideration for many consumers. While various options are available, one common approach is financing through an auto dealership. Let's explore the pros and cons of financing a car through an auto dealership to help consumers make informed decisions about their automotive financing needs.
Keep in mind we recommend getting quotes from a direct lender to compare with dealerships as you will want to shop for the best rates to save. Visit our partner here.
Pros of Financing Through an Auto Dealership:
Convenience: Financing a car through an auto dealership offers convenience, as it allows consumers to handle both the car purchase and financing process in one location. Dealerships typically have relationships with multiple lenders, making it easier to secure financing options tailored to the buyer's needs.
Access to Special Offers and Incentives: Dealerships often offer special financing deals and incentives to attract customers, such as low-interest rates, cash rebates, or zero-percent financing for qualified buyers. Taking advantage of these offers can result in significant savings over the life of the loan.
Negotiation Opportunities: Financing through a dealership provides consumers with negotiation opportunities. Dealerships may be willing to negotiate the terms of the loan, such as interest rates, loan duration, or down payment requirements, to close the sale and meet the buyer's budgetary constraints.
Faster Approval Process: Auto dealerships typically have dedicated finance departments that specialize in securing financing for car buyers. As a result, the approval process for financing through a dealership is often faster compared to applying for a loan through a bank or credit union.
Cons of Financing Through an Auto Dealership:
Potentially Higher Interest Rates: While dealerships may offer competitive financing options, the interest rates they provide may be higher than those available through other lenders such as banks or credit unions. Consumers should compare interest rates from multiple sources to ensure they're getting the best deal.
Limited Financing Options: While dealerships work with multiple lenders, their financing options may be limited compared to what's available from banks or credit unions. This can restrict consumer choice and result in less favorable loan terms for some buyers.
Pressure to Purchase Add-Ons: Dealerships may try to upsell consumers on additional products or services, such as extended warranties, gap insurance, or vehicle protection plans, as part of the financing process. While some of these products may be beneficial, others may not be necessary or represent added costs for the buyer.
Potential for Negative Equity: Financing a car through a dealership's in-house financing may result in negative equity if the loan terms are not favorable or if the vehicle depreciates faster than expected. Negative equity can make it challenging to sell or trade in the vehicle in the future without owing more than it's worth. Best Practice for Savings: Get up to 4 quotes from our partner to compare savings
Conclusion: Financing a car through an auto dealership offers convenience, access to special offers, negotiation opportunities, and a faster approval process. However, consumers should be aware of the potential downsides, including higher interest rates, limited financing options, pressure to purchase add-ons, and the risk of negative equity. By carefully weighing the pros and cons and comparing financing options from multiple sources, consumers can make informed decisions that align with their financial goals and preferences.
Want to know the prices and availability of new and used cars at your local dealership?
