If you’re looking to buy a car from a dealership, your first thought might be you need financing to get that car. However, this isn’t always the case—car dealerships in house financing offer many benefits, whether you are buying the car or leasing it. Here are some things to know about how to get car dealerships’ in-house financing and use it when buying your next car!
Step 1: Understand how your credit score affects your finances
A credit score is an important factor when it comes to getting a car dealership loan and most car dealerships will not work with individuals who have low credit scores. Low credit can be caused by late payments, maxed-out balances, too many inquiries, etc. Typically when someone’s credit score drops below 620, they won’t qualify for the best rates and they will not be able to get financing through traditional lenders. One of the best ways to increase your chances of being approved for financing is by rebuilding your credit score over time. Credit cards are one way you can do this – though it may take some time before you see an increase in your score – if you make timely payments on the card and don’t exceed the limit.
Step 2: Getting pre-approved with your bank
This is the most important step in the process. Lenders will not accept a proposal if you don’t already have your funding source lined up. Research local lenders and ask friends and family members who they use. Some car dealerships will work with borrowers as well, so be sure to find out if that’s an option for you.
This can be a long process depending on your credit history and other financial obligations like existing mortgages, student loans, etc., but having this out of the way early can save both time and headaches later on. If you’re financing from your bank, make sure to bring them information about the car you want to buy and what dealership it’s at before getting pre-approved. If you’ve found a private lender (such as through Prosper), check their requirements for getting approved first before starting this process.
Step 3: Negotiating down the price of your future car
You have your financing lined up, and now it’s time to close the deal. This is usually where the dealer starts trying to sell you on paying more for unnecessary add-ons, or they’ll upsell you. If they start talking about warranties or extras that sound interesting, just ask if it’s something that will lower the price of your car. Most of the time it’s not, so you can say no thank you and go back to negotiating.
It’s okay if your credit isn’t perfect as long as you have a decent income and a down payment – since this means your chance of defaulting on payments is relatively low. If all goes well and you’re ready to sign some paperwork, make sure you read everything carefully before signing so there are no surprises later on.
Note that interest rates may vary depending on your credit score and income level. If you have excellent credit, expect an interest rate lower than you might pay with poor credit. For example, if you have excellent credit, get ready for rates from 2.9% up to 3.2%. However, if your credit is anything less than excellent then expect that rate could be higher. Make sure that’s not too high for your budget!
Also, if you’re applying for loans with a co-signer such as parents or family members then it’s possible your rate will be lower than those listed above since your risk is being shared among two people instead of one person who’d otherwise assume all of it on their own account.
Step 4: Taking action
Car dealerships want customers that can provide financing for the cars they are buying. Most car dealers start looking for financing long before the car is purchased because not all banks and finance companies will give in-house financing.
The first step is to call local dealerships and see what type of loan they would like you to have or if they have any special deals going on.
Also, if your credit score is low, you should call credit unions and see if they are willing to take a chance on someone with bad credit. If not, you could go down the route of giving up some equity or asking family members if they would be willing to put up their home as collateral in exchange for getting an auto loan.
Also, if you can find someone with good credit, you could ask them to co-sign on an auto loan. Then once they have bought and sold their share of your car, you can pay off that person so they are not linked with any bad credit.
Then, once you have found someone who will give you an auto loan, see if they have any lenders they work with. If not, find out what banks they use and start calling them.