Home Entertainment industry Getting a car loan from the dealership cost me over $ 400

Getting a car loan from the dealership cost me over $ 400


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  • Like many people, I have always obtained auto loan financing from the dealership when purchasing my car.
  • But I recently learned that obtaining financing from a financial institution before buying a car can save you money.
  • Dealers can add more to the interest rates offered by their partner banks, a sort of “convenience fee” for acting as an intermediary on the loan.
  • If the loan I took for my daughter’s last car had been 2% less, I could have saved $ 435 over the life of the loan.
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I must have bought at least 10 vehicles in the past 20 years, all of which had to be funded. I learned to shop and buy a car from my parents. You go to different dealerships to compare prices, take test drives, and get a feel for what will work best.

When you are ready to make a choice, you discuss financing options with the dealer and they take care of everything on the spot. It wasn’t until I was 38 and my 19 year old daughter rode her first car that I learned that there are many a smarter way to shop by car – and that I’ve probably thrown away thousands of dollars over the years.

Get a loan through the dealership

I made a deal with my daughter, who for years had worked hard and was very responsible. If she could afford a monthly payment and increase my insurance policy to cover herself and a car, I would co-sign a loan with her so she could get something used. We both scoured the websites of our local dealers looking for something in its price range. She found one she liked at the Toyota dealership where I bought my current car.

When we met a salesperson at the dealership, my daughter gave him the details of the exact vehicle she was interested in for a test drive. It was an older Nissan model with decent mileage, a good price, and a clean Carfax ratio.

After a quick test drive, we were ready to talk about the money. We filled out some paperwork, gave out our social security numbers, and waited for loan offers from the finance department. My credit was good and his was, well, new, but I hadn’t expected any problems getting a loan.

The seller returned with startling news that none of the banks he works with would finance this vehicle without a large down payment. We were told that the age of the car was the main issue. However, we could consider a newer vehicle that could be funded within our budget and the ability to make an immediate down payment of $ 500.

The new option was a Nissan Versa without power locks or windows; a very stripped-down model with a standard transmission. I knew how to drive a standard, but my daughter didn’t. Still, the price was right and I knew she could learn, so we decided to buy the car.

The dealership released the numbers and we accepted a loan offer with an APR of 9.75% of Carolina Trust Federal Credit Union, which was a local institution that we were happy to support. the interest rate was much higher than the 4% I was paying for my own car, but I attributed that to having someone with a little credit history on the loan. A few hours after entering the dealership, we made an appointment to pick up his first new car.

Get a loan from a credit union

It took my daughter a few months to get used to driving a car with a standard drivetrain, but she finally figured it out and appreciated its increased mobility. Sadly bad luck and glare from the sun struck and the car was completed within six months of our purchase.

Insurance paid off the loan and gave us the money to buy another vehicle. I started the car search process again and found a decent candidate. This time I called the credit union’s credit bureau to ask if they could offer me a loan on that new used car instead of contacting the dealership. I was shocked at the response.

The loan officer told me he would be happy to finance the car at a much lower interest rate and monthly payment than the loan we had just paid off. The car I was interested in was comparable to the one that had been lost, so I asked why there was such a difference in the rates between the two loans. After all, they were both funded by their institution.

It was then that I learned that car dealerships can add a mark-up to the interest on a loan. According to Consumer Financial Protection BureauWhen a dealership runs your financial information to find deals on your car loan, they receive a fixed interest rate from banks willing to lend you the money. A dealer is not obligated to disclose or offer you this “buy rate” or to offer you the best possible rates.

Dealers have the option of increasing the interest rate from the rate offered by the lender and pocketing the difference as compensation for managing the financing. I see it as paying off for the convenience of being able to immediately get a loan and complete the purchase of a vehicle. And a dear one at that.

Tim Carlisle, president and CEO of the Carolina Trust Federal Credit Union, confirmed to me that they have agreements with local car dealerships on increased interest rates offered to consumers. He says the maximum amount a dealer can add is around 2%, but each lender has their own deal with the dealers they work with.

“You’re always better off if you do your homework before you walk on the pitch. Once you walk into the lot the dealers are very good at trying to accommodate you by making sure you are ready to buy a car on the spot because they know that if you leave the lot you can or no come back, ”he said. “If you do your homework up front, you know what to expect and you know if you’re getting a good deal or not.”

Carlisle added that a dealer may offer gap insurance or warranty coverage, which would be added to your loan amount. Your lender may also offer these products at a lower cost, so this is something you will want to ask for if you are shopping for auto loans.

My original loan was $ 7,500 at 9.75% APR over 60 months, which came to $ 2,006 in total interest. If I had gone straight to the credit union for the loan and got an APR of 7.75% (applying the maximum average markup), I would have saved $ 435 in interest over the life of the loan.

It was an expensive lesson to learn, but I’m glad I know better now. Although my own car is reimbursed, it is six years old and has high mileage. I can find myself in the market for a new vehicle as soon as possible. At least now I know my first step should be to call my credit union and other banks – because you should always shop around – to see how much I can afford and what my payments would be before talking to a seller. .