Auto dealers are in the business of selling cars not lending money. They do however have direct lending agreements with lenders to facilitate the sales of their automobiles. When you go to purchase a vehicle from a dealer they will have financing available if you elect to finance through them. Even though you are signing paperwork at the dealership they are not the entity lending you the money. Here is a rough overview of how it works.
1)You agree to purchase the vehicle- After you have made a deal on the car you want to purchase the dealer will ask you how you want to pay for it. Do you want to pay with cash or a check? Do you want to go get a loan from your own bank or credit union and bring back a cashiers check? Or would you like to finance through the dealership?
2)You agree to finance through the dealership- Once you determine that you want to take advantage of the dealer financing you will be asked to fill out a credit application. The dealer will in turn submit your application to one or more of the banks that they have direct lending agreements with.
3)You accept the loan terms offered by the dealership- Once the dealer has you approved they will present the terms of the auto loan to you. If you agree to the rate and terms then they will proceed to print the necessary paperwork.
4)You sign loan documents- The dealer is authorized to execute all the paperwork needed to obtain financing from the selected lender. You will be signing all the title work and bank contracts right at the dealership you do not have to go directly to the bank to sign.
5)Dealer Assigns Loan To Selected Lender- After you sign all the documents and leave with your new vehicle the dealer will assign that loan to the lender. They will over night all the paperwork you just signed to the bank and the bank in turn will mail the dealer a check for the amount of the loan. Now your loan is in place with the bank. They will send you a payment book in the mail shortly and you will make payments directly to the bank not the dealer.
Dealers have direct lending agreements with multiple lenders. They can shop around for the best rate for you. Make sure however you know what your personal bank or credit union has to offer ahead of time to ensure you are getting a fair deal. Some people shy away from dealer financing because they think their rates are higher but that is usually not the case, dealers have very competitive rates to offer. Financing through the dealer is also convenient; you can literally be in and out of the finance office in 15 minutes with your new vehicle. This saves you the time of running over to your own bank and waiting for an approval, picking up a cashiers check, and driving back to the dealer to take delivery. As long as you know you are getting a fair deal dealer financing can be a good option.
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