How do you finance your car at the dealership

7 Jul by Katherine J. Chambers

How do you finance your car at the dealership

Finance the car with the dealer or the bank? This is a question that many will have asked themselves when buying their car and that many will ask themselves in the future.

Buying a car involves paying a large amount of money that we may not have and that is why we resort to financing, either through a bank loan or through the dealership itself. In this article we will analyze which is the best option to finance the purchase of our new car.

Finance the car or pay cash?

Which is better, finance the car or pay cash? Although buying a car involves a large outlay, there are people willing to pay cash in case the purchase is cheaper, which seems logical since by paying cash we will not have to face interest.

However, dealers are willing to offer discounts if we decide to finance the car with them. This way, the decision is not so simple and we will have to calculate if the discount is enough to make it worth accepting the financing. The Consumer and User Organisation (OCU) points out that in most cases it is more profitable to pay cash than to finance the car, as the discount they offer is usually not enough.

On the other hand, many people do not have the option of paying cash and will have to decide whether to finance the car with the dealer or with a bank loan.

Is it better to finance the car with the dealership?

Financing your car with the dealership is a very simple and convenient process, as you get the financing at the same time you buy the car, however this convenience may cause you to miss out on other financing options that may save you more. Let’s look at the major advantages and disadvantages of financing our new car with dealer financing.

Advantages of financing your car at the dealership

  • Budget and financing at the same time: As we have just mentioned, by financing the car at the dealership we get the convenience and speed of doing both in the same place.
  • Ease of obtaining financing: Dealers finance almost every case, they are more flexible than a bank in deciding whether to finance your car purchase
  • Leasing: The dealership offers different financing formulas, one of which is what we could describe as a leasing in which you make monthly payments of small amounts and after the determined term the customer has the option to return the vehicle without further ado, change it for another model and start a new contract or pay the amount of the last installment. This last instalment is a large amount and can be refinanced.
  • Discounts: Dealers may offer discounts on the price of the vehicle if we finance the purchase with them.

Disadvantages of financing the car at the dealership

  • Dealers are not used to financing vehicles under 6,000 euros.
  • Little transparency: Dealers do not offer much information about the conditions of financing and the OCU itself has denounced this lack of transparency together with the existence of certain abusive terms. According to the OCU, it is usual that they only inform about the fee to be paid and do not mention other important conditions such as the opening fee or the fees for early cancellation.
  • The car is not yours until the last payment: It is what is known as reservation of title clause, until the last payment we will enjoy the car, but we will not be owners of the vehicle, which is a disadvantage in case you want to sell it.
  • Higher interest rate: Dealer interest rates are higher than bank loans.

In view of all this, it is clear that when financing the car through the dealer’s finance company, we must ensure that we are aware of all the clauses in the contract. We will also have to consider whether the discount on the price of the vehicle compensates for the higher interest rates on its financing.

Finance the car with the bank

We can finance the car with the bank through your usual personal loans, or through the Car Loans, whose purpose is to finance the purchase of a car. Because they have a specific purpose these Car Loans offer better terms, however, both have the same characteristics compared to dealer financing.

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