How To Tell if Auto Finance at the Dealer Is Too Expensive

Written by: Cash101 Staff

How To Tell if Auto Finance at the Dealer Is Too Expensive

Auto dealers are glad to be able to offer auto finance right at their dealership. This enables them to be the one stop place to buy cars. In fact, you could find a car you like, stop by their finance department, sign a few papers, and walk up to your new car and drive it home – all in a few hours.

What a car dealer is not going to tell you, though, is that you are probably going to pay more for the convenience of one-stop shopping, says the Wall Street Journal. Not only will you probably pay higher interest rates on your auto finance, but they will probably also pad the deal with additional fees.

One way that a car dealer’s loan can easily cost you more money is by claiming that you have a lower credit score (lower than you thought). This can easily be done, says BankRate.com, simply because most people do not know their actual credit score. This lets them make up some number and then charge you a higher interest rate based on that fictitious number. You can prevent this simply by getting your credit score in advance.

A dealer also knows that if you have not tried to find auto financing from other sources, then you probably have no idea about what current interest rates are from lenders, either. They may very well play on your ignorance, and raise your rates higher.

Before you ever go to a dealership, the Federal Trade Commission says, you want to understand just how much money you can afford to spend on a new car. You will also need to consider the cost of insurance, too, which you can find out from your agent. Also, look at various car buying guides, and get a good idea of the typical price range for your car; and don’t forget to look at various lenders to determine current interest rates. AutoTrader.com mentions that car dealers almost always mark up their interest rates above that of typical lending institution rates.

Even if the interest rate is only several percentage points higher than that of a bank or credit union, it will make a large difference over the life of the loan, says Investopedia.com. Depending on the size of the loan, it could end up costing you several thousand dollars more in interest. This is why it will pay to shop around for interest rates and even get prequalified for an auto loan.

Every lender should give you a concluding statement on the loan indicating just how much the loan will cost when it is all paid. This is the figure you want to look at (before you sign) when comparing various offers rather than just the monthly payment. A dealer may try to get you to focus on how low the payment is to get you to move quickly, and this could cause you to forget about the total cost – which is apt to be more because it is stretched out longer. Also, offers for zero-percent loans may still not be the best deal.

Even though you may want to hurry up and get out of the office and into your new car, wait and make sure everything is correct on the paperwork. Read it twice before signing any auto finance agreement.


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