Used Car Dealers

The vast majority of auto loans in the U.S. are originated in dealerships.

Used car dealers play an important role in auto financing. While many of the larger lenders such as Capital One Auto Finance and Chase Auto Finance have consumer-direct lending groups, the vast majority of auto loans in the U.S. are originated through dealerships. No matter what type of auto used car loans from a dealership mean leveraging their benefits and avoiding their drawbacks.

The benefits of auto dealer financing:

• Car Dealers know lenders. Franchise dealers commonly have relationships with 10 or 20 lenders. Independents (used car dealers) may have relationships with 5 – 10 lenders. Working with a dealer lets you leverage his/her relationships to reduce your search time. Click here for more information on the types of auto lenders.

• Car Dealers are experienced at writing loan applications. They can help you structure an application that maximizes the likelihood that you will get funded. Further, many dealers have access to sophisticated auto loan systems such as CreditSmarts which allows them to submit loans to multiple lenders at once.

• Dealers have cars for sale. Sounds silly but it is one thing to qualify for a used car loan and then to go look for a used car for sale that conforms to that loan (sticker price, age, mileage, etc.) Working directly with the used car dealership means that the auto loan application you submit will already conform to the car you intend to buy. For collateral-based, bad credit auto lenders this is particularly important.

• Dealers provide alternatives. Some dealers can provide you financing alternatives for auto used cars even if you get turned down by a bank or credit union. Commonly referred to as “Buy Here Pay Here” operations, these used car dealers handle their own auto financing allowing you to drive off in exchange for a down payment and a commitment from you to make periodic payments directly to them instead of the bank.

The drawbacks of auto dealer financing:

• You pay for the service. Commonly referred to “back end” fees, the used car dealer may receive a finders fee, may be entitled to mark up the loan rate or receive a portion of the interest earned from the lender, they may charge financing fees, etc. None of these are bad so long as the total charge is in proportion to the service offered.Click here to find out more about car loan interest rates.

• Some used car dealerships mark-up their auto loan services disproportionately. The consumer may be left with a sizable bill often in the form of high interest rates or hidden fees added to the loan amount. To guard against this, know what rate to expect given your credit score, shop around first, and deal with reputable used car dealers. Click here to estimate your car loan rate (step 2).

Disclosure: We developed the content for SmartCarCredit™ while working with automotive industry clients. We hope you find it helpful in making informed decisions. While we believe the information to be accurate, we do not guarantee its accuracy.