With prices averaging more than $20,000 for a new vehicle and $9,500 for a four-year-old vehicle, most consumers need financing or leasing to acquire a vehicle. In some cases, buyers use “direct lending:” they obtain a loan directly from a finance company, bank or credit union. In direct lending, a buyer agrees to pay the amount financed, plus an agreed-upon finance charge, over a period of time. Once a buyer and a vehicle dealership enter into a contract and the buyer agrees to a vehicle price, the buyer uses the loan proceeds from the direct lender to pay the dealership for the vehicle.

Consumers also may arrange for a vehicle loan over the Internet.

The most common type of vehicle financing, however, is “dealership financing.” In this arrangement, a buyer and a dealership enter into a contract where the buyer agrees to pay the amount financed, plus an agreed-upon finance charge, over a period of time. The dealership may retain the contract, but
usually sells it to an assignee (such as a bank, finance company or credit union), which services the account and collects the payments.

For the vehicle buyer, dealership financing offers:

Convenience – Dealers offer buyers vehicles and financing in one place.

Multiple financing relationships – The dealership’s relationships with a variety of banks and finance companies mean they can offer buyers a range of financing options.

Special programs – From time to time, dealerships may offer manufacturer-sponsored, low-rate programs to buyers.

This article explains dealership financing and can serve as a guide as you evaluate your own financial situation before you finance a new or used vehicle. It will also help you understand vehicle leasing.

Sections:

  Before You Arrive at a Dealership
  What Happens When You Apply for Financing
  Common Questions
  Determining How Much You Can Afford
  Know the Terms of Financing Before You Sign
  Getting a Copy of Your Credit Report
  When Visiting the Dealership
  If You Encounter Financial Difficulty
  Federal Laws