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Things to look out for at the dealership to ensure you are getting the best price and interest rate possible.
Members across the credit union community have been reporting underhanded tactics by auto dealers. Our own members have had troubles with local dealerships reporting, “penalties for not financing with the dealer”, “not being allowed to refinance with a credit union for at least three months”, and even one dealer saying, “a credit union isn’t a valid financial institution”.
Not all dealerships are using such tactics to keep vehicle financing in-house but there are enough, even here in Madison, to make this article an important read.
Here’s a link to a video aired on WFAA News out of Texas explaining some shady dealer tactics:
We understand that the pandemic hit many companies hard but that is no excuse to coerce people into higher financing rates.
When you are shopping for a car, here are some things to look out for:
- Price increases or the dealership charges a fee for not financing with them. Get a price quote via email or text before even heading into the dealership or mentioning how you will be paying. Make sure the quote you are asking for is the ‘out the door’ price which should include all fees.
- Can’t refinance for 3-6 months. Dealers are telling car buyers they must wait three to six months before refinancing. This is so the dealer can get their kick-back or commission. Check your contract. Most contracts don’t say that and you can head right to your credit union to get that lower interest rate.
Remember, dealerships are a for-profit organization. Their employees often work on commission so it benefits them to sell you all they can. One dealership here in Madison advertises their base salary of $36,000 a year but with commission income they say employees can easily earn upwards of $85,000 a year.
The best thing to do is to be aware of your credit union’s financing options and get quotes in writing before heading to the dealership.
Know Dealer Financing Methods
Captive Financing – Dealer offers in-house financing
Dealerships that have their own financing arm use captive financing, larger dealerships like Toyota or Ford will have this. Their financing is linked directly to the manufacturer. These dealers can offer promotions with low introductory rates on cars that they want to move fast. At times the financing can be very enticing and may be your best bet.
However, be aware of 0% APR financing through any organization. Nothing comes for free. Firstly, it usually requires a credit score over 800. Secondly, if it’s a low intro rate, know what the interest rate will be after the introductory period ends. Also watch for add-on financing fees. Your local credit union won’t charge any fees to finance a car loan.
Buy-Here-Pay-Here financing – Dealers that don’t have financing of their own.
If a dealer doesn’t have their own in-house financing, a dealer can still offer you financing through a third-party lender, called Buy-Here-Pay-Here financing.
This third party lender doesn’t keep your loans though, they are just the intermediary. Your loan will be sold off to a credit union or bank in the area. However, just because the loan will end up at a credit union in the end, doesn’t mean the interest rate will be the same as if you went directly through the credit union. These loan interest rates are among the highest and prey on those with lower credit scores.
We have seen members paying more than double on their interest than if they had come to us directly. That could mean you are paying thousands more than necessary for your car.
Talk to Your Credit Union Early in the Car Buying Process
If you are in the market for a car, it’s best to check with your local credit union first. We can review your financial situation and give you a loan amount, with payment options that you can afford. And if you’re a current member, we can usually let you know if you’re pre-approved within an hour.
Having a pre-approval in hand gives you the benefit of knowing what you are comfortable paying, comparing dealer financing options, and being able to prevent unwanted add-ons from a particularly pushy car salesman.
A car is a big purchase, just as you would shop around for the best sticker price, you should shop around for the best loan rate. Getting pre-approved from your local credit union gives you no obligation to finance with them. But it does give you a great idea of a potential loan rate and monthly payments that you can afford.
Your Credit Union is Always Here for You
You can’t always get the best rate out of the gate. Luckily, you can always refinance. Refinancing with your credit union is usually a very easy process that can all be done via email and eSigning a few forms from the comfort of your home.
If you think you’re paying too much interest on your auto loan, contact us at firstname.lastname@example.org.
Check out our recent article Don’t Assume Anything When it Comes to Your Credit Score to make sure you are getting the best deal you can.