Dealer Financing

 WHAT YOU NEED TO KNOW ABOUT FINANCING YOUR VEHICLE PURCHASE

We want you to be an informed consumer to make the best choices about purchasing and financing a vehicle. This section of our website provides essential information about vehicle financing. We hope it will help enhance your vehicle purchasing and financing experience.

Steps to take before you go to the dealership

Know your credit worthiness -- it may affect your cost of credit

Creditors generally use the same kinds of objective measures of creditworthiness. The better your credit report and score, the lower the interest rate you may obtain.

  • Most creditors emphasize your credit payment history as shown in a credit report and credit score from a credit bureau, such as Experian (888-397-3742 or www.experian.com), Equifax (800-685-1111 or www.credit.equifax.com) or TransUnion (800-888-4213 or www.transunion.com).
  • Your credit report shows credit information about your existing and past debt, the outstanding amounts, monthly payment amount, and whether you have paid on time, or if you have not repaid debts.
  • Your credit report does not include information unrelated to your credit, such as your race, ethnicity, religion, or medical history.
  • Your credit score is a numerical value assigned to information in your credit report.
  • Your credit score can vary by bureau, because not all creditors report to all three credit bureaus.
  • You should obtain a copy and read your credit report before you apply for credit.
  • You may be entitled to an annual free credit report. Go to www.annualcreditreport.com to order your copy from each of the credit bureaus.
  • You may be entitled to a free credit report under other circumstances. (For more information, go to the FTC website at www.ftc.gov.)
  • You may also purchase your credit score for a reasonable fee.
  • If your credit report contains errors, you have the right to get them corrected free of charge by the credit bureau.
  • You may be turned down for credit or pay a higher interest rate if your credit report reflects negative information such as a repossession, bankruptcy or history of slow payments.

Improving your credit worthiness

Take an active role to manage your credit score as you would any financial matter. Your credit score can be improved by developing long-term habits that include: 

  • Pay your bills on time, every time. Credit scoring models reward prompt payments.
  • Don’t apply for credit you don’t need. Scoring systems often view numerous loan applications or unused lines of credit as signs that you are overextended or could become overextended.
  • Make sure your credit report is accurate. Check your credit report at least once a year and have any errors corrected immediately.
  • Contact the credit bureaus for more ideas on ways to improve your creditworthiness.

Consider other factors that may determine your cost of credit

  • If the vehicle you are purchasing secures your loan or retail installment contract, your cost of credit may vary based on the amount financed, the amount of your down payment, whether the vehicle is new or used, and the vehicle model.
  • Your income, down payment and debt-to-income ratio may also affect the interest rate you obtain.
  • The total number of payments (term), such as 48 months or 60 months, may also affect your cost of credit. Lower interest rates may be available for shorter repayment periods.

Decide how much you want to pay each month

  • Consider what monthly payment fits within your budget, based upon your income and your expected expenses.
  • Remember to allow for insurance, taxes, title, registration and vehicle maintenance costs when estimating the costs of ownership.

 Do your homework

  • You may finance your vehicle by entering into a retail installment contract with your dealer or you may seek a loan directly from a bank, credit union or other source. It’s your choice.
  • Understand how retail financing generally works -- by reviewing this website or material from other sources.
  • Find out what interest rates are currently available. Different creditors may offer credit at different rates and terms. Creditors usually offer their best interest rates to applicants with the best creditworthiness, with higher rates for less creditworthy applicants.
  • Understand your cost of credit. It is measured in two ways: (1) The Annual Percentage Rate, or APR, is the cost of credit on an annual basis and is based on the interest rate as well as other charges for the credit. (2) The Finance Charge is how much the credit costs expressed in a dollar amount.
  • Learn about possible special low interest rate programs (such as 0.0% APR), which may be offered for a particular make or model.
  • Sources of information include your dealer, the Internet, newspapers and magazines, the library, your family or friends, and other creditors.

Gather items you may need to make a credit application at the dealership.

Have the following items available with you to assist in the application process.

  • Driver's license for identification purposes.
  • Employment and salary information, including paycheck stubs.
  • Information about other sources of income, including alimony, child support or retirement income.
  • Information about your bank accounts, credit card accounts and other debt you may have.
  • Personal references with phone numbers and addresses.
  • Proof of insurance.
  • Sometimes you’ll need your prior address information and employment history

At the dealership

Understand your options

  • Your dealer can tell you about the financing sources that the dealer may use.
  • Ask the dealer about current interest rates.
  • Ask the dealer whether there are any manufacturer supported special financing programs available for certain vehicle models.

 Making and financing your purchase

  • You and the dealer agree upon the price of the vehicle, the value of your trade in, the cost of any extra features, and the APR of your contract. These terms are negotiable.
  • Remember that the total cost of credit will be based on everything you finance, including taxes, vehicle service contracts, credit insurance, GAP premiums, and other options you choose.
  • The monthly payment should fit your budget, but should not be the only factor in deciding on credit. Consider all terms of your financing and purchase.
  • Confirm your APR.
  • The dealer can help you look at several options if the monthly payment amount is too high:
  1. Make a higher down payment to reduce the amount financed
  2. Choose a different vehicle model
  3. Reconsider the vehicle accessories or insurance products
  4. Consider leasing the vehicle rather than purchasing 
  • It’s up to you to let the dealer know what features or aspects of the vehicle or financing are important to you. The dealer wants you to be satisfied with your purchase and financing. The dealer has access to several credit sources, including some creditors that consumers cannot finance with directly, and may be able to find rates and terms that might be better than you could find on your own.

How retail financing works

You make a credit application

To finance the purchase of your vehicle at the dealership, you will make an application for credit with the dealer. You will give the dealer permission to see your credit report and obtain other credit and employment information.

You enter into a retail installment contract with your dealer

You will enter into a retail installment contract directly with your  dealer. The dealer is the seller/creditor and you are the buyer/debtor. You should review and agree to all the terms of the contract, including the amount financed, the APR, the number of monthly payments and the monthly payment amount.

Consider your cost of credit

Your dealer may be able to provide competitive rates to finance your purchase, because there may be several credit sources competing for the dealership’s business.

Your dealer may sell the contract

After you and your dealer sign the contract, the dealer may sell the contract to a manufacturer finance divisiomor some other financing source. Some dealers may keep the contract and have you make the monthly payments to the dealer, but most dealers sell their contracts. If your contract is sold, you will make the monthly payments to the creditor who buys the contract. This creditor is also called the "assignee" and the sale of your contract is referred to as an “ assignment.” Except for changing the creditor you make payments to, selling your contract will not change its terms.

Your dealer is a locally owned, independent business.

Your dealer is an independently owned and operated business, part of your local business community. The dealer is not part of the manufacturer or any financing source and is not required to sell your contract to to a manufacturer or any other financing source.

The dealer may be paid a fee for the contract

The financing source that buys your contract from the dealer usually pays the dealer a fee for your contract. This amount may be a flat fee or a percentage of the amount financed. This fee is sometimes called “participation.” This payment is between the creditor that buys the contract and the dealer. It does not change any of the contract terms that you and the dealer have agreed upon. The fee compensates the dealer for its time, effort, resources, and overhead as well as for services performed on behalf of the purchaser, such as recording the lien on the vehicle’s title. In some cases the fee compensates the dealer for taking on a financial risk, because after a contract is assigned, under certain circumstances, the dealer may be obligated to buy it back. In addition, the dealer offers you the convenience of financing with the dealership directly. For these reasons, the dealer is compensated by the purchaser. Most states do not limit the fee paid to the dealer, although some states have limits.

Preparation is the key.

Financing a vehicle purchase can be done in the convenience of your dealership. Being prepared and understanding the process will enhance your financing experience.