What you need to know about dealership financing is pretty straightforward, but how it’s set up can be confusing.
If your sales are low or you are looking for a new truck or SUV, finding a good financing option may be on your mind.
Whatever the reason, knowing what kind of financing is available at your area dealerships will save time and stress in your search.
Here are four types of dealership financing you should know.
1. Dealer-Arranged Financing
Dealer-arranged financing is one of the most popular types of dealer financing. This financing allows you to use your dealer as a third party to get a loan from a bank or other lender.
This way, you don’t have to go through the hassle and cost of finding an independent lender. You can take advantage of dealers’ lower rates and fees negotiated with their banks.
You will usually need a good credit score to qualify for this financing.
However, credit scores can vary from lender to lender, so ensure you ask about your credit score before applying for any dealer-financed car loan.
2. Buy Here, Pay Here
Buy Here, Pay Here (BHPH) is a form of purchasing cars that allows the buyer to finance their car purchase through the dealership.
This financing model is common in certain areas, especially those with high unemployment rates.
The BHPH model allows dealerships to take back their own money from the sale of a vehicle and then loan it out to customers at an interest rate that is normally much higher than what a bank would charge for a similar loan.
Some dealerships use this to help struggling families or individuals buy cars. Still, others use it as an avenue for income generation by charging higher interest rates on loans than banks would offer.
3. Credit Unions
Credit unions are an excellent choice for bad credit car finance dealerships because they offer better rates than banks. Also, credit unions typically have low borrowing rates.
Credit unions are cooperative financial institutions owned by their members, usually employees of the organization.
They were formed to provide banking services to their customers at lower rates than those from banks. Credit unions have some advantages over banks, including a lower rate of interest on loans, lower fees, and higher lending limits.
Additionally, many credit unions offer special financing programs for auto dealerships.
These programs can include loans for new vehicles or equipment purchases and often allow for loan repayment plans that don’t require monthly payments.
4. Banks
Banks are the most common type of financing available to dealerships
. They offer a range of terms, from traditional 30-year loans with fixed interest rates to revolving lines of credit that you can use to finance new equipment or pay off outstanding debt.
Banks usually require dealerships to have an established relationship with them. This means that dealerships must prove that they have a strong customer base and have been in business for several years.
Generally speaking, banks will require a minimum down payment, but they’ll also want to see regular payment histories.
Dealer financing is an integral part of the dealership finance process.
Before you can purchase a car from a car dealerships low credit, you will need to determine whether or not you have enough money saved to pay for it. If you don’t, dealer financing may be your only option.