All About Credit Auto Financing
Posted Friday, May 26, 2023
If the thought of buying a new car has got your wheels spinning, you're not alone. New car prices in the US have been getting steeper by the week, leaving many potential buyers no choice but to turn towards other, more reliable, and affordable options. Enter the used car dealership.
Used car dealerships such as The Internet Car Lot operate from multiple locations, which include Omaha, Nebraska, and Council Bluffs, Iowa, and offer the best car deals in town with auto financing options that you simply can't miss. So, what is auto financing, and how does it work? Let's find out.
What Is Car Financing?
Since used car dealerships are in the best position to offer car financing, it makes sense to use these services whenever you are purchasing a used car. Dealer financing is a kind of auto loan that is offered by the used car dealership to their customers, which is then sold to either a third-party financial institution or a bank. These loans are purchased by the bank at a discounted rate which then collects both principal and interest from the borrower. Indirect loans, alternatively referred to as dealer financing.
Different Types of Auto Financing
Contrary to popular belief, multiple types of auto financing are offered by used car dealerships. This is to attract more customers by providing them with multiple auto financing options whenever they walk into the used car lot. In case you were wondering, here are a few of the types of auto financing that are offered by used car dealerships;
In-House Financing Option
This is a kind of direct financing option where the dealership is also the lender. One great example of the in-house auto financing option is the many buy-here-pay-here used car dealerships that provide these services to their customers. However, it should be noted that when it comes to in-house financing options, lenders seldom, if ever, tend to perform a bad credit check when granting a car loan to their customers. This, alone, makes them the perfect option for those car buyers who need to purchase a used car but do not have the funds or a good credit history. This is also a smart option for those potential used car buyers who have been turned away from traditional lenders such as banks.
Dealership Indirect Financing Option
The used car dealership, which offers auto loans and other financing options, usually does that via their finance department. This is where the dealership sells the contract to the third-party finance company. Even though there is a third-party involved, used car dealerships may approve the loan applications of those with poor credit scores.
Direct Financing Option
As the name implies, this type of car loan is granted by either the finance company, credit union, or bank. The borrower needs to apply for this type of loan directly with the lender they choose for approval. If approved, the borrower receives a check which they use to pay the dealership for the vehicle. Only those with a good credit score can take advantage of the direct financing option.
Common Pitfalls
While making a used car purchase with a car loan can be an attractive option for some buyers, especially those who do not have the necessary funds to pay in cash. That being said, there are also some common pitfalls that one needs to avoid when it comes to taking out an auto loan.
Be Wary of Longer Loan Terms
One of the most common traps that used car buyers fall into is choosing a loan term that's too long. While the dealership or a lender may agree to loan the money for eight or ten years (or longer), while you will get a lower monthly installment, it can be a risky move. For instance, used car loans that tend to be for longer periods come with significantly higher interest rates and are also more expensive as compared to shorter loan terms. So, even if you do qualify for a longer loan term, it's best to stick to the shortest payback period for the used car loan.
Look Out for Spot Financing
Also known as yo-yo financing, this is when the dealership tells you to take the car home without fully completing the required paperwork and then tells you to come back a few days later because your auto loan application didn't fall through, so you need to sign the papers again. This time around, the actual cost of the used car will be bumped higher as compared to the vehicle's initial price that you agreed upon. While there are legitimate reasons for dealerships to ask for you to come back to sign the financing papers, more often than not, it is used as a ploy with the intention of increasing the vehicle's price for the buyer.
Insurance and Auto Financing
Regardless of whether you are looking to buy a new vehicle or an old one, the insurance rate is most likely going to be affected. However, insurance rates tend to be higher when one purchases a new car as compared to a used one. Additionally, it is also advised to consider the vehicle's age and safety ratings when buying a used car because it will impact the financing and insurance of the vehicle.
Ending Note
Through the years, the Internet Car Lot has garnered the reputation of being one of the go-to sources for fast and reliable auto financing options in Omaha, Nebraska, and Council Bluffs, Iowa. The used car dealership has partnered with various top lenders to offer its clients the highest service quality and loan options, along with a higher rate of auto finance approvals from All Credit and other loan providers. To find out more about our services, you can always visit The Internet Car Lot to choose your next car from one of the largest used car inventories in the state, along with some of the best auto financing options in town.
