Reasons Not to Finance a Car Directly Through the Dealership

If you're planning on buying a car, the last thing you want to do is finance directly through an auto dealership. Never mind the notion that car salespeople aren't the most honest people to do business with. You're putting all the leverage in a difficult transaction in the hands of the dealership. You're not doing business with a regulated bank, but with a dealership's financial source, which means they will twist the terms of the loan in their direction in ways a bank cannot. And the decision to finance through the dealership is usually an impulse decision: You should shop around and do some research before deciding to finance and buy a vehicle.

• Financing through a dealership puts all the leverage in the dealership's hands. You can't pick and choose the right financing. If you want a car and don't walk in the door without outside financing or cash in hand, you either have to work with them, or you don't get to buy a car from them. You can only use the financing on the vehicles at that dealership. If you finance an auto loan through a bank, you can take that money to whichever dealership you choose. If you secure a loan at an auto dealership, you can't change your mind and take the money somewhere else. You're stuck with whatever vehicle you selected at that dealership. Car dealerships will tilt the terms of a loan to gouge the consumer with fine print as much as possible.

• The car dealership and their financing source are not a bank. They are not an egalitarian institution that does business with a variety of products, is not federally insured and regulated, and will not consider your needs objectively. The dealership is only financing you to help them sell their cars, and will twist every step of the process as much as needed to get you to sign off on a loan, while tilting the fine print in their direction to get as much money out of you as possible. Remember that car salespeople get a commission.

• As a consumer, getting a loan through the auto dealer direct is in itself an impulse decision. A smart shopper secures their financing from a bank to make sure they have the money for a vehicle before they go car shopping. The vast majority of people who apply with a dealership for financing made the decision on the spot to buy a vehicle at that dealership, rather than browsing different dealerships and deliberately coming to a thought-out decision. Ignore the typical car salesman threats that a vehicle will disappear if you don't buy it now. One look around you while driving will show you countless models of the car you have in mind.

Taking out a loan through an auto dealer puts all the leverage in the auto company's hands. They aren't a full-service bank and won't offer you the rights and flexibility that a bank will. And the decision to use the auto dealer's financing is often itself an impulse decision, one you don't need to make right away.

Don't cave into your impulses and don't put all the leverage in the auto dealer's hands. Don't bother with loan sharks. Get your financing from a bank in advance before you walk in to buy the vehicle you want.