Advantages and Disadvantages of Dealer Financing

If you’re planning on getting a car financed by an auto dealer, you may want to know what the definite advantages and disadvantages of taking this auto loan because dealerships function differently than independent financial institutions.

Let’s look at some advantages and disadvantages of taking the auto dealer financing route. This way, you can decide for yourself if this the right choice for you.

Advantages of Dealer Financing

There are a number of advantages associated with dealer financing. Let’s look at a few:

  • Benefit from financing deals. One benefit of taking advantage of dealer financing is being able to benefit from a low initial interest rate. For instance, the manufacturer may offer 0% financing for the first year. Of course, you need to read the fine print with these deals, but if all looks good, you’re in business!
  • You’re not bound to this agreement. Actually this is true of any financing agreement that results in you buying a car. While you are bound to the agreement in the sense that you are expected to pay your car notes every month, you can always refinance if you become unhappy with the deal you struck with the auto dealer.
Disadvantages of Dealer FinancingNow let’s take a look at some of the disadvantages of working with an auto dealer for financing:

  • Auto dealers aren’t looking for good deals for you. One reason that you might avoid dealer financing is because the dealer’s agenda is to have you pay as much as possible for a vehicle, not get you a good deal. So often times, you find yourself led to a vehicle that may be too expensive for you because the dealer wants to work out a “deal” that will either have you pay for the car for 6 or 7 years, or your interest rate could go up after a year or two.
  • Hidden fees might apply. Another disadvantage of working with an auto dealer for financing is that they are in cahoots with their own finance companies to make money. This means, not only might you be told you qualify for the lowest of a bunch of really high rates, but the dealer may throw in some additional hidden fees in your finance contract. It’s important to review everything you sign thoroughly to make sure this doesn’t happen.

Now that you know some of the advantages and disadvantages of dealer financing, you have to decide whether it’s for you. The best way is to explore all of the dealership financing options out there. Then you’ll know you’re getting the best deal for your car.