Does It Make Sense to Opt For Car Finance From Dealerships?

Mar 06, 2017

We all want to simplify our lives. Isn't it? So let's say that if we want to purchase a car and the seller (a dealer in this case) in itself is able to give loan for the car, then we don't need to look for loans from various lenders. A two-step job of car purchase has been converted into one-step. It's far more convenient.

But this convenience is not the only thing that you should be looking for. More so in case of purchasing used cars.

When it comes to used cars, you first of all need to find an authorized dealer who is selling the exact car that you want. That in itself can be a time-consuming process if your choice is little exclusive. Then it is not necessary that the dealer might finance the used car that you want to purchase. In that case, you have no option but to approach other lenders.

But there is no doubt that if the dealer himself is ready to finance the car, then it is a super-easy process for you. It's very comfortable for you as financing the vehicle from the same place it is being bought can reduce paperwork, time and effort. But you need to be aware of the interest rates being charged.

Used car loans cost few percentage points more than new car loans. Now if the dealer financing adds another few points to these rates, the actual cost for you can come out to be very high. Example - A bank can easily give you new car loan for 11%. But the same bank will offer you used car loan at about 14%. If the dealer is ready to finance at rates lower than this, then it makes sense to go with dealer financing. But if the dealer is looking to charge you higher (let's say 16-17%), then it doesn't make sense to get the car financed from the dealer, in the name of convenience.

So if you are considering getting your used car financed from either a dealer or an actual lender, be very careful about the interest rates, loan tenure, etc. and don't focus unnecessarily on other cosmetic factors.