 Car
Loans - Vehicle Financing
Most car buyers need
car financing or leasing to
acquire a vehicle. In some cases, buyers use "direct lending:" they
obtain a loan directly from a finance company, bank or credit union.
In direct
lending, a buyer agrees to pay the amount financed, plus an
agreed-upon finance charge, over a period of time. Once a buyer
and a vehicle dealership enter
into a contract and the buyer agrees to a vehicle price, the buyer
uses the loan proceeds from the direct lender to pay the
dealership for the vehicle. Consumers also may arrange for a
vehicle loan over the Internet.
The most
common type of vehicle financing, however, is
dealership financing. In this
arrangement, a buyer and a dealership enter into a contract where
the buyer agrees to pay the amount financed, plus an agreed-upon
finance charge, over a period of time. The dealership may retain
the contract, but usually sells it to an assignee (such as a bank,
finance company or credit union), which services the account and
collects the payments.
About GMAC.COM - GMAC.CA CAR LOANS
For the vehicle buyer, dealership financing offers:
1. Convenience - Dealers offer buyers vehicles and financing in
one place.
2. Multiple financing relationships - The dealership's
relationships with a variety of banks and finance companies mean
they can offer buyers a range of financing options.
3. Special programs - From time to time,
dealerships may offer manufacturer-sponsored, low-rate programs to
buyers.
BEFORE YOU ARRIVE AT A
DEALERSHIP
Do some research:
-
Determine how much you
can afford to finance and spend on a monthly payments.
-
Get a copy of your
credit report so you are aware of what creditors will see.
Errors or accurate negative information can impact your ability
to get credit and/or your finance rate.
-
Identify your
transportation needs.
-
Check auto buying
guides, the Internet and other sources to find out the price
range and other information for the vehicle you want to buy.
-
Compare current finance
rates being offered by contacting various banks, credit unions
or other lenders. Compare bank quotes and dealer quotes; there
may be restrictions on the most attractive rates or terms from
any credit source.
WHAT HAPPENS WHEN YOU APPLY FOR FINANCING
Most dealerships have a Finance and Insurance (F&I) Department,
which provides one-stop shopping for financing. The F&I Department
manager will ask you to complete a credit application. Information
on this application may include: your name; Social Security
number; date of birth; current and previous addresses and length
of stay; current and previous employers and length of employment;
occupation; sources of income; total gross monthly income; and
financial information on existing credit accounts.
The dealership
will obtain a copy of your credit
report, which contains information about current
and past credit obligations, your payment record and data from
public records (for example, a bankruptcy filing obtained from
court documents). For each account, the credit report shows
your account number, the type and terms of the account, the
credit limit, the most recent balance and the most recent
payment. The comments section describes the current status of
your account, including the creditor's summary of past due
information and any legal steps that may have been taken to
collect.
Dealers typically sell your contract to an assignee, such as a
bank, finance company or credit union. The dealership submits
your credit application to one or more of these potential
assignees to determine their willingness to purchase your
contract from the dealer.
These finance companies or other potential assignees will
usually evaluate your credit application using automated
techniques such as credit scoring, where a variety of factors,
like your credit history, length of employment, income and
expenses may be weighted and scored.
Since the bank, finance company or credit union does not deal
directly with the prospective vehicle purchaser, it bases its
evaluation upon what appears on the individual's credit report
and score, the completed credit application, and the terms of
the sale, such as the amount of the down payment. Each finance
company or other potential assignee decides whether it is
willing to buy the contract, notifies the dealership of its
decision and, if applicable, offers the dealership a wholesale
rate at which the assignee will buy the contract, often called
the "buy rate."
Your dealer may be able to offer manufacturer incentives, such
as reduced finance rates or cash back on certain models. You
may see these specials advertised in your area. Make sure you
ask your dealer if the model you are interested in has any
special financing offers or rebates. Generally, these
discounted rates are not negotiable, may be limited by a
consumer's credit history, and are available only for certain
models, makes or model-year vehicles.
When there are no special financing offers available, you can
negotiate the annual percentage rate (APR) and the terms for
payment with the dealership, just as you negotiate the price
of the vehicle. The APR that you negotiate with the dealer is
usually higher than the wholesale rate described earlier. This
negotiation can occur before or after the dealership accepts
and processes your credit application.
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