Much has been said and written about the "horrors" of in house dealer financing of automobile loans. Actually determining the best way to go about financing your next car is a bit more involved. In some circumstances, in house financing auto loans are a very good deal, primarily for those with good, very good or excellent credit. Both the auto dealers and the new car manufacturers know that the limited amount of good and excellent credit available for auto loan financing is very limited and they want as much of it as they can get. So for those with very good credit, they bend over backwards to make sure their auto loan financing is as competitive as possible.
As one moves down the credit spectrum into good to poor to bad, the story begins to change. The average auto finance company expects most of its business to be poor credit but good enough to pay the loan and not require the car be reprocessed. For an auto finance company this is a great business model. It allows them to charge high interest rates with only a reasonable amount of risk. At high rates they do not even have to finance a lot of cars to have a very viable business. It is in this "gray area" that many of today’s auto buyers find themselves.
For those credit challenged with bad credit, normally the last option and lowest place on the totem pole is "buy here pay here". In this circumstance the seller actually counts on having to reprocess the car. They realize the credit starved buyer has little or no options so they start by inflating the price of the car. For example a car that may sell on the used car lot of a franchised dealer for $10,000 will easily be $15,000 at a buy here pay here. Often they also require the buyer to put money down and, at the same time, charge the highest interest rates that are legal. Caught up in this set of variables, the buy here pay here dealer does not expect the buyer to pay on the car for too long. They reprocess the car and just sell it again in the same scenario.
If you are one of the millions of Americans who have to look at auto loans for bad credit, the place to start is not even at the auto finance company and certainly not at the buy here pay here dealer. By far the best place to start is the internet. In the privacy of your home you can compare the rates and offers of multiple outlets without ever leaving home. You will be able to determine what your credit will be able to finance and can often get your financing approved over the phone. This way, you are in control and understand what you are getting into.
You have the time and circumstances to think through what is being offered and are not caught up in a high pressure environment that is not in your best interest. So when you think of auto loan financing, think of the internet and forget about going to the auto finance company and the unsavory buy here pay here car dealer.
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