A leasing or buying a new car with a loan of one of the most misunderstood concepts how financing really works. We'll say it again later, but the key concept to understand is that car dealers do not finance leases and loans. Repeat: New car dealers car finance is not. However, dealers can affect what you pay for financing.
Dealers always sell for cash
Car dealers are independent business people, who with one or more car manufacturers have an authorized franchise. They do not work for the manufacturer. If a producer-owned car dealership. In some cases, a large dealership dealership stores in many different places can do it yourself. These stores of the same brand vehicles, or can sell different brands. Dealers from a bank or finance company with large debts from the manufacturer usually cars, buy. Dealers bank charges interest on these loans. Cars for traders to sell off these loans and associated interest payments, as well as cover other expenses of running a business.
Dealers always get cash for their cars, whether it is directly from customers, or a finance company or bank has loaned money to a customer. A common assumption is that dealers give a discount to cash customers. Commission or increased interest rates - as is true because dealers generally financed loan or lease does not make more money.
Dealers do not finance leases and loans
When a dealer sells a car lease or for a client, the finance companies or banks that works with its clients to provide the financing they need. The dealers, GMAC, Ford Motor Credit, and American Honda Finance carmakers as "captive" finance company to use. As a service - Dealers on behalf of clients financing arrrange. Customers arrange their own financing if they choose.
Key point: Dealers do not finance leases and loans. Leases or loans to dealers, customers do not approve. Dealers leases or lease or loan payments on the loan process or not take. Dealers to take only the lease and loan applications for customers try to arrange financing.
Dealers' customers to use independent finance companies or banks
A trader a customer's credit history of the three major credit reporting agencies use a quick initial test can. Loan or lease for approval, but only to determine if the client is such a serious debt problem to continue with this transaction does not make sense.
Remember, business is not finance company - the customers can not accept loan or lease. Finance company or bank sends the merchant lease or loan application and check your own credit history and payment history will not only, but credit scores and debt to income ratio. Check the credit worthiness and more completely than simple check that the dealer may have.
Your credit score - you'll pay
When a finance company or bank Czech your credit score, you will be classified into three categories. First, you have a "prime" customers can be rated, or "A" category. This is your FICO score over 680. The best interest rate you qualify for.
If your credit score is between 620 and 680, you are "near prime" than someone with a better score as much as 5% will pay higher interest rates.
If your score is below 620, you "Deputy Chief" are considered almost certainly a bank or financial company who is willing to give you a loan or lease will be difficult to find. If you find one, your interest rate will be much more likely.
Dealers can change your interest rate
Possible "hidden fees when buying or leasing a car on a markup that dealers can add to your interest rate, even if you have a good credit score used by the dealer finance company to say .. the normal interest rate is 6.0%. merchant a percentage point above the rate, say 2.0%, your real rate is 8.0%. The markup in the document you sign is not mentioned anywhere. Car dealers claim to practice the cost of financing its brokerage customers cover is justified. In fact, this extra profit or just the client to make concessions in the deal is made somewhere else.
Automotive News reports that Daimler Chrysler Services, Honda, Finance and GMAC as the number of companies have settled on a 2.5% markup limitation agreement. California has a law now that the car loan ceiling is set for a 2.5% markup. So it seems that 2.5% is the magic number in the industry.
Automotive consumers a common question, "I can negotiate your interest rate?" In most cases you can try to negotiate the markup, but not the base rate, which finance company based on your FICO score is determined by. In the past, how to find a good rate for car dealerships marking but, now the recent "agreement" and with laws, was way, we can assume that the markup rate as much as 2.5% is going to be added to base rates. Lease rates are particularly difficult to negotiate the interest rate "money factor" (our monthly lease payment lease finance fees discussed in the article view), as expressed, and the rate does not appear in your lease contract is.
Note that not all dealers mark interest rates, but it is a growing practice. Also remember that your base rate how a finance company, your credit history and values will be determined by your credit score. That is why it is very important to understand how credit scoring works. A low or your credit history report score mistakes easily without markup can force a higher base rate. Therefore, your credit score and shopping around to find the best rates are always a good thing.
Check your credit dealers, but some cases
Many customers mistakenly assume that the traders say they have a credit check and allows the customer to sign the letter, the deal and everything is wrapped up legally. Not true. Customers often feel they somehow have a car that just because they signed the papers a few minor technical mistake or there in their contract that have not paid for can. It is a misconception.
You sign and what it means
When a customer buys a car lease or a loan, he or she signs papers that essentially say the following: The "I agree to lease or buy the car, the money loaned to me by a finance company or bank may be using (if I approve) the dealer will try to arrange for me and if those funds are not approved by a finance company or bank, the deal void until a dealer and finance The company that I approve the funds are approved.'ll can find, finance company or bank dealer directly to those funds that were loaned to me to pay with the finance company or bank to work with me directly the monthly payment arrangements. to repay the loan or lease. I would understand if the merchant has paid in full for his car and now will be included in the lease or loan. "
If your lease or loan is not approved
Finance company or bank problems in the customer's credit history / score or debt-to-income high-risk applications such as data, the flag makes them can find. They ask the dealer can inform the client that the application was not approved, or that require additional funding, or a co-signer in order to re-submit the application for approval is needed. Financial companies and banks to work through the dealer, and they pay directly to the customer after the approval comes with the book do not work.
Leases, with a finance company sometimes ask for a down payment to start when there was no will, or may ask for a larger security deposit, possibly started when there was none. Often, the same even if the payment transaction has increased the overall cost of living will allow.
If the finance company or bank customer's lease or loan is not approved, they do not pay for the car dealer, and still belongs to car dealers, even if it is already home to drive customer cars are allowed maybe a couple of weeks ago. If the dealer does not get paid, he must return your car, any contract can be signed regardless of the client.
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