Do you want to save money on a car loan? This one trick can save you some serious cash
Thus, you can save thousands of dollars when purchasing a car.
- There are two ways to get financing for a car: getting a loan from a dealer or getting external financing.
- Many dealerships make most of their money financing loans, selling insurance, guarantees, and other services.
- Dealers usually charge interest on the loans they arrange. This means that you will pay higher interest over the life of the loan.
Are you in the market new or? Used car? If so, you may be wondering how you can save the most money. You have researched the selected car, completed a test drive and compared prices in order to negotiate the best deal. While all of these steps are important, many buyers are overlooking this one trick that could save you some serious cash.
You should always walk into a dealer with outside financing for a car loan, rather than going through a dealer. This is why.
How do car dealers really make money?
Few people realize that dealers don’t get most of their profits from selling cars. In fact, according to research, dealers only earn around $ 65 on average on a used car and actually lose about $ 200 on a new car sold! So how do dealers make money? Their main source of profit is dealer financing, the sale of extended warranties, gap insurance, additional car extras and other services.
What is dealer financing?
Most people don’t have the cash to buy a new or used car, so they have to borrow money. Car dealers will offer you a loan to simplify the car buying process. You just need to choose the car you want, make an advance payment, fill out the paperwork and the car is yours!
What many people don’t realize, however, is that dealers usually charge interest on the loans they arrange. This means you’ll pay more interest over the life of the loan if you go through the dealer. Plus if you have Bad creditthe interest rate offered by the dealer is likely to be quite high.
A dealer can get 3.5% on a $ 40,000 car you want to buy. In five years, that’s $ 3,660 in interest. The dealer can then increase the bid to 5%, which is approximately $ 5,290. The dealer keeps the difference of $ 1,630 as a profit. This is money that you can keep for yourself by finding outside financing.
How to obtain external financing
If you decide to get outside financing, also known as a direct loan, for a car loan, there are a few things you need to do. First you have to find a lender. You can use your bank, credit union or search on the Internet best prices. The key is to compare the offers of many lenders at the same time and choose the one that is best for you.
Once you’ve found a lender, you’ll need to complete an application and provide documents such as proof of income and the car you want to buy. After your application is approved, the lender will send you or the dealer money that you can then use for pay for the car. Your rate will depend on yours Credit Score and other factors. Usually you will save more as there are no markup.
If you want to save money on a car loan, using external financing is a great option. This way, you can avoid the dealer’s margin and potentially get a lower interest rate – even if you have bad credit. To obtain external financing, all you need to do is find a lender and complete the application. You may have to spend more time finding the best financial institution compared to getting a dealer loan, but it could potentially save you thousands of dollars.
The Ascent’s best personal loans for 2022
Our team of independent experts has studied the fine print to find selected personal loans that offer competitive rates and low fees. Start by browsing The Ascent best personal loans for 2022.