Car Financing - How it Really Works Coralville IA
Car Financing - How it Really Works
One of the most misunderstood concepts about buying or leasing a new car is how car financing really works. Dealer financing, specifically, is misunderstood.
We'll say it again later, but the key concept to understand is that car dealers do not finance car loans and leases. However, dealers can most certainly affect how you finance and what you pay for financing.
Dealers always sell for cash
Car dealers are independent business people who have an authorized franchise with one or more car manufacturers. They do not work for the manufacturer; the manufacturer does not own the dealership.
Dealers buy cars from the manufacturer, usually with large "floor-plan" loans from a bank or finance company. The bank charges dealers interest on these loans. Dealers have to sell cars to pay off these loans with associated interest, as well as cover other expenses of running a business.
When a dealer sells or leases a car, he always receives cash, whether it's directly from the customer, or from a finance company or bank who has loaned a customer the money.
A common misconception is that dealers would rather get cash directly from a customer, bypassing the financing step. Some people mistakenly believe that dealers give cash customers a discount. This is not true. In fact, dealers typically get a commission or "finders fee" on car financing provided by banks or finance companies and therefore prefer that customers finance or lease...