Loan Sources: The Dealer or a Direct Lender?
Two main sources for a vehicle loan are the car dealership’s finance office or a direct lender, such as your bank, an online lender or your local credit union.
If you obtain financing from a direct lender, the loan proceeds are used to pay the dealer for your car. Some advantages of using a direct lender are you won’t have to deal with the dealer’s finance office as part of your shopping trip, and you may find a good deal on a loan, especially from lenders with which you have current accounts, such as your credit union.
Dealership financing offices can give you one-stop shopping and loan offers you won’t find elsewhere. Once you complete a credit application, the finance manager can search sources for the right loan product. Car manufacturers have finance companies, and offer promotional loan products and rebates, such as low or zero percent financing or cash back on a deal.
Dealerships also sell your car loan to lenders and finance companies. You set the loan up with the dealer, and your loan contract is assigned or sold to that lending source. The finance manager shops your profile around to the lending sources, and will likely have several lending options for you to choose from.
With either loan source, your credit score, credit history and finances matter. Most of the loan underwriting process is automated, with sophisticated computer programs doing the work. Your credit data goes in, and the proposed loan terms are returned.
If your credit reports and scores aren’t correct, you may not see the best terms on the loan you’re offered. If you know there’s an issue, such as items related to identity theft on your credit report, or there’s an unusual situation with your income and finances, the lending officer can look at alternate ways to review your loan application.
The Law and Your Loan Contract
Be prepared for problems as you navigate the loan process, and know how to react. A number of federal laws, such as the Truth in Lending Act, and the Fair Credit Reporting Act protect consumer rights in financial transactions. These laws require protections such as consumer disclosures for your loan so you know the loan rate, payment amounts and the total amount you’ll pay in interest over the life of the loan and late payment fees. State laws often provide added consumer rights.
When you’ve decided on your loan, read through the loan contract. Look for all the key terms, such as the interest rate and payment information, and ask your loan officer questions if there’s something you don’t understand. Also ask when your first payment is due – you may be given a temporary coupon or bill before your loan coupon book or monthly loan statements arrive. Don’t start with a late payment. Your lender will likely keep your car’s title until the loan is paid in full.
Questions for Your Attorney
- My car loan was sold to another lender, and I think some of my payments weren’t properly credited to my account. How do I fix this problem?
- Does a dealership finance office have any duty to find the best loan for my needs? How do I know I’m getting the best deal possible?
- I have excellent credit, but didn’t qualify for a car maker’s special loan deal. Are low or no interest loan offers ever scams?