Can a dealership refuse outside financing? – NerdWallet

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The car dealership has the right to decline your external financing, and they do not require any specific reason to do so.

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Although legal, this practice can be frustrating for buyers who do not want to be forced into dealer-arranged financing, especially if they have already been promoted to auto loans with better rates.

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Why dealers refuse outside financing

Some dealerships will reduce external financing altogether — a practice inspired by the shortage-driven car market, with dealers trying to squeeze higher profit margins out of their dwindling inventories.

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Other times, if you have lowered the price, they will turn down external financing. To make back that lost money, they will insist that you use dealer-arranged financing.

What to do when a dealer refuses outside financing

Using dealer-arranged financing is not a bad thing, and many people finance their vehicles through dealerships.

However, the only way to be sure that you are getting a good deal is to compare rates for auto loans and get pre-approved for one before heading to the dealership. If the dealer can beat your pre-approval offer, you are in a good position to continue negotiating.

Ultimately, if the dealer’s terms don’t matter to you and they refuse to budge, walk away. Buying a car is a big purchase, and you don’t want to get caught up in a bad deal.

You can also shop at other dealerships to see what they are offering. You can get one that has the same vehicle without the financing restrictions.

Consider Refinancing to Avoid Dealer-Arranged Financing

Given the paucity of cars, it can be difficult to find the car of your dreams on the lot. So what if you found it at a dealership that denies outside financing but offers terrible terms?

Some buyers have reported using a loophole: accepting financing arranged by the dealer, then refinancing their auto loan elsewhere at a lower rate.

If the loan is paid off within 90 days, dealers lose their commission for financing. Whether you choose to refinance over that period depends on how you feel about the sales experience and how quickly you can arrange the refinance loan.

Before going this route, confirm with your potential lender that the rate for which you were pre-approved will still apply to the refinance. You will also want to carefully read the loan agreement arranged by your dealer and understand any penalties, such as early termination fees.

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