Do Car Dealers Prefer You Finance?

Woman at car dealership with salesman

Some car dealers who issue auto loans in-house do prefer you finance with them, because financing is part of how they make money. But do car dealers hate cash buyers? Or those who come in with an auto loan pre-approval? Absolutely not! At the end of the day, an auto dealer exists to sell cars.

Still, we know you might have heard horror stories about things like a car dealership not accepting outside financing once you find the car of your dreams. We’re answering all your concerns about car loans and financing so you can arrive at the dealership with confidence and get a great deal. 

Why Do Dealers Want You to Finance With Them?

Car dealers help clients get financing indirectly through relationships with lenders. The car dealer isn’t issuing the financing or giving you the loan. Instead, they call on their partners and may even be able to get a few loan options for you. 

But the lenders in question are not competing to give you the best auto loan rate possible—they are competing to win the business of the car dealer. That means they are thinking about the best interest of the dealership when making the loan offer, not you as the buyer. What’s more, the dealer is not going to give you the exact rate being offered by the financial institution. The dealership is going to add on something called the “finance reserve.” This means the dealer adds anywhere from 1-3% to the interest rate the lender offers before they show you the contract. The dealership then keeps the difference, either as a flat fee from the bank or throughout the life of your loan! This is an easy way to make money for the dealer, and of course, the reason they want you to finance through them. 

Can a Dealership Force You to Finance With Them?

A car dealership, like any other business, can take whatever kinds of payment they choose. It is pretty rare for an auto dealer to not accept outside financing, but it is possible, and technically legal. However, on the flip side, you also have the ability to keep looking and take your business to a dealer where you have more options. IMCU’s Auto Advisor program can offer you a list of dealers that will offer you a set price on the car and hassle free financing.

What Are a Car Buyer’s Rights as a Consumer?

Indiana Members Credit Union also wants to share a great resource for readers in our home state—the Indiana Auto-Buyer’s Bill of Rights. This document clearly spells out all the rights you have as a customer when buying a car in Indiana. Here are some of your rights whether you are buying new or used.

  • The right to negotiate all the deal’s terms, like the price of the car, your trade-in value, and the financing terms. 
  • The right to negotiate the document preparation fee, which is not state-mandated.
  • The right to truthful advertising for a dealership, including honoring all promotions and advertised deals.
  • The right to decline add-on items like additional insurance and/or warranties.
  • The right to receive a Truth in Lending statement detailing the amount of money being financed, the interest rate, the total finance charge you’ll be paying, and details of the repayment plan.

These are just some of the consumer rights which are protected under Indiana law. New versus used car buyers have some different protections based on what is unique about those transactions.

Even if you are not with us in the Hoosier State, most states have similar consumer protection laws, especially on the lending and financing side.

Is It Better to Get Financing Before You Go To a Car Dealership?

Yes, it is better for you as a customer to get pre-approved for financing before you go to the car dealership. When you are pre-approved for financing, you will know the interest rate you were offered, and the maximum amount you can spend. Auto loan pre-approval also puts you in a stronger bargaining position. 

Often, a car salesperson will ask you what your ideal monthly payment is early in your visit to the dealership. If you respond with a number, they will try to meet that number, even if you could get a better deal and have a lower payment. Maybe they will sell you a more expensive car, or just add more to the finance reserve we mentioned earlier. 

Pro Tip: When you are pre-approved for an auto loan, you can let the car salesperson know that you are a cash buyer and only want to focus on the price of the car, not the most you can afford to pay. 

This leads to our last bit of car buying advice—don’t share too much information. If the dealership asks what interest rate you are pre-qualified for, ask them in response what the lowest interest rate they can get you is. This way, if they can get you a better rate you still have the option without revealing your current rate. Always check in with your IMCU loan officer before agreeing to finance at the dealership.
If you finance an auto loan with IMCU, your loan pre-approval rate will be hard to beat! Since 1956 we have prided ourselves on being a community-based, not-for-profit financial institution with our members at the center of all we do. 

Choose IMCU to Arrive at a Car Dealership With Your Own Finance Strategy and Confidence

The terms and conditions of every auto loan will be different. Your credit score, borrowing history, and personal finances all play a role in the amount you can borrow and the interest rate you will have to pay back. But regardless of if your auto loan is $3,000 or $30,000, you deserve a respectful and supportive experience. Car buying is stressful! While IMCU can’t make the test drives or decisions easier, we can help with the financial side so you’re free to focus on the rest. You can even use our Auto Advisor feature to shop for cars that will be covered by your pre-approved auto financing. 

It’s IMCU’s mission to make all aspects of finance easier for our members, including auto buying. Visit our  online Auto Loan Center to view the current auto loan interest rates, learn more tips and strategies for the buying process, and even get pre-approved! And don’t hesitate to reach out directly if you have any questions or concerns. We want to help you get the best deal possible and put your good hard-earned money toward the good things in your life.