What happens during the application for financing of a vehicle? Most dealers have their own financing department in-house, but of course, if you don’t have clean credit, you may end up paying a higher than normal interest rate. This is one of the ways that auto finance companies or dealerships make their money.
Choosing the Vehicle
When you go into to purchase a vehicle, of course, the first step is to walk around the lot looking for the vehicle that you like. With pen in hand, the salesman will accompany you to help with choosing the right vehicle, one that you can afford. Once you choose your desired vehicle, it is time to fill out the credit application.
The Credit Application
You will need to fill out the credit application, putting in your:
- Social security number
- Address (current and previous)
- Phone number
- Employer (current and previous)
- Source of income
- Gross monthly income
- Debt obligations
You will have your credit pulled and a copy of your credit report reviewed by the dealership. It is important to pull your own credit before approaching a dealership so that if there are any negatives or mistakes, you can fix them, thereby improving your credit. The salesman at the dealership will do the reviewing. Special attention will be paid to your credit score because this is essentially what the dealer uses to determine and establish the interest rate.
The Credit System
Most auto dealerships will send your credit application to one or more banks, credit unions or finance companies to see which is willing to purchase your sales contract from them. Your application is assessed based on their automatic credit scoring system. What do they consider? Well, most assignees will consider your credit history, expenses and employment history.
The financial institution that accepts your contract will not speak directly to you when you get financing through an auto dealer. The evaluation is based on your credit score and credit report, the credit application and the contract terms, which includes the down payment amount. The salesperson will let you know which bank, if any accepts your contract. A decision will usually be reached within minutes of completing the credit application. The bank will offer a wholesale or buy rate to the dealer and when accepted by you, the process will move forward to the next stage.
The salesperson might offer you incentives from the manufacturer such as cash back for specific car models or decrease in finance rates. Be sure that you ask the salesperson if your model comes with special financing perks. However, if you were to get a special finance rate on your model car, it would be non-negotiable and could possibly be limited by your credit history. When there are no available offers for special financing, you can try to negotiate the dealer’s APR and also the terms of your monthly payment. However, bear in mind that the APR negotiation will be higher than what you would get for the wholesale rate. When you are not sure, ask questions, but do your research beforehand.