Want to save money on a car loan? This one trick can save you a ton of cash
Doing this can save you thousands of dollars on your car purchase.
- There are two ways to finance your car: a dealer loan or debt financing.
- Many dealers make most of their money from financing your loan, selling your insurance, warranties, and other services.
- Dealers usually increase the interest rate on loans they arrange. This means you pay more interest over the life of the loan.
Are you looking for a new or used cars? Then you might be wondering how you can save the most money. You’ve researched the car you want, taken it for a test drive and compared prices to negotiate the best deal. While all of these are important steps, many shoppers overlook this one trick that can help you save some serious cash.
You should always go to a leveraged dealership for your car loan, rather than going through the dealership. Here’s why.
How car dealerships really make money
Not many people realize that dealerships don’t make the majority of their profits from selling cars. In fact, according to research, dealers only make an average of about $65 per used car and actually lose about $200 per new car sold! So how do traders make money? Their main sources of profit are dealer financing, sales of extended warranties, gap insurance, additional car add-ons and other services.
What is dealer financing?
Most people don’t have the money to buy a new or used car, so they have to borrow money. Car dealerships offer you a loan to simplify the process of buying a car. All you have to do is choose the car you want, pay the deposit, do the paperwork and the car is yours!
However, many people don’t realize that dealers usually increase the interest rate on loans they arrange. This means you pay more interest over the life of the loan as you go through the dealership. In addition, if bad creditthe interest rate that the dealership is offering you is probably quite high.
A dealer can get 3.5% for a $40,000 car you want to buy. Over five years, this equates to $3,660 in interest. The trader can then mark the rate up to 5%, which is roughly $5,290. The dealer keeps the difference of $1,630 as his winnings. This is money you could potentially keep for yourself by finding leverage.
How to apply for debt financing
If you choose debt financing, also known as a direct loan, for your car loan, there are a few things to consider. First you must find a lender. You can use your bank, a credit union, or search online best prices. The key is to compare offers from multiple lenders at once and choose the best one for you.
Once you’ve found a lender, you’ll need to fill out an application and provide documentation such as proof of income and the car you want to buy. Once your application is approved, the lender sends the money to either you or the merchant, which you can then use pay for your car. Your rate depends on yours credit-worthiness and other factors. You usually save more because there is no markup.
If you want to save money on a car loan, debt financing is a good option. That way you can avoid the dealer markup and potentially get a lower interest rate – even if you do You have bad credit. To pursue debt financing, simply find a lender and fill out an application. You may have to spend more time finding the best financial institution for you than getting a merchant loan, but this could potentially save you thousands of dollars.
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