It can sometimes be a good idea to tell the dealership you have your own financing lined up because it could mean a better deal for you. However, the timing of when you tell the dealer is key.
Pre-Approvals and Auto Loans
Getting your own financing before you walk into a dealership means securing auto financing somewhere else. Usually, this means heading to a direct lender such as a bank, credit union, or online lending service. If you qualify for a car loan, you get a pre-approval that determines the maximum amount you can finance. With a pre-approval, you can go to the dealer and shop like a cash buyer.
If you don’t tell the dealership immediately that you have auto financing, more than likely, they inform you of all the lenders they’re signed up with through their finance and insurance (F&I) department. Most dealers are signed up with third-party lenders that you can apply for at their location, and these lenders sometimes assist bad credit borrowers.
Your pre-approval can become a bargaining chip to get better rates. Say you were pre-approved for a 5% interest rate with your bank. The dealership may tell you that they have lenders financing for 4%, and suggest you drop your pre-approval and finance with them, instead.
Most finance experts suggest holding back the fact that you have a pre-approval until you’ve settled on the price of the vehicle. Once you have the selling price settled, you can discuss financing options later. It’s possible that telling the dealer you have car financing right at the start could harm your chances to negotiate on the selling price of the vehicle you’re looking at. Dealerships typically make more profit when you finance with them, and your pre-approval could represent less money for them.
With that in mind, we suggest negotiating for your next auto loan in this order:
- Choose a car
- Settle on the vehicle’s price with the dealer
- Let them know if you have a down payment and/or trade-in
- Discuss financing options and tell them you have your own financing
- Possible negotiations of rates and loan terms
- Choose your financing, finalize your contract
- Take delivery of the car
Can’t Get a Car Loan Pre-Approval?
Some borrowers can’t quite get their hands on a pre-approval, especially if they're dealing with bad credit. Direct auto loans can be difficult to qualify for if your credit history has seen better days. You’re more likely to get approved for a car loan in this situation if you apply with a dealership that’s signed up with bad credit lenders.
Special finance dealers are generally signed up with one or more subprime lenders that specialize in assisting borrowers in unique credit situations, such as bad credit, no credit, and bankruptcy.
Qualifying for a subprime auto loan means having stability. Since these lenders don’t just look at your credit score, you need to prove you have enough income, provide a down payment, and show them your living situation is stable. The longer you’ve lived in the same area, held the same job, and have had a steady income, the better your chances of qualifying for a subprime car loan typically are.
Where Do I Find Special Finance Dealerships?
Special finance dealerships don’t always stick out amongst the crowd, but we can help. Here at Auto Credit Express, we’ve created a better way to find the right dealer for your credit situation. Over the last 20 years, we’ve gathered a nationwide network of dealerships that assist bad credit buyers. Get connected to one in your local area by filling out our free auto loan request form.