How does outside financing work for auto loans?

Submitted by turbocomppro t3_11dp7ma in personalfinance

What I’m specifically asking is, does the bank (a credit union in this case) give me a blank check to write to give to the dealer? Do I tell the dealer I’m buying with cash? Do the bank give you a pre-approve paper to take to the dealer? What then? How does the dealer get paid?

I googled but aren’t able to find this exact answer. Anyone had experience buying a car with outside financing? How did the procedure work?

Any advice would be greatly appreciated.

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buffinita t1_ja9z2b2 wrote

when you get pre-approved the lender will essentially send you a check for what ever you're approved for to initiate the loan.

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bassjam1 t1_ja9zn75 wrote

Im my experience it depends on the bank. PNC gives me a blank check good for up to the amount I asked and was pre-approved for. With my credit union it was more verbal "hey you're approved for this amount and if you find a vehicle have the dealership contact us".

But every time so far the dealership has been able to meet or beat the rate I found. They REALLY want the $50 or whatever it is kickback that they get from the banks and credit unions they use. Often it's the same ones I was working with.

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turbocomppro OP t1_jaa2kp5 wrote

I see. I’m so I’m basically buying the car with “cash” at the dealership, right? I contacted the dealer and they said their lowest rate now is 6.99%. But at the credit union, I can likely get ~3% (less than $20k loan for 36 months). I doubt the dealer can beat this.

But they’re a smaller bank with no brick and mortar locations. Not sure how fast they can get a check out to me…

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bassjam1 t1_jaa32gy wrote

You should call them and see how they operate. But yes, essentially you're buying with cash.

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turbocomppro OP t1_jac4oyz wrote

I did that this afternoon and they said it will take almost 2 weeks because they are so backed up…

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bassjam1 t1_jacb4e7 wrote

You need to get in contact with other banks and credit unions then. A dealership probably isn't going to hold a car for 2 weeks.

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danielfletcher t1_jaa8ln4 wrote

Once I have a purchase order, I go get an insurance binder from my insurance agent and then to my credit union who cuts me a cashier's check made out to the dealership in about 20 minutes which I take back to the dealer and hand to them.

Since yours doesn't have any locations, you have to talk to them and to the dealer. Maybe they can wire the funds, etc. But different places have different policies.

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turbocomppro OP t1_jabj80l wrote

Indeed, I will definitely give the dealer to match a credit union rate first… I’ll likely just buy the car first and refinance it later… just seems Easter and faster this way as I want to get the car soon…

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kthxtyler t1_jaalgxn wrote

  1. You research car prices, find the one you want, and figure out how much the car will end up costing you out the door. E.g., you figure you want to buy a Honda Accord for an out the door price of $26,500.00

  2. You apply for a loan for this amount, or even say, $30,000.00 to give yourself some wiggle room. You do not actually owe $30k, that’s just the limit you’re approved for, much like your credit card’s monthly credit limit. You can use that same $30k loan approval for an even cheaper car, remember you’re just in the approval process

  3. After being approved for a loan up to $30k, go to the dealer and tell them you have your own financing. Your lender/credit union/financier will provide you with documentation to show the dealer and will then be the entity that purchases the vehicle for the entire price. Keep in mind the financing terms (APR, length of loan, etc) are handled during the loan approval process which will calculate how much your monthly payment will be.

  4. You drive home in your new vehicle after all the paperwork is signed off between you and the dealer and from now on you will receive monthly bills from your lender to pay the car off on the agreed upon terms of your loan. At this point you should 100% be done with the dealer as the relationship between you and your lender is all that exists in terms of paying the car off. Your lender paid for the car in full at this point

Keep in mind many lenders allow you to pay off the car in full at any time without penalties, but do your research and speak with a loan officer to ensure this. Also, in my experience my auto lender literally takes over after I sign off on my purchase paperwork. They either wire the dealer the money or send them a check, bottom line I don’t handle anything beyond driving the car home and owing car payments to the lender

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turbocomppro OP t1_jaamnzq wrote

That’s assuming the dealer actually accepts outside loans? Would it be feasible to just refinance it a few months after purchase?

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kthxtyler t1_jaanc7b wrote

Correct. Although if the dealer doesn’t accept outside financing, you’d be best moving on and giving your business to a dealer that does (most do)

You can always refinance your loan. I did and over the course of my loan will save around $1400 because I received more favorable terms. Keep in mind you’d be running your credit again and that can impact your credit score

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turbocomppro OP t1_jabj0h3 wrote

Thank you. Yes, I do believe that’s what I’m planning to do is refinance once I have the car. Unless somehow the dealer can give me a really competitive rate…

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kthxtyler t1_jabkt3z wrote

If you go that route, be sure to read the terms of refinancing. In essence, a refinance means someone else (another lender) pays the car off to give you better terms. Unfortunately, the car being paid off sometimes comes with penalties from your original lender - fly by night dealers will do anything to take advantage of these kind of things to make $

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turbocomppro OP t1_jac4jey wrote

Will do. Thank you. Hopefully they’ll just give me a good rate to begin with so I won’t have to go through all that…

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theoriginalharbinger t1_jaa2sbb wrote

> googled

Don't google. Call (and I mean that, call). States and banks have different requirements for branding the title and authorizing the purchase, including presentation of a purchase order or submission of a VIN.

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