Auto Financing Requirements

Whether you buy a new or used vehicle, finance or lease it, you should always negotiate the terms that best fit your budget. Additionally, your ability to negotiate will depend on your credit history.

When you do the research and know the prices and rates being offered in your area, you will be able to negotiate wisely. Just as you negotiate the price of the vehicle, you must also agree upon the Annual Percentage Rate (APR) and the terms for payment. If you are not satisfied with the rate offered to you by the dealership, you could choose to use a credit union, bank or finance company to get a loan for your vehicle.

Most dealerships have a Finance and Insurance (F&I) Department that provides one-stop shopping for either financing or leasing.

While you are shopping for the vehicle of your choice, the F&I Manager will ask you to complete a credit application. A copy of your credit report may be obtained that contains information about current and past credit obligations, your payment record and data from public records.

If you meet the auto financing requirements, you will sign an installment sale contract with the dealership promising to pay for the vehicle over time. This contract details what you negotiated with the dealership, including:

• Amount financed
• Annual Percentage Rate
• Finance charge
• Other terms and conditions (such as down payment, monthly payment and the number of payments)

Dealers typically prefer to sell your contract to another creditor, such as a bank, finance company or credit union. That way they get paid for the vehicle right away, instead of having to wait for you to make all of your payments. When this happens, the dealership will submit your credit application to one or more of these potential creditors to determine whether you meet their auto finance requirements and if the creditor is willing to purchase your contract.

When your contract is sold, it is normal business practice for the dealer to retain some portion of the finance charge as income for the dealership. This income compensates the dealer for the time and resources needed to handle credit transactions.