Adobe Stock
For a simplified car-buying experience, many drivers turn to dealer-arranged financing. Rather than seeking out loans from financial institutions yourself, you can let your dealership run a check of your credit and find you an offer. However, this process may come with its own set of trade-offs.
If you want to minimize additional financing steps, dealer-arranged financing can be convenient. But it may be less ideal for customers who are worried about their privacy and the potential for unwanted “hard” inquiries.
Getting a new car is an exciting experience. But before you drive off the lot, you’ll likely need to secure financing. Many buyers opt for dealer-arranged financing since it seems quick and convenient. However, letting the dealer run your credit comes with risks. In this article, we’ll explore the pros and cons so you can decide if it’s right for you.
The Potential Benefits of Dealer-Arranged Financing
The main appeal of dealer financing is simplicity. Instead of shopping around for a car loan yourself the dealer takes care of everything.
Some potential benefits include
-
One-stop shop: The dealer handles the application and loan approval process for you.
-
Potentially faster No need to fill out multiple applications or negotiate with lenders yourself
-
May offer incentives: Dealers may offer special financing rates or cash incentives when you finance through them.
The Potential Downsides to Watch Out For
However, this convenience comes at a cost. Here are some of the key downsides to be aware of:
-
Credit inquiries: The dealer may submit your application to multiple lenders, resulting in several hard inquiries on your credit report. Too many inquiries can negatively impact your credit score.
-
Privacy concerns: You have to share personal financial details with the dealer and their lenders. They may pull your credit report without your consent.
-
Less control: Dealers work with a limited network of lenders. You may miss better rates and terms available elsewhere.
-
Higher rates: Dealer-arranged financing often comes with higher interest rates than loans from banks and credit unions.
-
Loan packing: Shady dealers may tack on unwanted extras like extended warranties that inflate the loan amount.
Tips for Protecting Your Credit When Using Dealer Financing
If you do opt for dealer-arranged financing, here are some tips to minimize the risks:
-
Ask the dealer how your application will be handled and how many lenders they will check with. Request they submit to fewer lenders.
-
Negotiate the interest rate and avoid any unnecessary add-ons. Don’t take the first offer.
-
If your credit is good, consider getting pre-approved with your own lender first so you can compare rates.
-
Monitor your credit report and dispute any unauthorized hard inquiries.
-
Consider having a co-signer with better credit if you don’t qualify for the best rates on your own.
The Bottom Line: Look Before You Leap
Dealer-arranged financing provides a simpler way to get approved for a car loan, but it requires relinquishing control over your financial information. Before signing on the dotted line, weigh the convenience factor against the risks to your credit and privacy. With some precautions, you may be able to enjoy the ease of dealer financing without regret. But sticking with your own lender is the safest option.
How Car Dealers Check Your Credit
Car dealerships tend to have their own individual systems to complete, file, and organize credit applications. These include a variety of dealer-specific tools, such as RouteOne and Dealertrack.
These tools help dealerships process and send your credit report to lenders, and they might store your financial information â even after your application is approved. For example, RouteOne holds onto this data for up to 60 days so dealers can go back and review as necessary.
What Happens When a Car Dealership Runs Your Credit?
If you decide to let the car dealership handle your financing, then you are allowing them to run a hard credit check that they then send to their lender, or lenders, of choice. While letting dealerships handle the financial aspect of your purchase may be convenient, it also means a lack of control over which lenders are available to you and who has access to your financial information.
Unless a dealership provides their own in-house financing, its likely they will pass along your financing contract to the bank, credit union, or third-party lender of their choice. Although dealerships may have a preferred lender, some dealerships choose to “shotgun” your credit information to multiple lenders, which is a tactic dealers use to make lenders compete to give you the best rate.
Many dealers contact around five lenders and then choose a single loan offer to present to you. If this is a privacy concern for you, be sure to check with your dealership to understand their process before submitting an application.
Car Dealer RUINED My Credit!! – How many times can my credit be pulled when buying a car?
FAQ
Should you let car dealerships run your credit?
If you are going to finance your new car with a loan, the dealer will have to run a credit check eventually, but don’t agree to this before you are well on your way to completing a deal. A full-on credit check, also known as a “hard pull,” can negatively affect your credit rating.
Is it illegal for dealerships to run your credit?
Under the Fair Credit Reporting Act, lenders are allowed to request soft credit inquiries, such as those used for pre-approval letters or other pre-screened …Jan 5, 2024
What not to do at a car dealership?
Is it normal for a car dealership to run your credit multiple times?
If you did give permission, though, there’s not a lot you can do about multiple inquiries. Dealerships can, and will, check with multiple lenders to see what rates and terms they’ll offer you. If your credit isn’t great, multiple inquiries may be necessary to find you a loan.
Should I run my credit at a car dealership?
The main benefit is that you don’t have to go anywhere, and the dealer can help you apply to multiple places at once. Here is some important information you need to know about running your credit at a car dealership.
Can a dealership run my credit without my permission?
A dealership’s finance and insurance manager (or other dealership personnel) cannot run your credit report without your permission and must ask for your signature or verbal permission. Can a car dealer run my credit? Only give the car salesperson permission to run your credit if you decide to finance at that dealership.
Can a dealership run a credit report?
“When you apply for financing, the dealer will run your credit report. This is known as a hard inquiry. When you get a hard inquiry on your credit, it can lower your credit score by around 10 points, but rarely more than that. Should you let dealerships run your credit? A dealership needs your permission to run a credit score and report.
Can a car dealership run your credit multiple times?
“ It’s highly unlikely that a car dealership would run your credit multiple times. However, if they work with other lenders, these lenders may all pull your credit report. The good news is that if you have multiple hard inquiries within a 14-day period, it should count as just one hard inquiry.
Does a car dealership need a credit score?
A dealership needs your permission to run a credit score and report. They may ask you for it as part of the sales process, so they can find out what kinds of financing you are eligible for and therefore how much you can afford to pay for a car. Does running your credit for a car loan hurt your credit?
Do car dealerships ask for credit information?
After you provide this information, the dealership typically requests a hard inquiry into your credit report. If you want to avoid providing this information to a dealer, consider securing financing from your preferred lender beforehand. Can Car Dealerships Run Your Credit Without Permission?