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Can someone explain the difference in these...like if i got a loan from a bank, or say car.com or something like that, is that different than doing dealer financing? I guess, am i paying back the bank or the car dealer...the reason i ask is becuase i was i was looking at these internet referrals that send you to car dealers...given my credit situation, this is a good option for me. So I guess i'm just wondering about the differences between these two. Also if i get a bank loan and buy a car with that, does that mean i tell the insurance company i own the car or am financing? Any advice is helpful...




Most car dealers don't actually give out loans with their own money (with the exception of some buy-here, pay-here lots - but you should stay away from those....). So to answer your question, "Dealer Financing" and "Car Loan" basically turn into the same thing -- a loan for which the car is used as security. The key difference is whether you deal directly with a lender, or if you deal indirectly through the car dealer, to obtain such a loan.

Here's some more detailed descriptions of the two basic ways to get a car loan:

1) You walk into a dealership, pick out a car you like, and the salesman asks if you need financing? If you say yes, then they bring you to the F&I (Finance & Insurance) Office. [Also if you fill out a credit application through a dealer's/referrer's website, it gets submitted to the F&I office]. The job of the F&I is to arrange financing for you. The have many contacts and arrangements with various banks, lenders, credit unions, etc. Essentially they will A) look at your credit app and credit report to see what type of lender might finance you; then B) they will send your application to one or several lenders for approval. (The F&I basically does the "shopping around" for you). C) When they find a lender that will approve your application, then they draw up the contract/paperwork; you sign it, they give you the car. D) After you leave, F&I sends your contract to the lender, the lender writes a check to the dealer to pay for your car, and then you have to make monthly payments to that lender. This is "Dealer Financing", or more aptly labeled "Sales Finance" or "Indirect Lending."

2) You are not obligated to obtain financing through the dealer's F&I office; you can "shop around" on your own to find the best lender with the lowest rate/terms. Suppose you go to your local bank and they approve you - if you then take out a loan, they would generally give you a check made out to the dealership, and you'd simply go into the the dealership with that check and treat it as a cash sale. In this case, you deal directly with the lender to obtain the loan.

Lastly, re your insurance question, anytime you take out a loan for a car, the bank/lender is going to require proof of insurance. (Unless the bank gave you an unsecured loan, but usually you put up the car as collateral). In that case, you have to put them on your insurance policy as a lienholder until the loan is paid off.

Sub: #1 posted on Thu, 12/17/2009 - 23:12

DebtCruncher DebtCruncher
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