[dragontamer]

> You do not want to use financing products that dealerships offer - they are worse than the ones you can shop around for. Get preapproved with your bank or and other bank and get the preapproval letter ready before step 5.

That seems unlikely to me, though this depends on which car company you're buying from.

Take Ford for instance. A significant amount of Ford's business is banking/financing. Much like how the Dealership wants to sell you a car, Ford actively wants to be your financier and they're competing against the banks to get your business.

Furthermore: Ford is known to sweeten the deal and offer financing-credits rather than straight $$$ off of a car. For example, you might find that Ford can offer 5% right now, when typical banks are going to be offering 8%. This is effectively Ford choosing a "shadow-discount" in the form of financing-incentive. They're willing to lose money on the finance but gain a customer. Its a hidden negotiating tactic on top of all the other offers they're doing to you. You might as well give the sales-guy the opportunity to offer you a financing deal.

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But Toyota doesn't have as big of a financing arm, and its more of an (expensive) service to the customer. You'll probably lose money on Toyota financing compared to a regular bank.

I think its a good idea to be pre-approved. This means that you know what the "fair" % interest rate should be right now, and get a good idea of what "shadow deals" various car manufacturers are doing.

I know I've seen 1.9% APY deals in the market today. Financing is seriously just another step in this annoying negotiation process you have to normalize and account for.

[whakim]

Many car dealers work directly with banks to provide financing for customers. In these cases, the car dealers take a cut, so a customer who walks into the same bank might be pre-approved for a lower interest rate. (This doesn't always apply to big institutions like Chase and Ally that have huge, separate direct and indirect auto lending arms that never talk to each other.) But this profit is totally arbitrary - dealers can choose to make no profit (or even lose money) on financing if it helps them to make a sale. Most people don't realize this because you can't walk into your local credit union and negotiate the terms of an auto loan. That being said, even at $0 profit it's hard for dealer financing to beat a direct auto loan, because you (the customer) get your pick of the world's financial institutions, whereas the dealer is restricted to the lenders they happen to partner with.

Relatedly, it is significantly more convenient to accept dealer financing because you don't have to act as a middleman between the car dealer and your bank.

The point is that dealer financing is usually a rip-off (because it's fundamentally another axis along which dealers try to extract money from you), but it can still occasionally be a good deal.

[dragontamer]

> That being said, even at $0 profit it's hard for dealer financing to beat a direct auto loan, because you (the customer) get your pick of the world's financial institutions, whereas the dealer is restricted to the lenders they happen to partner with.

You're underestimating the power that the car-based financial institutions have.

For example:

> (This doesn't always apply to big institutions like Chase and Ally that have huge, separate direct and indirect auto lending arms that never talk to each other.)

Speaking of Ally bank... have you ever looked at their name before 2008?

GMAC: That's General Motors Acceptance Corporation. You're literally talking about GM's piggybank for financing deals.

Ally bank has changed a lot over the last century. But they still have tight connections with GM.

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It depends, it very, very strongly depends on the dealership, the auto-firm (ex: GM can get a very good deal with Ally bank... and Ford can get a very good deal from *Ford Motor Credit Company*, the in-house bank).

Toyota... not so much. Ford / GM? Yes. It depends.

[whakim]

I used to work at a big car dealership making indirect auto loans, so I don't think I am underestimating the power of in-house financing. And I definitely know Ally's history! ;)

[devbent]

,> The point is that dealer financing is usually a rip-off (because it's fundamentally another axis along which dealers try to extract money from you), but it can still occasionally be a good deal.

Last time I bought a car the dealership was offering a loan backed by my credit union with identical terms and rates.

Made my getting pre approval from my credit union a waste of time.

[KennyBlanken]

Yup. Car companies (well, sometimes their importers) subsidize financing for dealers through financing subsidiaries.

The caveat is that you usually have to have very good credit to get the top tier rates, which might be why the github user wasn't aware of this.

If the loan is below inflation, the loan is actually making you money...as long as inflation stays higher than the loan rate for the length of the loan, that is.

[eru]

> If the loan is below inflation, the loan is actually making you money...

Inflation is at most indirectly relevant here. What's important is the opportunity cost, ie what else you could do with your money.

Of course, you'd hope that there are other investments that can at least beat out inflation. But there might be much, much better investments available. (Or on the contrary, sometimes eg government bonds yield less than inflation. Yet, some people still buy them. Though much of that demand probably comes regulation all but forcing certain parties to invest in government bonds.)

[crooked-v]

For example, Subaru has 1.9% APY on Outbacks right now, and Ford has 0% on Mach-Es. Whether the car itself is a good deal will vary, but if you already have plans to get a specific model or would come out ahead of your other preferences after counting the interest savings, it would be silly not to take the deal.