Should I Take Auto Financing
from the Dealer?

Before you assume you’re getting a great deal on the next car you buy or lease, consider what you’re paying to finance it.

A recent study from the Consumer Federation of America warns that new and used car buyers pay as much as $1 billion a year in hidden auto finance charges when they arrange the loans or leases through automobile dealerships. The report adds that minority car buyers are especially likely to be victimized by the industry wide practice.

Questionable dealers and dubious finance companies subjectively increase finance charges for some buyers, the report charges. Although the buyers are told the higher costs are a reflection of their poor credit, the extra fees are nothing more than ways for dealers to increase profits.

Most of the undisclosed finance charges are kicked back to the dealer by the lender, according to the report.

The scheme affects about one in four car buyers who finance their vehicles through a dealership.

The solution is to shop for your car or truck, and then shop for a way to finance it.

While it’s worthwhile to consider special offers from the manufacturer or the dealership, never assume the dealer knows best, or that every dealer deals alike. Just recently, I compared financing options at six dealerships in New York, New Jersey and Connecticut. All of the dealers were offering the same rate of interest, but fees and administrative charges on the deal ranged from as low as $340 to more than $1,000.

The differences in the cost of financing often offset alleged discounts offered on the price of the car.

You have to comparison-shop not only from dealer to dealer, but also by finding out the cost of financing directly through your own bank or credit union.

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