Car dealerships have a tagged system when it comes to setting the interest rates on car financing. Theyll find out your credit score and according to it, theyll provide a preset interest rate and loan length. This wont of course be to your advantage, so you should probably avoid using car dealerships finance if your credit is not good enough.

Alternative Financing

You need to understand that regardless what the car vendor may say to you, you dont have to get finance from the dealership and that if you do, youll be paying a lot more than if you go searching for finance with other lenders. Even a bank will get you a better deal than car dealerships, let alone other non traditional lenders specialized in bad credit auto loans.

What you need to find out

The car dealer will make a lot of claims as regards to how convenient it is for you to finance the car with them. Should you want to consider their offer, there are some things you need to take into account in order to decide whether what they have to offer is a good deal or not.

In order to know how much money they are charging for financing the purchase (including interests, principal, fees and costs), you should compare the total financed price of the vehicle with the amount of money you would have to pay if you were going to pay in cash. The difference between these two amounts will give you a general idea of how expensive the financing process will be.

With this information you can head to a car loan lender and ask for loan quotes for the amount you would need if you were to pay in cash. If the overall cost of the auto loan is significantly lower than the dealership financed price (as it will probably be) youll understand why financing with car dealers is a terrible choice.

Other details you need to watch closely

When considering financing with a car dealer or an auto loan lender you need to pay attention to the following details:

A) The APR or annual percentage rate which determines the amount of interests youll pay every year by multiplying the percentage rate by the loan principal.

B) Granting fees which are the amount of money youll have to pay for lenders costs that are not covered by the APR. It is also referred as Administrative fees.

C) The Loan length that will determine along with the APR the amount and number of your monthly payments.

D) Whether a down payment is required or not. In case it is required, this should greatly reduce the APR.

As a final note, it is always recommended to watch the small print closely for any hidden fees or costs as these can increase the overall cost of the loan and of the monthly installments.