Advice on new car purchase: Dealership vs. Bank

[Fromspace]

Would appreciate word on your experience / expertise on this matter.

I plan to buy a new car.

However, my good friend at a car dealership -- and my service advisor for my car at same dealership -- honestly believes that the financing is best done at a dealership.

Pushing aside for a moment the interest charged, do you have an opinion as to why he believes this? What's your experience? I don't believe there's any pecuniary interest for him if I decide to buy the car from his dealership. Or is it his unflinching loyalty to the brand?

 

[danmand]

Would appreciate word on your experience / expertise on this matter.

I plan to buy a new car.

However, my good friend at a car dealership -- and my service advisor for my car at same dealership -- honestly believes that the financing is best done at a dealership.

Pushing aside for a moment the interest charged, do you have an opinion as to why he believes this? What's your experience? I don't believe there's any pecuniary interest for him if I decide to buy the car from his dealership. Or is it his unflinching loyalty to the brand?

I am not quite sure how it works, but last time I bought a car, and wanted to pay cash, the salesman begged me to take the car companies financing, 0.99% and no fees whatsoever. I imagine that some foreign car companies have pools of money that do not wish to repatriate, for tax purposes.

 

[hi up in the sky]

WIth many cars the manufactureres interest rates are significantly lower than the banks. However sometimes there are rebates available that can be used rather than the special rate. Compare the regular finance rates with any rebates to the special interest rates offered by the manufacturers. Also recognize that if you have poor credit the best rates may not be available to you. I would say that going through the dealership is usually more convenient and often cheaper. THe banks do however offer rates that are fixed rather than floating. Given that rates are low I would suggest that a fixed rate is likely advantageous right now.

 

[IM469]

My SO got 7 year financing with no deposit and an option for extending the warranty to 7 years giving her piece of mind on her purchase. Her deal (like many) were end of the model year sales when dealers & car manufacturers are trying to clear the lots. 0% is a huge savings over what a bank can give you.

 

[TeasePlease]

It really depends on the brand and the circumstances. The SA could be correct, if for example, you're talking about BMW. BMW seems to have perpetual financing specials.

Without getting into the details of whether a particular OEM uses a captive finance company (e.g. GMAC or BMW Financial) or an outside bank (Honda using TD), the reason why dealership financing can be cheaper is because the OEM "buys" lower rates from the credit/financing company.

If the prevailing rate is 5%, GM might pay GMAC the equivalent of a 3% reduction so that the consumer only pays 2% to borrow. You will NOT get this directly from TD or Royal or whatever. Someone has to pay for it. The OEMs look at it as another form of cash incentive to move cars.

 

[danmand]

It really depends on the brand and the circumstances. The SA could be correct, if for example, you're talking about BMW. BMW seems to have perpetual financing specials.

Without getting into the details of whether a particular OEM uses a captive finance company (e.g. GMAC or BMW Financial) or an outside bank (Honda using TD), the reason why dealership financing can be cheaper is because the OEM "buys" lower rates from the credit/financing company.

If the prevailing rate is 5%, GM might pay GMAC the equivalent of a 3% reduction so that the consumer only pays 2% to borrow. You will NOT get this directly from TD or Royal or whatever. Someone has to pay for it. The OEMs look at it as another form of cash incentive to move cars.

Don't you think it has something to do with multinational car companies not wanting to repatriate profits. A company I was in, had a large pool of money in Europe, that was used this way.

 

[eldoguy]

Bank financing ties up personal credit! But, you can get better term and better interest from dealer incentives. Sign and drive, is now in Canada. Popular in the US. Leasing is only good, if you can take advantage of business write-offs.

 

[TeasePlease]

Don't you think it has something to do with multinational car companies not wanting to repatriate profits. A company I was in, had a large pool of money in Europe, that was used this way.

Possibly, but I would be shocked if Canadian manufacturing and wholesale profits weren't already extensively managed via transfer pricing. Given the crappy interest rates of the past ten years, lending money is a shitty business. You can earn far better returns in other activities.

Bank financing ties up personal credit!

A OEM finch loan would also affect your credit availability.

 

[danmand]

Possibly, but I would be shocked if Canadian manufacturing and wholesale profits weren't already extensively managed via transfer pricing. Given the crappy interest rates of the past ten years, lending money is a shitty business. You can earn far better returns in other activities.

I think it would only apply for overseas carmakers that have profits in North America. When somebody commits to building a plant, governments often give tax holidays for some years.

 

[Fromspace]

All good, in fact, excellent advice from different perspectives. Wow!

So thanks to you:
danmand
TeasePlease
Doobious
Eldoguy
IM469 and
Hi Up in the Sky

I'm much more confident--with eyes less closed--going into the dealership next week.