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People wonder whether it is better to purchase a car directly from the owner and financing through an auto loan from a traditional or subprime lender or getting a car from a dealership and obtaining financing through them. As usual both options have their pros and cons and it is advisable to know what the benefits of each one are in order to make a conscious decision.
Due to the nature of this article, we will not analyze thoroughly how auto loans work. However, you need to know that auto loans can be either secured with the car or unsecured (which means that no collateral backs up repayment) and that the terms of secured loans are usually significantly more advantageous than those of loans which are not secured with any asset.
Benefits Of Direct Purchases
When you purchase a car directly from the owner there are no intermediaries. This has important consequences. The main one is that the costs of the transaction will be considerably reduced. This is due to the fact that there is one participant less in the transaction which otherwise adds up not only costs but also his expected gains. Summing up, direct purchases are a lot cheaper than buying through a dealership.
Another important issue that you need to consider is that with direct purchases, you get to choose the vehicle you want to buy as opposed to what happens with dealerships that usually have agreements with certain car companies and thus offer only certain brands and models. And though the search may be more complicated and time consuming, you will ultimately be the one who decides which is your dreamed car.
Benefits of Dealerships
Purchasing a car through a dealership provides additional benefits that you need to consider and ponder along with the extra costs that dealerships imply. Buying through a dealership is definitely more secure, the chances of a dealership disappearing with your money are less than the chances of an individual ripping you off.
It is not that an individual is not legally responsible for all the obligations that rise from a sale or loan contract, but the dealership is also economically solvent and thus, you can be confident that if you have to take legal action to recover your money, the dealership is a more economically secure counterpart than an individual (Generally speaking. There are always exceptions.).
Dealerships, Direct Purchases and Auto Loans
Yet, dealerships are experts at selling cars, not at financing. That’s why the loans you can obtain through a dealership are quite limited. Moreover, the fact that the dealership is an intermediary increases the costs of the loans which in turn results in higher monthly payments for you. That’s one of the reasons why if at all possible it is best to obtain loans through a traditional lender or a financial institution.
Furthermore, dealerships do not offer subprime lending and thus, someone with bad credit will find it very hard to obtain financing for purchasing a vehicle. In addition, similar terms loans will be more expensive through a dealership. You will either be charged higher interest rates or additional fees.
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