There is a fine line between a car dealership and the financing company. Many consumers think that the dealership is also responsible for financing the car but that’s not how it works. The dealership is only responsible for the sale of the car.
The car dealer is just a proxy between the consumer and the leasing company. Banks and leasing companies work through dealerships to represent their financing since they will find new customers here.
This is what happens, you and the dealer enter into a contract where you buy the vehicle and agree to pay the amount financed along with the finance charge over a period of time. The dealer might retain the contract but typically, it is sold to a bank, credit union or the finance company which is also called the ‘assignee’. They are responsible for serving the account and collecting your payment.
People usually choose dealership financing for the following reasons:
- It is convenient: Dealerships offer vehicle and financing options in one place and they even have extended hours. They are open on the weekends too.
- Multiple financing options: Dealerships have relationships with financing companies and a variety of banks to offer you a wide range of financing choices.
- Special programs: Often, dealers are offering manufacturer sponsored low-rate incentive programs to buyers. Although these programs are limited to certain vehicles or they have special requirements like large down payment or short contract length but they are still worth it. However, you need strong credit rating for eligibility.
To offer an incentive to the dealers for representing the leasing products to customers, the leasing companies pay a percentage of the total funding to the dealers in the form of commission. This commission ranges from 1 to 6 percent of the sale price of the car. This is rolled into the lease payment and yes the customer pays for it.
