Why do people finance cars at dealerships instead of credit unions?
This is a form of indirect loan. It is a loan that originates from the dealer/retailer. The dealer collects all the information required from the borrower/buyer and sells it to the bank for financing. The bank issues the loan at a buy rate. The dealer then gives the buyer/borrower the same financing but at a higher rate to cover for the fees of facilitation.
Answer and Explanation:
Most people do not have time to pursue direct loan from the credit unions. The credit unions require a lot of documentation that may consume a lot of time therefore they prefer to use the dealership for convenience. The dealership rates for the facility is higher than a direct loan from the credit union since they have to cover their costs.
The dealer is able to apply to multiple lenders as they have good business relationship and rapport.
In dealership the contract is between the buyer and the dealer, the dealer then sells the contract to the credit union which receives the payments from the buyer.
Become a member and unlock all Study Answers
Try it risk-free for 30 daysTry it risk-free
Ask a question
Our experts can answer your tough homework and study questions.Ask a question Ask a question
Learn more about this topic:
from Corporate Finance: Help & ReviewChapter 8 / Lesson 7