Captive Finance Companies: Getting Low Car Loan Rates

If you used the financing provided by the dealership when you purchased your last new car, you may have used one of the captive finance companies and didn't even know it. Captive finance companies are simply a subsidiary of the actual car manufacturer themselves. For example, General Motors owns the General Motors Acceptance Corporation (GMAC). Chrysler Financial is a subsidiary of Daimler Chrysler, and the Ford Motor Company is the parent company of the Ford Motor Credit Company (FMCC). Captive finance companies exist for one reason; to make the car manufacturer more money. They do this by charging interest on loans for cars. The interest received on the loans helps both the finance company and the parent company improve their bottom lines.

When to Use Captive Finance Companies
If you have good or excellent credit, captive finance companies will always offer you very attractive rates. In fact, with the financial crisis that most car manufacturers are experiencing, captive finance companies are more aggressive than ever in offering low rates to customers with excellent credit. While some have captive finance companies have tightened their belts, when it comes to making car loans, they are more than happy to offer great rates and deals to customers with excellent credit.

In order to make a deal with the captive finance company, you must go through the dealership. Therefore, be prepared to do battle. Dealerships earn money from the interest rates that are charged. The higher interest rate they can charge, the more money the dealership makes. However, there are ways to get around this. The easiest way is to already have your financing arranged when you go into the dealership. This may sound strange; however, it really does work.

Before you go to any car dealership, try to have financing pre-arranged. Visit your local bank, credit union or favorite online lending site and apply for the loan. Once you're approved, make sure that the interest rate is very competitive. Once you do this, take the approval and head straight to the car dealership. By arriving with pre-arranged financing or a check in hand, you will literally force the car dealership to compete for your auto loan business. While the dealer may not be able to pad the interest rate that the captive finance company offers, the dealership will still try to get your loan business for their car company.

Force Their Hand
Once the dealership is aware you have pre-arranged financing, they will probably ask you to sit down and give them a chance to help you. Remember the dealership has direct contact to the loan underwriters at the captive finance company. The dealership can inform the captive finance company that a customer already has pre-arranged financing, and if they want to earn the customer's auto loan business, then they need to make a very good offer. You'll be surprised at how effective this can be.

Also remember just because you have pre-arranged financing does not mean you have to use it. You are never obligated to accept a loan until all of the documents have been signed. Therefore, if the dealership offers you a better finance deal – take it. Afterwards, simply send the check back to the lender, and tell them thanks - but no thanks.