Why won't car dealers accept third party finance?

MrFrugalFever

I work for a main dealer and work with companies like CarFinance247, we accept the business from them and their clients like any other buyer, however, the administration of it can vary from fairly straightforward to a complete faff. depending on your credit score the finance company (if using a broker like CF247) could actually end up being a personal loan agreement under the guise of a PCP or HO agreement, but that only tends to be in the case of ‘excellent’ ratings. With that in mind, it ends up being unsecured rather than secured.

The finance lenders used by dealers are often very large and well known lenders with competitive rates across the board and are often secured against the car as they are in effect paying for the car for you.

FCA regulations changed in January this year to include further transparency on the matter as many people have a misconception that dealers are ‘raking in’ the money by signing people up to finance deals.

just to put things in to perspective and it varies depending on which company you work for, but a new car finance package will pay me £25 (pre-tax), so it’s a numbers game and to be honest, as far as I’m concerned, customers will get the same deal whether it be ‘cash’, finance or other. Cash is very rarely cash but rather a personal loan and if people where totally honest with themselves they’ve chosen a riskier personal unsecured loan against themselves versus a more secured loan against the car all due to interest rates and maybe a few £’s cheaper a month.

its like when people ask about credit card payments for purchasing the car completely on a CC, most if not all dealers will reject it because of the merchant fees involved, same for Debit Cards...although the rates are considerably less!

macman

It all depends what margin they are making on the car. A dealer can earn more from the finance commission than on the car trade itself. But, unless they are selling the car at a loss to get the finance deal, then it's unlikely that they'll simply not deal at all.
What they will of course do is use every possible sales tactic to get you to use their finance company, including refusing to offer the same price on the trade. Which is why you should never discuss finance until you have negotiated the price.

Batesy1976

MrFrugalFever said:

Cash is very rarely cash but rather a personal loan and if people where totally honest with themselves they’ve chosen a riskier personal unsecured loan against themselves versus a more secured loan against the car all due to interest rates and maybe a few £’s cheaper a month.

Uhm, how is an unsecured loan riskier than a secured one?  If an unsecured loan saves them a few quid a month AND they don't have the downside of the loan being secured on the vehicle, that's a win/win.

MrFrugalFever

Batesy1976 said:

MrFrugalFever said:

Cash is very rarely cash but rather a personal loan and if people where totally honest with themselves they’ve chosen a riskier personal unsecured loan against themselves versus a more secured loan against the car all due to interest rates and maybe a few £’s cheaper a month.

Uhm, how is an unsecured loan riskier than a secured one?  If an unsecured loan saves them a few quid a month AND they don't have the downside of the loan being secured on the vehicle, that's a win/win.

£15,000 loan against a depreciating asset...2 years down gets in to financial difficulty...either way the car may have to go to remove the monthly payments as a unwanted financial burden. Might not cover entire cost of personal loan, could be VT’d and handed back to finance company....also 3rds rule means court order needed to repossess...both are risky, but personally I’d rather have the option of just handing it back and walking away not trying to find a significant shortfall in an already bad situation.

each to their own I guess.

FindMyWayBack

CSL0183 said:

FindMyWayBack said:

As the title says, obviously it means they don't get a cut, but is there another reason?
Also does anyone know of any big known dealers who do please?

Your statement is incorrect though on the whole. You have visited one dodgy scrupulous car dealer, I have visited perhaps 20 that do accept third party finance. I would say the norm would be with my experience and your experience is highly unusual. 

Car dealers DO accept third party finance. As long as the funds hit their business account then they simply do not care. 

Thank you for your reply, you seem quite annoyed I felt it coming through your post.
I have had dealings with several large dealerships and certainly not dodgy and unscrupulous ones. I wouldn't be that foolish.
I promise you that they have refused for a variety of reasons including that it would be against the code of practice, and that they simply do not do it.
I was very surprised by it.
If you do a Google search as I did, you will find articles about this by the various financial bodies.

FindMyWayBack

JamesPeter said:

CSL0183 said:

FindMyWayBack said:

As the title says, obviously it means they don't get a cut, but is there another reason?
Also does anyone know of any big known dealers who do please?

I’ve bought plenty of cars from plenty of dealers and not one has had an issue with 3rd party finance. Why would they? 

I’ve bought from Audi, BMW, Mercedes, Porsche, Aston Martin, Vauxhall, Citroen and Ford with third party finance. All dealerships will accept cash sales or 3rd party finance sales.

I’m actually perplexed at this post and you thinking that they won’t. You’re practically saying that unless you finance a car with their finance products you can’t buy them. You really think these companies would turn away millionaires and billionaires because they wanted to buy a car with cash?

With main manufacturer franchised dealerships I agree.

However, some smaller car dealers who operate only in the used car trade (I won't say Arthur Daley, but of that ilk) will either only accept cash/bank transfer or their own finance if it is secured on the vehicle. 

It is their perogative what they accept (bearing in mind something on sale is 'an invitation to treat') just like certain cheaper airlines don't accept Amex etc but the main carriers do.

They were not Arthur Dayley set ups, they were big dealers, franchised ones.

FindMyWayBack

Just to clear a few things up, as the fact I mentioned sub prime seems to have influenced the replies. I am not massively sub prime and in need of huge interest rate loans and Arthur Dayley set ups, I am just slightly removed from the basic. I don't trust these dealers to source the finance as they are not confident they can and many don't have access to soft searches. Their panels want to do several hard searches, so I went to a set up (not carfin 247) a highly rated alternative. I Secured a loan at very sensible rates, and was then told I could not use it at several  well known dealers. It really is that simple, no minders or Arthurs involved I promise you.

MrFrugalFever

FindMyWayBack said:

Just to clear a few things up, as the fact I mentioned sub prime seems to have influenced the replies. I am not massively sub prime and in need of huge interest rate loans and Arthur Dayley set ups, I am just slightly removed from the basic. I don't trust these dealers to source the finance as they are not confident they can and many don't have access to soft searches. Their panels want to do several hard searches, so I went to a set up (not carfin 247) a highly rated alternative. I Secured a loan at very sensible rates, and was then told I could not use it at several  well known dealers. It really is that simple, no minders or Arthurs involved I promise you.

I would be querying with the dealer why your finance lender is being rejected as their money is just as good as anyone else’s. In most instances All the finance company will require is a purchase invoice with relevant bank details so that they can make payment to the dealer. It’s really no big a deal and if you aren’t having any joy with a sales representative then I would go through to the dealer principle. They DON’T have to do business with you, that is their prerogative, however, they are getting a sale from you potentially.

DrEskimo

MrFrugalFever said:

Batesy1976 said:

MrFrugalFever said:

Cash is very rarely cash but rather a personal loan and if people where totally honest with themselves they’ve chosen a riskier personal unsecured loan against themselves versus a more secured loan against the car all due to interest rates and maybe a few £’s cheaper a month.

Uhm, how is an unsecured loan riskier than a secured one?  If an unsecured loan saves them a few quid a month AND they don't have the downside of the loan being secured on the vehicle, that's a win/win.

£15,000 loan against a depreciating asset...2 years down gets in to financial difficulty...either way the car may have to go to remove the monthly payments as a unwanted financial burden. Might not cover entire cost of personal loan, could be VT’d and handed back to finance company....also 3rds rule means court order needed to repossess...both are risky, but personally I’d rather have the option of just handing it back and walking away not trying to find a significant shortfall in an already bad situation.

each to their own I guess.

Depends how much extra it's costing you.

If a typical HP finance offer is 9.9% APR, compared to a 3% APR on a personal loan, over a 4-yr term that would be the difference of £3,000 in interest charges from the dealer, relative to just £900 from the personal loan. 

If after 2-yrs the shortfall between the finance owing and the value of the car is <£2,000 (highly likely, as that would mean the car would need to depreciate by more than 65% in just 2yrs!) then paying extra to VT would have been a complete false economy....

My general rule of thumb is never finance more than 50% of the cars value, if you are intent on using finance at all. Then you never have to worry about the cars value being less than the finance owing.

Batesy1976

MrFrugalFever said:

Batesy1976 said:

MrFrugalFever said:

Cash is very rarely cash but rather a personal loan and if people where totally honest with themselves they’ve chosen a riskier personal unsecured loan against themselves versus a more secured loan against the car all due to interest rates and maybe a few £’s cheaper a month.

Uhm, how is an unsecured loan riskier than a secured one?  If an unsecured loan saves them a few quid a month AND they don't have the downside of the loan being secured on the vehicle, that's a win/win.

£15,000 loan against a depreciating asset...2 years down gets in to financial difficulty...either way the car may have to go to remove the monthly payments as a unwanted financial burden. Might not cover entire cost of personal loan, could be VT’d and handed back to finance company....also 3rds rule means court order needed to repossess...both are risky, but personally I’d rather have the option of just handing it back and walking away not trying to find a significant shortfall in an already bad situation.

each to their own I guess.

You're comparing apples and oranges, or in this case two entirely different products that operate entirely differently.

There is no reason that I can see that you'd want an unsecured loan over a secured one if it is just a loan (all other things being equal.)